NAB Exclusivity Arrangement With AXA Set To Expire
Australian banking major NAB, which is embroiled in an acquisition attempt of AXA Asia Pacific Holdings (APH) has said that negotiations taking place over the proposed asset divestment of APH’s Wealth.net platform were still continuing, despite the fact that the lenders exclusivity agreement with APH expires in a few hours.
NAB’s extended exclusivity agreement with AXA APH and its French parent AXA SA expires at 0001 AEST on Friday. After expiration of the exclusivity arrangement, both APH and AXA SA are then free to terminate the agreement and begin negotiations with other interested bidders.
Sydney based Australian wealth manager AMP is still considering whether it intends to submit an improved bid to APH’s board, after its initial bid which valued APH at $12.85 billion lapsed.
NAB, whose initial bid was rejected by the competition regulator on the grounds that competition would be stifled within the wealth management space was granted an extension to the original exclusivity arrangement on June 1st, to allow the lender more time to address the regulators concern and win its approval for the deal.
A spokesperson for Australia’s third largest bank told the APP that discussions with third parties over the possible sale of APH’s North and Wealth.net platforms were indeed “progressing”, but that he could not comment on what stage the negotiations were at.
NAB also remains in talks with the Australian Competition and Consumer Commission (ACCC), which on June 25 said there still was no new information that could be released.
The regulator hat still not published its public competition assessment, which is a report that provides insight into why it failed to give its approval for the proposed NAB acquisition. The regulator has not set any date for its disclosure.
The ACCC rejected NAB’s bid on the grounds the deal would substantially lessen competition for retail investment platforms for investors with complex investment needs.
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CBA Says Bank Funding Costs To Head Higher
New regulations and poor sentiment could well push borrowing costs for banks even higher in the next few months. However according to CBA treasurer Lyn Cobley, the outcome would depend on the results of European bank stress tests.
Ms. Cobley who acts as treasurer for the largest bank in Australia, as measured by market capitalisation holds views that are largely similar to wider sentiments felt by her peers and investors, many of whom also believe that wholesale borrowing costs are likely to head higher to begin with, before receding.
Global investors of late have made demands for higher risk premia in response to the European sovereign default crisis, and almost everyone including Australia’s highest rated lenders have been affected, despite their AA ratings.
CBA says it is well placed to handle volatility in funding costs since it was well ahead of its funding requirements, but added that a heavy fund raising schedule for both governments and corporations expected to take place during the third and fourth quarters would also take its toll on the market Ms. Cobley said.
Ms. Cobley declined to comment on the possibility that higher borrowing costs would mean that lenders would be forced to raise their interest rates outside official moves by the central bank.
The problems affecting the European Union are likely to negatively impact pricing on local bank debt, despite the lack of exposure and solid fundamentals.
“We think there is a possibility spreads will go wider than they are now. Australian banks have been caught up by perceived increased risk in the market generally. Do I think it’s fair pricing? I don’t,” Ms Cobley said.
New global rules on the capital requirements and holding of liquid assets were also another area banks were feeling pressure. Lenders will be required to hold more liquid assets on their balance sheet whilst boosting capital buffers.
“It’s inevitable our liquid assets holdings will get larger and our costs will go up as a result of that,” Ms Cobley said. Australia’s four largest banks have a collective annual funding task of $140 billion, with CBA’s share $40bn to $45bn. About half is sourced from deposits.
Because of a limited domestic investor base, Australia’s banks borrow heavily offshore.
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Half Of All Australian Households Worry About Interest Rate Rises
Nearly half of all Australian households say they worry over the threat of looming interest rate rises, but only 20 per cent say they expect to have to carry increased debt levels in the next few months.
According to the results of the latest survey by Dun & Bradstreet, which polled consumer expectations across 1,205 individuals in Australia, nearly half or 49 per cent said they believed that interest rates would rise further, and the hikes would dent their finances.
The credit reporting agency completed the survey in June, one month after the Reserve Bank of Australia (RBA) lifted the official cash rate to 4.5 per cent, its sixth rise in eight months.
Households that include dependent children will feel more financial stress, with 55 per cent of respondents who have children, saying that the impact of rate rises would negatively affect their finances, compared with 43 per cent of households that do not have children.
The survey suggested that the stress from rate hikes would only translate into additional debt for just 20 per cent of households.
According to the survey, which examined future spending in September, nearly half of all individuals polled aged under 50 planned to use credit to pay for expenses over the period, whilst only a quarter of all Australians aged over 50 said they intended to do the same.
The RBA’s credit and charge card statistics for May 2010 showed the average credit card balance reached $3,248 in May, an increase of five per cent in 12 months.
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NAB Strategy Of Low Mortgage Interest Rates Paying Off
Australian banking major National Australia Bank (NAB) embarked on a strategy this year of discounting its standard variable rate, is now starting to reap the rewards of the move, as it acquires a larger share of the home loan market.
The number of home loans underwritten by Australia’s fourth largest lender in the last four months rose at its fastest pace in the last half decade. The bank adopted an ambitious plan in 2010 to keep its standard variable rate, now 7.24 per cent, significantly below the levels of its major rivals.
The lenders mortgage book is now estimated at $144.39 billion, and is now the third largest loan portfolio amongst the big four lenders, ahead of rival ANZ and is by far the fastest growing portfolio amongst the big four.
According to data from the Australian Prudential and Regulatory Authority (APRA), NAB managed to increase its market share of the mortgage lending market by six basis points at the expense of larger rivals Westpac and CBA.
The most recent data available is from the month of May, which shows that CBA, Australia’s largest mortgage lender lost four basis points of market share, whilst Westpac’s share fell by 2 basis points.
Over the last quarter, NAB’s mortgage book grew by 14 basis points, whilst CBA’s fell by nine basis points.
NAB also managed to outpace its two larger competitors in the total number of home loans written in May and during the preceding quarter.
NAB’s volume of mortgages rose by 1.3 per cent in May and 3.5 per cent over the quarter.
Lisa Gray, NAB’s group executive responsible for personal banking attributed the robust growth figures to the lender offering the lowest standard variable rate in the market over the last year.
“We started 12 months ago to ensure that our customers received a fair exchange of value,” “For the last four months we outgrew financial system in home lending. It’s the first time we’ve had four consecutive months of growth above system since the middle of 2005.” Ms Gray told The Australian.
NAB attracted headlines in December last year when it was the only major to pass on just the RBA’s official increase of 25 basis points whilst its rivals all increased their rates by between 35 to 45 basis points.
Ms Gray hailed her bank’s low-rate strategy: “We’re seeing more home loan customers join NAB than we’ve seen in years. Our focus on providing a better deal has not only resulted in customer retention and growth; we’re also attracting a higher quality customer portfolio.”
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Pimco Says Australia Is A Top Investment Destination
One of the largest global managers of fixed income securities, Pimco, says that Australia now offers the most investment opportunities in the developed world.
During one of its regular updates to the global bond markets, David Fisher who runs global product management for Pimco also said there was a “new normal environment”, which looked much different to that of previous decades.
Despite the volatility in Australia caused by former Prime Minister Kevin Rudd’s proposal to tax mining companies, a cooling China and debt concerns in Europe, Australia remains one of the top investment destinations of Pimco.
“Starting with a ladder, we would say those countries with solid fundamentals include in the developed world places like Canada and Australia, not only because they came into the crisis with better conditions … but also because they’re very well exposed to the growth dynamics in the emerging world and particularly through the channel of commodity prices,” Mr. Fisher.
Mr. Fisher also warned that there were risks posed by unrealistic expectations and over priced companies as both America and Australia both enter into critical reporting periods.
Pimco chief Bill Gross surprised global markets when he announced the asset manager had begun investing in equities.
“While we think bonds are priced for a depression, we think that equities are still priced for something more akin to the ‘old normal’ than the ‘new normal’, he said. We think that there’s still some scope for compression in PE ratios and we think that optimism over profit recovery is probably a little bit exaggerated in this environment of very, very weak growth, outside of a few countries such as Australia and Canada and the emerging world. So, on a relative basis, we would say that the returns in global bonds, while not spectacular, are certainly attractive.”
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NAB Likely To Be First Lender To Raise Rates After Election
A research analyst with Macquarie Equities Research says he believes that Australian banking major National Australia Bank will be the first lender to raise its rates after the election.
According to The Australian, banks will likely raise their interest rates prior to the Federal election, but according to Macquarie’s Michael Wiblin, once the election is over, interest rates will be fair game.
“The sensitivity around mortgage repricing over the last six months is due to the [forthcoming] election,” Mr. Wiblin said.
Mr. Wiblin says he thinks that NAB would be the first of the four major lenders to raise its rates, because its current standard variable rate of 7.24 per cent was currently the lowest amongst the Big Four by 12 basis points
Wiblin predicted that the NAB might the first of the big four banks to lift rates because its 7.24 percent standard variable rate was the lowest of its major competitors by 12 basis points.
“We do not comment on speculation by others about interest rates. What we would do is ask people to consider our track record. NAB was the only bank not to lift its rates above the [Reserve Bank of Australia] move in December 2009.” an NAB spokeswoman was quoted by the Australian.
The Macquarie report also said that lenders felt quite justified in any decision to reprice their mortgages, in the wake of continuously rising funding costs, and expanding mortgage books.
“An ability to reprice mortgages is set to continue for at least another six weeks, given the election,” Wiblin told the Sydney Morning Herald.
“However the unintended consequences of this situation will only get worse, with no repricing and increasing funding costs.”
In June home owners were granted a break from rising mortgage payments after the RBA left interest rates on hold at 4.5 percent.
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Australians Spend More On Charge And Credit Cards In May
Spending by Australians on charge and credit cards including advances increased in May according to the Reserve Bank of Australia, who said $19.631 billion was spent during the month.
The amount spent in May on charge and credit cards rose from $17.960 billion in April, whilst the number of transactions was slight higher to, at 131.035 million in May, up from 123.289 million in April.
The figures have yet to be adjusted for seasonality.
The value of transactions for the 12 months between May 2009 and May 2010 rose 10.5 per cent, which is far higher than the average growth rate of the previous five years of 6.8 per cent.
Total credit and charge card balances outstanding rose to $47.430 billion in May from $47.126 billion in April.
Compare with a year earlier, the total value of charge and credit card balances outstanding increased by 7.1 per cent, and represents a smaller rise than the average annual growth rate of 10.2 per cent in the previous half decade.
The average balance held by Australians on charge and credit cards rose by 5 per cent to $3,248 in May, for $3,092 a year earlier, and that increase was largely with the average annual growth rate of 4.9 per cent during the five years to May 2009.
Credit and charge card repayments rose to $19.833 billion in May from $18.806 billion in April.
Repayments improved with the annual rate at 10.2 per cent, compared with an average of 7.3 per cent in the preceding half decade.
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Western Australia Set To Boom In The Coming Years
Growth in Western Australia is set to explode, with forecasts by the Western Australian chamber of commerce predicting 4.5 per cent growth in the current financial year, and a leap to 6 per cent in the following financial year.
The Chamber of Commerce and Industry says Western Australia has performed stronger than expected and this has prompted it to increase its growth rate for the 09/10 financial year from 3 per cent to 3.5 per cent.
John Nicolau, chief economist at the CCI says the state’s growth during the current financial year could reach as high as 4.5 per cent with all the sectors of the economy playing a value role in its development.
Mr. Nicolau expects the growth rate to hit 6.25 per cent during the 12/13 financial year, and growth would continue to be the story for the next half decade, rising slowly and steadily.
Mr. Nicolau added that economic growth in the state was largely built on increased investment by businesses, and robust consumer spending by households.
Growth in the state’s household consumption levels in the current financial year, will be driven primarily through population growth, as people migrate to the state to take advantage of business and job opportunities.
Exports is another large driver of economic growth, and is expected to increase by an eye popping 9.5 per cent during the next couple of years, and a further 10 per cent during 2012/2013.
Despite the rosy outlook for the state, some short term risks remain, in particular a flimsy recovery in the global economy as a results of the European sovereign default crisis.
The spectre of rising interest rates and costs of business has also had a negative impact on both business and consumer confidence during the June quarter, which may act to curtail growth in the next few months.
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Jeremy Cooper Defends The Controversial Cooper Review
Jeremy Cooper, the former deputy chairman of the Australian Securities and Investment Commission (ASIC) and author of the controversial government review of the Australian superannuation system, has defended his plan for low cost MySuper accounts.
The accounts are intended as a default for people who do not select a retirement fund.
Mr. Cooper who made his comments during a luncheon organized by the Australian Superannuation Funds Association in Melbourne, said that the criticism that his plan was paternalistic could in fact be applied to the entire concept of superannuation.
The criticism was leveled earlier in the week by the Investment and Financial Services Association.
“It’s acutely paternalistic — it’s saying that if we don’t force Australians to defer some of their wages and salary and put them away for a time, they’re simply not going to save, so we’ll force them, and so that’s how we have to see the system,” Mr. Cooper said.
By cutting fees and improving investor returns, it is hoped that the MySuper account will serve as a benchmark for the rest of the industry to follow Mr. Cooper said.
“Because it’s a compulsory system, we think all workers in Australia are entitled to have super that is as good as a MySuper product,”
Mr. Cooper also issued a denial that the rules which determine fees on the MySuper accounts would result in lower investor returns. Mr. Cooper says that the fund trustees would be both obliged to minimize the cost and maximize investment returns.
Chris Bowen, the minister for Superannuation says that the government intends to move quickly to examine the proposals for MySuper and SuperStream, the proposed revamp of superannuation administration, which he terms as being “largely commonsense”.
“I understand the government needs to provide some direction and some certainty around those proposals so the industry can go forward with some sense of confidence, and I hope to be giving an indication of our response . . . over coming weeks.” Mr. Bowen said.
Mr. Bowen says it was unlikely that the government would make any changes to the superannuation preservation age, which is presently set for 60. Mr. Bowen added that the government would not sponsor any specific superannuation products or mandate compulsory income-style investments for retirees.
Speaking after the lunch, Mr Bowen also rejected claims by IFSA that making a low-cost default fund available to workers would lead to increased apathy.
“There are always people who will be disengaged from super and we need to make sure the fees are as low as possible,” he said.
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Competition Regulator To Decide On NAB Bid For AXA APH In September
The saga that has gripped the Australian wealth management industry involving the bitter take -over battle for AXA Asia Pacific Holdings between two bidders NAB and AMP, is unlikely to be resolved before September when the competition regulator consults the market regarding NAB’s proposed $14 billion bid.
The Australian quoted unnamed sources as playing down the likelihood that a new bid from NAB, one which would address the concerns that the Australian Competition and Consumer Commission’s had were imminent.
NAB is rumoured to be negotiating the sale of part of APH as part of plan that would alleviate the competition regulators worries, after its initial bid failed to receive the regulator’s blessing.
The Australian previously reported NAB had identified IOOF as its preferred buyer for APH’s North investment platform and was working towards an agreed deal.
Despite the proposal to divest certain parts of the business, the regulator needs to be satisfied such a sale would address its concerns, and this may involve sounding out the opinion of market participants, a process which may take a few weeks, after which the regulator will once again consider the matter.
NAB proposes to pay $4.6bn for APH’s Australian assets, and to sell the Asian assets to APH’s French parent AXA SA for more than $9bn.
Despite the ACCC’s failure to grant its blessing for the NAB bid not surprising many, its reasoning in not doing so did raise some eyebrows. The North investment platform has been valued at less than $50 million, yet such a small part of the APH business seems to have become the main obstacle to the deal proceeding.
IOOF remains the preferred buyer, ahead of other interested parties that include Perpetual and Count.
AMP the other bidder in the takeover battle has itself engaged in a strategy of counter attack, lobbying the regulator with the argument that the sale of the North investment platform would not have the effect of increasing competition.
The group has argued that IOOF does not have the distribution muscle or funds under management to build North into a competitor able to challenge the likes of NAB’s wealth management unit MLC, or Westpac’s BT and Asgard operations.
Both NAB and APH have the right to terminate their agreement on July 15. Failure to terminate would mean the deal is automatically extended.