AXA Asia Pacific Holdings Returns To Profitability
AXA Asia Pacific Holdings (APH), the subject of a takeover battle, returned to profitability in 2009 as investment earnings rebounded, driven by a recovery in the financial markets.
On Wednesday APH reported a $679.2 million net profit for 2009, after delivering a loss of $278.7 million in the previous year. 2009 profits were helped by the sale of its 50 per cent stake in an Indian joint venture.
“This is a strong result against the background of the difficult market conditions since the global financial crisis,” chief executive officer Andrew Penn said in a statement.
Last month APH gave guidance, forecasting a $675 million net profit. The company also forecast $550 million in total group operating earnings.
In the last six months of 2009, there was strong evidence of a turnaround, as operating earnings increased by 17 per cent compared with the first half.
“This was attributable to the very strong sales growth in the second half in conjunction with the early steps we took in response to the global financial crisis to reduce costs,” Mr. Penn said.
AXA APH will pay a final dividend of 9.25 cents a share, the same as last year.
APH is currently the subject of two takeover bids, with the NAB’s bid more attractive than an initial bid tabled by Australian wealth manager AMP.
NAB values APH at $14.2 billion, and under the terms of its proposal would acquire the entire company, including the 53.9 per cent stake held by French insurer AXA SA, whilst simultaneously selling the Asian business to AXA, and keeping the Australian and New Zealand business for itself.
AMP’s exclusivity arrangement with AXA SA recently ceased to be effective, opening the door for NAB to begin discussions with the French insurer over its proposed takeover.
“Notwithstanding the possible acquisition of AXA APH, management is firmly focused on continuing to drive the business forward and concentrating on maximising shareholder value. We have navigated our way through the global financial crisis successfully, and 2010 is about accelerating our growth.” Mr. Penn said.
Compare Australian Car Loan Deals
Reserve Bank Of Australia Cautious On Further Interest Rate Hikes
Weak consumer spending and the fragile global economic recovery may have produced an air of caution at the Reserve Bank of Australia (RBA), which may hold back on pace at which it is hiking interest rates, after recent business survey results suggest the recovery in Australia may be faltering.
On Tuesday, the RBA said it was waiting for stronger evidence of the impact of its most recent interest rate tightening cycle before it begins increasing interest rates further.
According to the minutes of the RBA board meeting, held on February 2nd, the central bank expressed concern that consumer spending had waned during the run up to Christmas, and that three consecutive interest rate hikes plus the effect of the government stimulus package drawing to a close had taken much of the froth out of the property market.
Despite the decision by the central bank to hold official interest rates at 3.75 per cent being finely balanced, the RBA is still of the belief that it will need to continue raising interest rates during the rest of the year, with the decision to hold giving the central bank time to monitor overseas events, and the state of the Australian economy.
JPMorgan chief economist Stephen Walters said yesterday: “The main message is that the Reserve Bank is in no rush to hike again. Some of the main issues on which RBA officials want more clarity, including the offshore sovereign issues, will take some time to resolve.”
On Tuesday, NAB released the results of its business survey which was fairly downbeat, and suggested that Australian businesses were facing rapidly deteriorating business conditions and declining order books during January.
Compare Australian Debit Card Deals
Australian Business Confidence Improving
The latest results of a business and economic outlook survey conducted by National Australia Bank suggests that business confidence continued to bounce back to their strongest levels, despite economic conditions weakening somewhat during January as a result of weaker trading profits.
According to the results of the survey, business confidence appears to be stabilising at “surprisingly high” levels. Business confidence increased by 7 per cent, to reach an overall index level of 15 points.
Last month business confidence dipped by 11 points, and this month’s gain seems to have reversed that fall. The higher confidence level was most acutely felt in the manufacturing and business services sector, with the finance and recreational sectors also experience strong gains.
Despite the improvement in sentiment, business conditions continued to decline, falling seven points to an overall index reading of three points, reflecting a worsening in trading conditions, whilst the profits index fell 10 points to just two index points.
“In terms of business outcomes the survey is clearly signalling a relatively slower start to 2010 from the very high rates of growth in late 2009. It also appears that the slowing was unanticipated in that the falls were heavily concentrated in sales and profit levels.” NAB said in a statement.
The survey results suggest that credit demand and capital spending continued to remain weak, whilst labour market conditions remain unchanged.
Australian GDP forecasts also remain unchanged at three per cent for 2010, while unemployment is expected to fall to 4.75 per cent by the end of 2010 and to 4.15 per cent by the end of 2011, the survey showed.
Compare Australian Credit Card Deals
Westpac Profits Leap 33 Per Cent
Australian banking major Westpac saw its first quarter cash earnings leap by 33 per cent clearly underlining the robustness of Australia’s major lenders, as the economy continues to recover.
The Sydney based lender released its quarterly trading update showing unaudited cash profits which do not include volatile items, increased to about $1.6 billion for the three month period ending December 31st.
Westpac’s strong results were helped by strong momentum across all its business lines and a sharp reduction in credit impairment charges.
Profit in the same time frame a year earlier was $1.2 billion.
Westpac’s quarterly result is stark evidence that the bad debt problem Australian lenders faced for much of 2009 has probably peaked, and that future earnings for the majors is likely to be strong.
Gail Kelly, chief executive of Westpac says the strong result clearly shows that there is an improved business environment.
“Although we remain cautious on the economic outlook, we believe that the worst of the crisis is now behind us and this is reflected in the significant fall in impairment charges,” Mrs. Kelly said.
Westpac’s credit impairment charge was about half the level recorded in the same time frame during the previous year. The group expects lower impairment charges for the remainder of the financial year, although it cautioned that some “variability” is likely.
“Consumer asset quality remains strong although we expect a small increase in delinquencies throughout the year,” Mrs Kelly said.
Last week rival CBA reported a 54 per cent surge in first half cash profits, driven by strong loan growth and a reduction in credit impairment charges.
Despite the impressive performance, Westpac face considerable pressure on its net interest margin, with a higher cost of funding eating into profits. Westpac says its customer margins declined by 5 basis points during the previous quarter, and that its fee based income had also fallen after the lender reduced or cut exception fees for both business and consumer banking customers.
Compare Australian Bank Account Deals
Interest Rate Increases Cause Mortgage Delinquencies To Rise
Delinquent mortgage payments are set to increase during 2010, as borrowers struggle to deal with rising interest rates and high credit card bills run up during Christmas, according to global credit ratings agency Fitch.
30 day mortgage arrears rose across all borrower classes during the December quarter the ratings agency said in a report.
Low documentation mortgage arrears spiked by more than 50 per cent during the September quarter, as borrowers began feeling the effect of three consecutive interest rate hikes.
Low documentation loans constitute only a tiny fraction of the mortgage lending market, and as is to be expected, was the first section of the market to feel the effects of interest rate rises.
According to the ratings agency, the prospect of future interest rate rises, the potential for increased unemployment and continued global instability, were all likely to cause the delinquency rate to increase during 2010.
The ratings agency said that consumers racking up debt during the seasonal Christmas shopping period was also likely to add pressure to delinquency rates.
According to Fitch, borrowers who undertook mortgages before the onset of the global financial crisis may have an easier time meeting their loan obligations.
Those borrowers have already managed to survive a much higher interest rate cycle than is expected in 2010. Most of those borrowers paid an average standard variable rate of 9.6 per cent, when the official cash rate peaked at 7.25 per cent in March 2008.
Compare Australian Home Loan Deals
Australian Lending Remains Flat
The Australian Bureau of Statistics (ABS) on Monday, released seasonally adjusted figures showing total personal finance commitments rose 0.2 per cent during December.
The December data also suggests that total commercial finance was flat and stood at a seasonally adjusted $26.728 billion.
Leasing finance rose the most during December leaping 8.7 per cent to $409 million from $376 million in the previous month.
Whilst housing finance in December actually declined by 4,7 per cent to $15.526 billion.
Compare Australian Personal Loan Deals
AMP Criticised For Not Treating Investors Fairly
A newspaper report in the Australian has revealed that investors, who had placed money in the one Australia’s largest frozen funds, were being sold stock by the manager at highly inflated values, whilst the same manger was simultaneously dumping the same investments.
The Enhanced Yield Fund, run by wealth manager AMP, and holds $11.5 billion of retail investor assets, used a financial planning network to sell units at full prices to unknowing investors whilst that global financial crisis was ravaging valuations.
Despite collecting money from investors, AMP wholesale funds were simultaneously heavily selling its investments in the same underlying assets.
The Enhanced Yield Fund (EYF), is chartered to invest roughly half of its $1.1 billion under management in its sister fund, the AMP Structured High Yield Fund (SHYF)
SHYF makes loans to companies including Macquarie UK Broadcast and Thames Water.
In 2007, the value of many investments made by SHYF began declining, and in many cases slumped by as much as 40 to 50 per cent of their peak values. Despite the decline, EYF failed to alter its unit price to reflect the revised valuations, and continued to sell units to investors at the full price.
AMP, which in this case seems to have ignored its own industry representative body guidelines has come under intense criticism for not treating investors fairly.
In January 2007, EYF units were trading at $1.30. In December 2008, amid the financial crisis when the fund was frozen, units were valued at $1.44.
Compare Australian Health Insurance Deals
Competition Regulator Voices Concern Over NAB AXA Bid
The competition regulator says it is more concerned with the proposed takeover of AXA Asia Pacific Holdings by National Australia Bank, than it was by the original bid tabled by AMP.
The Australian Competition & Consumer Commission says it was highly concerned that the level of concentration in the retail investment sector would be damaging for regional banks
Analysts say that the statement from the regulator means that AMP could still be in the running to acquire APH, and that NAB’s acquisition attempt may not win the approval of the ACCC.
Despite voicing concerns over the NAB proposal, the regulator said a takeover of AMP by either bidder would most likely result in the further concentration of the financial planning and advice sector, which would result in less competition. The regulator said a takeover was unlikely to have much effect on the pension or life insurance markets.
The regulator is also considering how likely it is for AMP to remain an independent and effective competitor, and whether it could become a fifth pillar in the financial services industry if its bid is successful, or whether it itself will become the subject of a takeover attempt.
The ACCC said it would call for further information on competition issues related to both proposals by February 26 and hoped to make a final decision by March 17.
Compare Australian Term Deposit Deals
Trio Capital Funds Wound Up By Administrator
A group of managed investment and superannuation funds with $260 million in assets, once run by bankrupt investment company Trio Capital are to be closed down.
The six investment funds which include the Astarra Startegic Fund, a fund which invested $118 million in an opaque company registered in the British Virgin Islands, are being forced to wind themselves up following action by the administrator of Trio, PPB.
The administrator said it felt it had to wind up the funds after confirming the existence of investments made by the Astarra Strategic Fund and the ARP Growth Fund in companies based in the secretive tax haven. ARP held much of its $59 million of assets in the British Virgin Islands company.
The four other funds in the group were also being wound up because of exposure to the two main funds, which had invested in the British Virgin Island companies PPB administrator Neil Singleton said.
“There are a number of schemes with substantial assets which are unlikely to be realised in the short term and are therefore proposed to be wound up,” Mr Singleton said.
Last year stock market regulator the Australian Securities & Investments Commission (ASIC) removed Trio Capital, which has offices in the New South Wales border town of Albury as manager and trustee of $426 in funds.
The two men who controlled Trio Capital, a Canadian and an American, did a deal with the regulator under which they were required to surrender their passports.
The administrator PPD says it will hold a public examination of the two men in late March.
Mr. Singleton said Trio Capital raised the funds nationally, through a network of financial planners, and that the office in Albury was primarily used for back office tasks .
The administrator on Thursday rejected claims made by the Association of Independently Owned Financial Planners, that it had been successful in locating the missing money.
“Contrary to recent media reports, we, or any other party, have not been able to establish the existence or value of the foreign assets of ASF,” PPB said in a report to creditors.
The ASF is believed to have used a private investigator in Hong Kong to locate the missing money, which it says had been used to invest in five Hong Kong based hedge funds through a BVI company called EMA International.
Compare Australian Car Loan Deals
CBA Chief Says Banks Need To Balance Need To Make Money Along With Customer Needs
Ralph Norris, chief executive of Australia’s largest mortgage lender CBA, says that when a bank considers an increase in lending rates, it must first balance the requirement to make money along with customer needs.
“There’s nothing worse than a bank that can’t make money,” Mr. Norris said, after the lender announced a 54 per cent surge in first half cash profit to $2.94 billion.
CBA’s profits growth was fuelled by the lenders net interest margin, which has been raised to its highest level in three years.
“We’ve got to balance the needs of shareholders with those of our customers,” Mr Norris said.
The lender exceeded the official interest rate increase in December, raising its standard variable home loan rate by 37 basis points, after the central bank tightened interest rates by 25 basis points.
Mr. Norris claims that the additional increase in interest rates enacted by itself and rivals helped prevent the central bank from having to lift rates again in February.
Mr. Norris added that mortgage borrowers had faced lower rate increases relative to other types of borrowers, in particular businesses which have had to endure higher interest rate increase relative to the RBA rate hikes.
“Home owners have been advantaged there’s been an increase in the margins of the business book.”
Mr. Norris says he believes that interest rates were likely to continue increasing, because competition for funding was high, and keeping wholesale funding costs at levels seen prior to the onset of the financial crisis, whilst retail deposit competition amongst banks were pushing up deposit rates.
“Our forecast is for higher cost of funding,” he said.