BoQ Chief Says Retail Deposit Market Dysfunctional
David Liddy, chief executive of regional lender Bank of Queensland says the market for retail deposits has become dysfunctional, and wants the government to help restore competition between smaller regional lenders and the major banks.
“We have proved to ourselves that we could turn the deposit switch on pretty rapidly through our branch network last year and we did that, but we weren’t prepared this year to compete in what I think is unsustainable competitive markets. Can we go back into that market? Yes, but you would need to remain competitive, and at the moment I think it is quite dysfunctional.” he said.
Mr. Liddy added that as a result of the government’s necessary response to the financial crisis a banking oligopoly had formed.
“The demise of two of the major regional banks and several significant non-bank lenders, and the funding pricing disadvantage placed on smaller industry players, has and will continue to place more power in the hands of four major banks,” Mr Liddy said.
“I continue to urge our government to look for solutions and regulatory measures that not only maintain and improve our world standing in financial services but provide real options in restoring a competitive banking landscape in our country.”
BoQ said its normalised cash net profit — its preferred measure of profitability, which strips out volatile items — had climbed 15 per cent in the six months to the end of February to $97.2m amid cost savings and higher net interest income.
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QBE Makes American Acquisition
Australian insurance major QBE Insurance Group is set to acquire US crop insurance company NAU Country Insurance in a deal valuing the insurer at $604 million. The cost of the acquisition has been labelled cheap by market analysts.
The purchase price amounts to seven times NAU’s estimated 2010 after-tax profit, according to QBE. It is also 2.6 times NAU’s net tangible assets of $US217m.
According to QBE’s senior management, he purchase price relative to the targets book value reflected the fact that the majority of this year’s profits will be delivered in the latter half of the calendar year.
Chief executive Frank O’Halloran said: “The acquisition is in line with QBE’s long-term strategy of acquiring specialist businesses to further enhance our significant product diversification and distribution.”
QBE last month said it was looking at a number of acquisition targets in both Australia and various other parts of the world.
In February, QBE said it had $2.5 billion of capital in excess of its requirements.
QBE is one of the 25 largest insurers and re-insurers in the world, and operates in nearly 50 countries. The company has consistently delivered results above market expectations ad has been lauded for adding value through the application of strict investment criteria to over 75 acquisitions over the last decade.
However, the company has struggled recently as lower global interest rates have hurt investment returns and 2009 results fell short of market expectations.
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Successful NAB Axa Bid Will Hurt Competition According To Report
A new report suggests that should National Australia Bank be successful in its bid to acquire Axa Asia Pacific Holdings (APH), it may result in rival bidder AMP remaining competitive force in the Australian wealth management segment.
The report, which was commissioned by AMP, and was undertaken by research firm Frontier Economics, found that NAB’s successful acquisition of APH would have significant negative market effects on AMP.
The Australian Competition & Consumer Commission (ACCC) is expected to announce its decision on the NAB bid this Thursday, but many believe the regulator will deliver its verdict even earlier.
The Frontier Economics report suggests that should NAB ultimately be successful in its bid to acquire APH, Australia’s fourth largest bank would come to completely dominate the wealth management sector.
Te report goes on to claim that the wealth management industry would come to be so concentrated around NAB, following the lenders acquisitions of MLC, Aviva Australia and JBWere, that AMP’s growth prospects might end up being stunted.
“A NAB acquisition would harm competition compared with an acquisition by AMP because it would lessen competition in the activity of wealth management. It would lessen the likelihood that AMP would remain a strong competitor because a NAB acquisition would decrease the likelihood that AMP would invest heavily in developing a leading-edge wrap platform to invest in funds. If AMP can acquire APH it will acquire the base from which it will be profitable for such investments to be made.” the report said.
The report added that consumers would suffer from less choice should the NAB bid be successful.
“A NAB acquisition of APH would mean that APH would become part of an organisation that was reluctant to engage in aggressive behaviour to any of its big four competitors. They all operate in a large number of banking and wealth management markets and if they behave aggressively in one they will invite retaliation in one of the markets in which they are less strong.”
NAB is apparently confident that the regulator will approve its bid but many believe that the competition regulator will extract its pound of flesh and force some concessions.
Federal Treasurer Wayne Swan must also give his blessings, and some suggest that he may be hesitant in doing so, due to sensitivity over the banking sector during an election year.
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Nine Credit Card Pitfalls
No matter how responsible you are when it comes to credit cards, they still come with a number of pitfalls. As soon as you navigate your way past one, yet another emerges. Here are 9 credit card pitfalls.
1. The Debt That Never Ends
The minimum payment on many credit cards barely meet the interest being incurred on your debt, which means if you only ever make the minimum, you’re debt will never reduce and seem to be endless. Occasionally a card will be offered with such a low minimum monthly payment, that your debt ends up actually growing.
So if you want to ensure that your debt ends up being a thing of the past, then make sure you make payments well in excess of your minimum monthly payment.
2. Negative Payment Hierarchy
Perhaps the single most important thing when it comes to understanding your credit card debt, is the concept of negative payment hierarchy.
Simply put, when you make a payment towards your debt, the money is used to pay of the debt which is attracting the least interest, whilst the debt that incurs the most interest is left unpaid.
So for example if you have part of a balance on a zero per cent transfer deal, and the rest attracting interest at 18 per cent APR, and you make a $500 payment, thinking you will reduce your debt, well that money goes towards your zero per cent deal, whilst the balance that costs 17 per cent continues to remain unchanged and attracting interest until the full debt is paid off.
The easiest way to avoid this pitfall is to have one card for your balance transfer and a separate card which you use for purchases. That way you can isolate which debt is paid off whenever you make a payment.
3. The Hidden Cost Of Balance Transfers
Balance transfer deals are unquestionably a good way of reducing your overall cost of debt. But they do have hidden costs, for example through NPH a 3 per cent fee for a zero per cent balance transfer might on the face of it seem very reasonable, but might actually mean an APR of 4 to 11 per cent.
If you want to ensure you have a low APR, you should look for longer deals with lower fees. Save your money in an account that pays reasonable interest, and pay the entire balance off at the end of the offer.
4. Balance Transfer Fees Can Cost Interest
When you transfer a balance onto a zero per cent card, the fee is usually added to the balance, but some lenders may class the fee as being a purchase and charge you interest on the fee and because of NPH, the fee will continue to incur interest until the whole balance is cleared.
So make sure you read the fine print, understand the terms of the deal, and kick up a fuss if something like this happens when it shouldn’t.
5. Typical APRs Not Obtainable
Typical APR’s quoted by lenders are only ever offered to customers with the best credit score, and for most people lenders offer APR’s which can often be much higher than the typical APR quoted.
Some lenders may even reject the application outright, and pass the details on to a less than savory lender who will make the loan.
If you have been rejected, then do not take out a product offered by a third party, and make sure you check your credit report for any errors.
6. High Increasing Standard Rates
Even if you manage to obtain the typical APR, they are exorbitant at the best of times, and can average as much as 10 per cent above the cheapest personal loans, and lenders can hike interest rates at will. So always keep your options open, and if you can, balance transfer the debt and take advantage of low interest rates.
7. Calculating APR
Lenders can calculate their interest in different ways, and some estimate that there are as many as 12 different methods, which means APR’s can have very little meaning.
The best way to avoid this is the age old zero per cent balance transfer, but you should also seek to avoid cards which have lots of fees and charges.
8. ‘Cheap’ Monthly Interest
Cheap monthly interest rates are disingenuous. In fact I would go as far as to say they are outright fraudulent. A monthly interest rate of 1.5 per cent might seem like a good deal, but in actual fact it adds up to 19.6 per cent APR, which is far higher than the average rate. So make sure you are not taken in by cheap monthly rates.
9. Credit Limit ‘Rewards’
Some lenders may say they are rewarding you by increasing your credit limit. You should be careful not to see your new limit as a target for spending, and add to your debt burden for no reason.
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Nine More Credit Card Pitfalls
In the first part of this series we looked at nine credit card pitfalls. As we said previously, even for the most responsible users credit cards represent a minefield so here are nine more pitfalls you should be aware of.
1. Over-Priced Protection
Insurance offers that credit cards tend to present are horribly over-priced. You should avoid signing up to these and instead look on the internet for a better deal.
Stand alone insurers offer policies at sometimes even 1/10th the price a credit card charges, and this is true for moth types of fraud or theft insurance that you would normally obtain from your credit card lender.
The law also offers fairly good protection against fraud or theft limiting your exposure fairly heavily.
2. Insurance You Did Not Buy
Some lenders have few misgivings about charging you for insurance you did not actually buy, or even went as far as declining to buy.
If you find this happens to be the case, you should take your application form to your lender and show them as evidence when you lodge a complaint.
3. Small Mistakes Lead To Bigger Mistakes
Missing even one payment deadline is enough to incur a charge. If the late payment was really just an oversight on your part, you should call your lender and appeal the charge. If the appeal fails, you can always switch lenders, but the best way to avoid the problem is establish a direct debit.
4. Don’t Use Your Credit Cards For Withdrawals
Cash withdrawals using your credit card or cash advance attracts hefty fees and is not a cheap way to access or borrow money.
Using your credit card for a withdrawal incurs a fee of 2.5 per cent of the amount withdrawn, and the cash advance itself can have APR’s as high as 25 per cent with no interest fee period.
Do not use your credit card for withdrawing cash.
5. Credit Cards Are Not Cheques
Credit card account cheques are just an expensive method of obtaining cash as credit card withdrawals, with similar upfront fees and APR’s and again no interest free period, so again avoid using them at all costs.
6. The Price Of Rewards
Credit card lenders love to offer rewards to their borrowers, because from their perspective they are a good way to attract new customers and encourage existing customers to spend using their card, which means it is profitable to run a rewards program.
If you sit down and add up the value of the rewards you are receiving, compared to the interest you actually pay, you will more often than not find they do not offer very much value relative to their cost.
7. Admin Fees
Some credit card lenders have the wherewithal to charge you administrative fees for moving home and changing your mailing address with them. If you find this is the case, there may be very little you can do, but you should express your displeasure and kick up a stink. The lender may decide to forgo the fee.
8. Penalties For Being Debt Free
Some lender will charge you a monthly fee for not using your card or incurring debt. Some even charge customers for carrying a positive balance, so you really should watch out for this, its terribly unfair.
You should use your card when buying things on the internet or when making big purchases. They give far more protection than a debit card alone. Just remember to make sure your whole bill is paid.
9. Playing For Time
Credit card lenders are not always consistent with when they send you your statement, sometimes moving it closer to your payment deadline, leaving you less time to make your payment.
The best way to avoid this is to have a direct debit set up, and even better, if you can pay your bill off in full every month, most of the problems can be avoided.
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Four Current Account Mistakes
Many of us who use current accounts for our primary bank account make a number of common mistakes, thinking that it is nothing more than a place to stash one’s cash. Used in the correct manner, the humble current account can be so much more than that. Used in the wrong way it can prove very costly, resulting in having to hand over lots of cash to your bank for no reason.
Here are four current account mistakes to avoid.
1) Do Not Be Ruled By Overdraft
Your overdraft should not merely considered as spending money. If you do run an overdraft, you should make every effort to pay it off.
If you do however have a need to run an overdraft, then you should make sure you prearranged one with your lender, with a set limit that you know you can stick to. For example if you know you are going to spend more than $500 a month on your overdraft, there is no point in agreeing a $500 overdraft with your bank, not unless you prefer being hit with higher interest charges and fees.
Similarly, make sure you’re getting a competitive deal on your overdraft – preferably by finding an account that doesn’t charge any interest at all.
2) Don’t Ignore The Interest Rate
Some people believe that the interest on their current account is not relevant, but why receive no interest on your deposits, when there are some banks out there willing to pay you interest on what you do hold in your account.
These days Australian lenders are fighting an increasingly competitive war for depositors as they seek more stable sources of funding, so it’s worth checking out which current account deals are on offer.
3) Don’t Pay For Extras You Don’t Need
A lot of current accounts come with extra perks, such as airport lounge access, travel and mobile phone insurance.
What most people fail to understand is that these perks come at a cost, that can be as much as $300 a year. Before you commit to these perks, which often sound quite tempting, you should find out how much having access to them will cost you, and whether that cost is actually worth it.
For example you may want to find out whether the insurance you receive with your current account covers your needs, or whether you can save money simply by applying for insurance when you need it.
4) Not Using Direct Debit Facilities
One of the biggest advantages of a current account, is the ability to set up direct debits that pay your bills off on time.
Direct debits not only help you remember to pay your bills, but can save you a ton of money. For example setting one up to pay your monthly credit card bill means you never miss a month’s payment. Failing to pay a monthly credit card bill is a very common mistake and usually results in being charged additional fees, and in the worst cases, even have you card cancelled.
Paying utility bills such as electricity through direct debit can in some cases also result in your provider doling out discounts.
Direct debits are also a great way of saving money, in effect transferring money you want to save every month from your current account to your savings account.
So make sure you take advantage of the facility.
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Trade Union Criticizes CBA
An Australian trade union says that Australia’s largest mortgage lender, Commonwealth Bank of Australia (CBA) has failed to meet good faith bargaining agreements, and that the lender has engaged unfairly in trying to undermine collective bargaining.
Greg Smith, commissioner for trade union FAIR Work Australia offered harsh criticism of the lender, and said it took different positions on wage negotiations, depending on the employee.
Mr. Smith claims that non union staff were given salary hikes, whilst union employees involved in collective bargaining were required to overcome hurdles.
Leon Carter, national secretary for the financial sector union said that union members were forced to contend with months of frustration at the negotiating table
“The CBA has indulged in an elaborate pantomime about bargaining a new collective agreement for their 37,000 employees, this decision has revealed the ruse.” Mr. Carter said.
A bank spokesman, said that the union represented only 12,000 employees and rejected the union claims, insisting its staff were the bank’s priority.
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ANZ Expands Hong Kong Currency Trading Operation
Australian banking major ANZ says it intends to add as many as 80 new hires to its Hong Kong based currency trading operation, as it seeks to extend its presence further into Asia.
“Three years ago our dealing room had less than 10 people, today we have 120 and probably we’re on the way to 200.” said Gilles Plante, ANZ deputy chief executive for the Asia-Pacific, Europe and America.
ANZ has the largest presence in Asia of any Australian lender, and has embarked on a strategy that will seek to derive as much as 20 per cent of its income from the region.
Last year ANZ acquired several businesses across key Asia Pacific countries from troubled UK lender RBS. Last week the lender won in principle regulatory approval from the Chines government to open a wholly owned domestic Chinese subsidiary, and says it plans to have 20 branches in China by 2012.
The number of people ANZ employs in the region has leapt by nearly 45 per cent to 8,000 over the last couple of years, and since the end of 2008, ANZ has made 214 hires in China.
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Three Ways To Save A Bit Of Cash In A Low Interest Rate Environment
With governments globally raising income tax rates in their response to fiscal deficits run up during their attempt to deal with the financial crisis, it is becoming increasingly difficult to save.
In Australia, fortunately the government so far has yet to raise tax rates, the top marginal tax rate is the same as it was last year however it is still at a hefty 45 per cent.
Australia is indeed one of the few countries that has not aggressively raised taxes, whilst at the same time has also begun tightening monetary policy, so interest rates are no longer at near half century lows.
If however you find yourself living in a place where like the UK for example, the top marginal tax rate has been raised to 50 per cent, whilst the bank rates are less than half a per cent, then clearly difficulties in obtaining returns on one’s savings does become a problem.
Those seeking returns are therefore being extremely inventive in sourcing methods to beat their savings problems, using offset mortgages, cash back credit cards, paying private school fee upfront.
Here is how it works
CASHBACK
Low bank interest rates are not the main problem in Australia, with the official cash rate at 4.25 per cent, and many lenders offering term deposit rates well in excess of that level. But for those who want easy access to their cash, and want to find a way of making some savings at the same time, then a cash back card is a good idea.
Many lenders seem to offer better rates for spending money using their credit cards, in some countries it is more profitable to spend on a credit card than using your savings.
The card issuer typically offers a cash back rate of something like 1 per cent, when you spend money using your credit cards with participating retailers.
The big advantage is cash back spending is tax free, so if you live in a place where the bank rates are puny, and a 1% cash back rate is competitive relative to the interest on your savings, then it makes sense to use the card to spend, not only do you earn cash back, but that is not taxable, unlike the cash sitting in your savings account.
OFFSET MORTGAGES
For those income earners who find themselves in the top tax bracket, holding a mortgage and a savings account, now would be a good time to enquire about the possibility of switching your mortgage over to an offset deal.
Offset mortgages work by simply offsetting the borrowers savings against their mortgage debt, with interest accruing on the remaining balance.
This means that the mortgage debt is paid off far earlier than otherwise would be, with the interest only accruing on the remaining balance, which is far less than the tax payable on the same amount.
The best thing about offset mortgages is the fact that cash balances can be accessed whenever you have the need to dip into them.
Ann offset mortgage allows the borrower to earn tax free interest on their savings at the same level as the mortgage, and is very useful for top rate taxpayers, who have a decent amount of savings.
PAY SCHOOL FEES UPFRONT
If you are sending your children to private school, then one way to save cash and reduce tax is pay the fees upfront. What the school will tend to do is place the money in a separate account, which is supposed to protect you from any closure or bankruptcy.
The school places the money in a deposit and returns the interest earned from the deposit in the form of discounts. Most schools have charitable status, so their interest income is tax free, which has the effect of the discounts often being far better than the interest received were the money held in a taxable savings account.
Bursars report increased interest in paying fees in advance, thereby netting a higher effective return than on cash deposits. Your money tends to be kept separate from a school’s financial affairs, so it should be protected if it closes or gets into difficulties.
When you pay upfront, the school puts the money on deposit and passes back the interest earned in the form of discounts. Schools earn interest tax-free thanks to their charitable status, which means the discount is often far better than the interest you would receive on a taxed savings account.
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Money For Nothing – The Chicks Aint Free
If you were to approach the manager of your local branch and ask him or her how to get free credit, the chances are not very high that they will fork over the information so easily.
Of course it is completely possible to borrow money interest free, and we will explain three methods of doing so.
In life when someone offers you something for free, that is usually the signal to start paying attention and find where the catch is. So whilst we seek to let you know how to borrow money for nothing, you should also be aware of the pitfalls associated with each method.
If you do not mind your finances properly, these methods of borrowing can lead you deeper into debt. So do be careful.
If you’ve been hunting through the personal loans section at your bank, you won’t have found these options. In fact, providers don’t label them as ‘loans’ at all!
1.) An interest-free overdraft
A lot of current accounts these days come attaches with 0% interest overdraft facilities attached to the account. The amount one can borrow varies from account type to lender, but can be as much as $5000.
The major drawback with this is that 0% is usually an introductory offer aimed at attracting new customers, and usually not applicable after the first twelve months. After a year lenders will usually charge some kind of usage fee.
Obviously your overdraft limit will be determined by your credit rating, and the length of time you can borrow money is dependent on the account.
Overdrafts are not a long term way of borrowing money, and after the introductory period expires, usually they attract substantial interest rates on the amount you are overdrawn.
What to watch out for: It’s extremely important you never exceed the 0% overdraft limit. If you fail to obey the limit you will be pushed into an ‘unauthorised’ overdraft – on which you’ll be charged horrendous rates of interest (typically 20-30% APR).
2.) A 0% on purchases credit card
The second method of obtaining free credit is to apply for a credit card which has an introductory 0% offer for all new purchases.
Obviously the lender will indicate what your credit limit is, even before you apply for the card, and will depend on your financial circumstances.
The interest free period depends on the credit card, usually the longest period you can borrow interest free on a credit card is a year, so clearly this type of borrowing is also not long term.
When the 0% deal ends, a very high level of interest on your remaining balance will be charged (typically 15-20+% APR) – so it is extremely important that you clear your balance before this happens.
If for whatever reason a balance remains, then you should seek out 0% balance transfer deals, and transfer whatever debt remains to the new card.
Transferring an outstanding balance tro a new card is not as easy as it used to be. In the post financial crisis world, lenders have tightened their standards, and it is not always guaranteed you will be given a deal.
You also need to make the minimum repayment every month. If you make it late or default on a payment, you may well be fined, and your 0% deal is likely to be taken away from you.
3) A 0% on balance transfers credit card
The balance transfer to a 0% card is the most common advice given to people who want to reduce their interest payments or borrow money for nothing.
God we have given it here many many times already.
The basic premise is if you have borrowed money already using a credit card, you can turn the debt into an interest free loan by shifting it to cards which offer 0% interest on balance transfer.
The amount you can shift will largely depend on your card issuer, credit rating and salary, and you will be given a limit before the card is issued.
Some balance transfer deals can last as long as 15 months, but as soon as the introductory offer ends, you will be paying very normal credit card APR’s.
The vast majority of balance transfer credit cards charge transfer fees (typically 2-3% of the total debt) to move your money onto them.
If you don’t manage to clear your debt during the 0% period, you’ll be saddled with big interest charges.