AXA SA And AMP Sweeten AXA APH Bid
Australian wealth manager, AMP and its partner French insurance giant AXA SA have sweetened their joint acquisition bid for AXA Asia Pacific Holdings to $12.85 billion from an original bid of $11.7 billion.
Analysts expect that the revised bid should be enough to seal a deal, whilst APH’s independent directors who rejected the initial proposal said they would consider the new bid.
The joint bidders increased the cash component of their bid by 54 cents a share, increasing the overall acquisition price by 10 per cent. The bidders also intensified the pressure for the target to make a quick decision by setting a 7 day deadline for a deal and declaring the revised bid as final offer.
“The independent board committee will take the appropriate time to carefully consider the revised proposal and we will update our shareholders and the market when this assessment has been completed,” said AXa APH chairman Rick Allert in a statement.
A successful transaction would transform AMP into Australia’s largest asset manager and allow AXA SA to break free from the bondage of regulation as it seeks to expand its Asian presence.
Under the terms of AXA SA’s acquisition of AXA APH’s previous incarnation National Mutual Life, AXA APH agreed to the Australian government’s demand to use it as the vehicle for all future Asian expansion.
The current bid is the second time the French insurance giant has tried to acquire the Asia assets of its subsidiary. The first unsuccessful attempt was back in 2004, when APH rejected a $6.9 billion buyout.
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ANZ Distances Itself From Senior Executives Comments, And May Still Bid For AMP
Australian banking major has moved to distance itself from a comment passed by a senior executive with the lender, suggesting that ANZ is not interested in acquiring AMP. Markets are speculating that ANZ intends to launch its own takeover bid for Australian wealth manager AMP.
Last week Alex Thrusby, ANZ’s international chief executive said the lender was not examining a bid for AMP after meeting Taiwanese regulators following the lenders takeover of RBS’s Taiwan operations.
Asked if ANZ was interested in bidding for AMP, Mr Thursby reportedly said: “No. We are a bank.” He declined to comment further.
On Friday an ANZ spokesperson backtracked from the comment saying:”Despite Mr Thursby’s comments, we prefer not to comment on market speculation,” the spokesman said.
The spokesperson went on to say that following the acquisition of ANZ’s partner ING’s 51 per cent stake in their Australian wealth management joint venture for $1.76 billion, the lender intended to outline a strategy going forward for its wealth management business during the first half of 2010.
AMP has initiated an unsolicited joint takeover bid for AXA Asia Pacific Holdings (APH), with the company’s French parent AXA SA. The bid values APH at $11.7 billion and is structured so that AMP would acquire the entire company, sell its Asian businesses to AXA SA for $7 billion, leaving the Australian wealth management unit full owned by AMP for a cost of approximately $4 billion.
Independent board members of the target company however have rejected the bid, and have said that the bid significantly undervalues the company.
“The proposal has been received against the backdrop of recent weakness in global financial markets and before the growth of our Asian operations is fully reflected in our profitability,” chairman Rick Allert said last month.
Many analysts believe that ANZ is likely to emerge as a bidder for AMP itself, since it is underweight in the wealth management sector. However an acquisition of AMP would result in a lower stock price as a result of a highly diluted earnings per share from the combined group.
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BoQ Chief Demands ACCC Ensures Greater Competition In Banking
David Liddy, chief executive of regional lender Bank of Queensland (BoQ) has called for the Australian competition regulator to become more involved in ensuring greater competitiveness in the Australian banking sector, as the industry becomes increasingly consolidated between the major players.
Mr. Liddy made his comments during the lenders annual general meeting in Brisbane, and said that the consolidation that has resulted from Westpac’s merger with St George and CBA’s acquisition of Bankwest was not good for customers.
“The last 15 years where there was an increasing number of competitive banking players is now almost completely reversed. If the majors have waited 15 years to gain a monopoly, they’ll be willing to take on any short-term conditions. The ACCC should take a more proactive role in monitoring competitive behaviour.” Mr. Liddy said.
In an interview with the Australian, Mr Liddy said that whilst present conditions presented an opportunity for the lender to capture market share from the majors as a result of the interest rate controversy, BoQ has been held back by costs.
BoQ has higher funding costs that the major lenders, illustrated by this week’s $1.25 billion deal which cost the lender 200 basis points above the swap rate, 80 basis points in excess of what A Big Four bank would pay for similarly sized funding.
In order for BoQ to take advantage of the Sovereign Guarantee, BoQ must pay the government 150 basis points, whilst the Big Four who are higher rated are required to only pay 70 basis points.
“We want to be an alternative bank to the majors, but we are still on the back foot on costs.It’s still a real thorn in our side, it’s a restrictive force for us. But while there is the interest rate debate going on, we are still trying to make hay while the sun shines but it’s difficult to compete on price.” Mr. Liddy said.
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Australian Credit Card Fraud Rises
Credit card fraud and using other payment mechanisms in Australia increased by approximately 30 per cent for the year ending June, in large part due to the increase of fraudulent credit card use on the internet.
According the new data from The Australian Payments Clearing Association (APCA), cheque, credit and debit card fraud has increased from 7 cents for every $1000 worth of transactions to 9 cents for every thousand transactions, representing an increase of nearly 30 per cent.
The largest increase in fraud occurred in transactions where the credit card was not physically present which is over the internet. The amount of internet based credit card fraud rose from $65.5 million to $82.1 million during the year ending June.
Chris Hamilton chief executive of APCA says the rapid growth of the internet as a result of the National Broadband Network which will provide high speed internet access poses the greatest challenge.
“The National Broadband Network is going to lead to more of a problem unless we have this under control,” Mr Hamilton said.
Online credit card fraud is usually as a result of a person storing their credit card details on their computer in order to facilitate easier and quicker transactions on the web. The data was either then stolen by a hacker or the keystrokes of the user were recorded by a trojan or virus.
The payments industry has two main lines of defence against online credit card fraud. The first being lender tracking of customer spending habits, flagging any unusual payments, and internet only PIN’s.
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Switching Mortgage Lender Costs $1750
Mortgage borrowers seeking to switch their lender to National Australia Bank from Westpac to take advantage of NAB’s lower interest rates, would be hit with a $1750 fee that could take as long as three years to recoup from savings generated by switching to a mortgage with a lower payments.
According to a study commissioned by the Australian, larger borrowers with at least a $1 million mortgage would benefit far more from shifting lenders that the average mortgage holder.
NAB is aggressively marketing its home loan offering, hoping to build its mortgage lending portfolio and gain market share from Westpac, who raised its interest rates by nearly double the Reserve Bank of Australia rate increase.
Westpac currently charges the highest interest rates amongst the Big Four lenders, whilst NAB has the lowest. NAB, who raised its interest rate in line with the central bank is looking to capitalize on this fact and attract jilted Westpac customers.
According to the research a mortgage holder with a $300,000 home loan who flipped to NAB would save $50.88 a month on their monthly repayments. However the savings are largely mitigated by the fact that both lenders charge large exit fees on their mortgages.
For a borrower wishing to change lenders on a loan less than four years old, the borrower would be hit with a $900 exit fee by the current lender, a further $250 discharge fee, and then a $600 application fee for an NAB mortgage.
An average mortgage borrower with a $300,000 home loan would take 34.5 months to recoup the $1750 in fees payable based on a$50.88 per month savings rate.
Larger borrowers with a $1 million mortgage would save $169.91 a month and it would take just 10 months to recoup the fees.
“A lot of borrowers when they refinance can be sidetracked by focusing solely on the interest rate and be blinded to the fees which go with this type of transaction. Borrowers shouldn’t be afraid to push to have their fees waived or reduced.” an analyst was quoted a saying by the Australian.
John Salamito NAB consumer products general manager says the lender has reduced transaction and savings accounts fees already, and that home loan fees were currently being examined.
“We believe fees are something the industry should be looking at to ensure they are not an impediment to effective competition,” he said.
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NAB Embarks On Aggressive Mortgage Lending Strategy
NAB, who last week exactly matched the increase in official interest rates with one of its own, the only major lender to do so, says it will review its interest rate policy before the central bank meets next February, and refuses to rule out further interest rate increase that match the higher rate increases of its rivals.
At the same time, NAB outlined an ambitious strategy of capturing market share from its rivals, unveiling its NAB on Wheels platform, which will provide mobile bank branches that will be strategically located near branches of rival lenders.
On Wednesday NAB positioned staff members outside rival Westpac’s flagship branch in Sydney, attempting to lure Westpac’s customers with its standard variable mortgage rate of 6.49 per cent.
Warren Shaw, NAB’s retail banking group executive said the lender would undertake a review of its interest rate policy over the upcoming months, with some analysts speculating that it may enact changes.
“We have the capacity to deal with as many customers as want to do business with us, this is not just about home loans, it’s credit cards and all financial services. We are comfortable with the pricing point and will be comfortable with that well into the New Year.” Mr. Shaw said.
NAB’s standard variable rate mortgage rate is 12 basis points lower than Commonwealth Bank’s 6.61 per cent interest rate, 20 basis points below ANZ’s 6.69 per cent interest rate and 27 basis points below Westpac’s 6.76 per cent interest rate.
NAB also has an introductory offer for one to three year home loans, that carry interest rates below 6 per cent.
“For us, it’s about more give and less take. We are taking a different position and we think it’s the right thing to do.” Mr. Shaw said.
Mr. Shaw says NAB’s marketing campaign is not aimed exclusively at Westpac, and rather it is an effort to expand its mortgage book, a business area that has given up ground over the last half year.
CBA’s and Westpac’s near total dominance of mortgage lending in the last year has largely been at the expense of their Big Four Rivals ANZ and NAB, who instead focused on other lending portfolios rather than mortgage lending.
The dominance of Westpac and Commonwealth Bank of Australia in the mortgage lending market has come at the expense of ANZ and NAB, which chose to grow other lending portfolios ahead of their mortgage portfolio.
“We are not targeting Westpac we are targeting the customers of other banks in general. We are saying we have a good deal.” Mr. Shaw said.
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Prime Minister Adds Voice To Growing Criticism Over Westpac Rate Decision
Australian banking major Westpac is facing intense pressure from politicians as a result of its decision to increase its standard variable mortgage rate by nearly double the rate increase enacted by the Australian central bank.
Westpac executive are now quietly admitting that the lender has suffered a reputational hit as a result of the lenders interest rate hike.
Australian Prime Minister Kevin Rudd added his voice to the growing criticism on Wednesday, saying Westpac’s decision to raise its interest rates by 45 basis points was a bad move for its customers in the lead in to Christmas.
“I think Westpac should have a long hard look at itself, they are talking about people’s most basic things in life, a mortgage, an affordable mortgage, to underpin things as basic as a home.” Mr. Rudd said.
Mr. Rudd’s criticism comes after Treasurer Wayne Swan suggested last week, that lenders who increase their interest rates out of synch with hikes by the central bank encouraged community “distrust”.
Westpac is said to have been in close communication with the government over the last couple of weeks, and in particular with the both the Treasury, and Mr. Swan’s office, regarding the increased cost of funding the lender faces in the coming year.
Westpac’s chairman Ted Evans, who himself is a former head of the Treasury has been briefing the banks most important institutional investors over the last week as a result of rumours that have been circulating which suggest the rate hike was masking a deeper underlying problem at the bank.
Mr. Evans has been arguing the seriousness of funding pressures was not exclusive to Westpac and an issue that all major banks face, and that the market had failed to interpret its signal correctly.
Westpac’s public relations crisis intensified on Wednesday after it emerged that the lender had produced an animated training video that likened its funding cost pressure with the cost of banana smoothies after a cyclone.
Westpac issued a clarification saying that the video was for training purposes and used to educate staff on how to explain rising funding costs to irate customers, with the lenders former head of retail and business banking Peter Hanlon conceding that the 3.25 minute video was condescending towards the lenders mortgage customers.
Westpac refused to confirm whether chief executive Gail Kelly was aware of the video’s existence.
Mr. Hanlon, whose role has changed after the lender undertook a management shake-up, which some analysts suggest was a result of the maelstrom, said that Westpac was acutely aware that it would come in for criticism for its decision.
“We expected that customers would not be happy that their loan costs have increased. It would be wrong to say that everyone was happy with our explanation. We understand that the increase in pricing, be it on mortgages or any other product, it puts pressure on households and families, we think about that very carefully.” He said.
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Start To Christmas Shopping Season Satisfactory
Australian retailers are expecting a satisfactory rather than bumper Christmas shopping season, and expect total sales of up to $38.7 billion.
Nearly 75 per cent of Australian retailers say that the traditional start to the Christmas shopping season, which began last week, either met or was below expectations according to the Australian Retailers Association (ARA).
“After a year of patchy growth, retailers were optimistic of a fair, not great 2009 Christmas period,” ARA Executive Director Russell Zimmerman said in a statement on Tuesday.
Analysts have estimated retail sales growth of 4.7 per cent during the year.
Total sales during last year’s Christmas shopping season was $36.95 billion.
“Although last week’s trading did not rise above expectations for most retailers, 65 per cent said last week’s trading was similar to or better than this time last year. The fact that retailers are expecting better sales than last year but are not yet meeting their targets shows there is optimism, although a significant portion of retailers are still hampered by patchy trade.” Mr. Zimmerman said.
Bendigo And Suncorp To Combine Their ATM Networks
Bancassurance group Suncorp-Metway, and regional lender Bendigo and Adelaide Bank are set to combine their ATM networks, giving customers of both banks a wider choice of machines.
David Foster chief executive of Suncorp says the agreement more than doubles the ATM networks for both lenders.
The agreement, which is subject to regulatory approval, will mean that customers of either lender now have access to approximately 1600 ATM’s nationally without having to pay a direct charge fee.
“A more comprehensive network will make banking convenient for customers, while allowing them to avoid fees imposed by other banks for use of their machines,” Mr. Foster said.
Mr. Foster said the ATM networks of both lenders complimented one another with Suncorp’s network particularly strong in Sydney, Queensland and other major Australian cities, whilst Bendigo & Adelaide’s network is concentrated in Victoria and other regional centers.
The two lenders hope the integration of their ATM networks will be operational by March 2010.
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ANZ To Acquire AWB Loan Portfolio
Australian banking major ANZ is continuing to use the global financial crisis as a predatory opportunity for acquisitions, and has inked a deal to purchase a $2.4 billion loan book from AWB which will also expand its customer relationships through an exclusive referral agreement with the company.
AWB will incur a $62 million pre-tax loss from the transaction, but will benefit from a $155 million capital release from the deal, which it will use to provide support for its loan portfolio. The company will see its profits cut by between $5-10 million going forward.
Prior to the crisis AWB was in fairly good shape, earning decent returns from its loan portfolio, however due to its BBB-minus credit rating, its cost of funding negated any positive returns from its loan portfolio.
A higher rated lender such as ANZ provides a much more natural fit for the business.
Australia’s Big Four have used the financial crisis to opportunistically expand their business, with ANZ acquiring the Asian consumer and business banking portfolio of RBS for $687 million, whilst CBA acquired Bankwest from HBOS at a distressed price during the height of the crisis.
The Big Four have also been large beneficiaries of the Federal Government deposit and wholesale funding guarantee, which has meant that second tier and regional lenders such as AWB face higher funding costs.
ANZ is rumoured to be interested in the Australian assets of AXA Asia Pacific Holdings (APH), and is watching the progress of the joint bid between AMP and APH parent AXA SA carefully, with the view to tabling its own bid for APH’s Australian assets should the acquisition attempt ultimately fail.