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Australians Believe Not Enough Competition In Banking
A survey undertaken by Australian wealth manager AMP suggests that nearly 78 per cent of all Australians believe that acquisitions by banks should be restricted.
It is no coincidence that the survey results were released on the eve of the ruling by the competition regulator on National Australia Bank’s proposed acquisition of Axa Asia Pacific Holdings.
According to the AMP survey, an overwhelming majority of 71 per cent of people polled say they believe that there needs to be increased competition within the Australian financial services sector.
AMP is a rival bidder for AXA Asia Pacific Holdings, and is in a holding pattern until the ACCC rules on competition issues regarding NAB’s on September 9th.
AMP said it released the results of the survey this week, despite the survey being conducted in March because it felt the results were timely given the uncertainty surrounding the outcome of the federal election.
“We’re looking at how we can grow AMP Bank, and we’ve issued this now because it’s a tumultuous times in politics,” and AMP spokeswoman said.
The survey results also suggest that many Australians felt that the federal government is too soft on the big four banks. 68 per cent of those polled say they would like to see increased regulation of the industry, whilst half of those polled believe that M&A activity within banking has resulted in less choice for consumers.
Those kind of survey results should come as no surprise given that concentration of market share amongst the big four lenders has increased given the recent spate of mergers and acquisitions. Westpac acquired St George in 2008, whilst CBA acquired Bankwest.
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APRA Issues Stern Warning To Australian Deposit Taking Institutions
The Australian Prudential Regulation Authority, the country’s banking regulator has issued a stern warning to Australian deposit taking institutions.
APRA is unhappy with the way some firms account for and treat subordinated tranches of residential mortgage-backed securities, warning that some firms may have to change the way they do so.
The banking regulator on Thursday re-affirmed the standards used for capital treatment of RMBS, but as it moved to do so warned some mortgage lenders they would have to change their ways.
In the wake of the global financial crisis, some deposit taking institutions in Australia have been able to divest senior tranches of Residential Mortgage Backed Securities at a significantly improved price, but have been forced to hold on to subordinated tranches on their books.
According to APRA, some deposit-taking institutions “have concluded appropriately that such a structure fails to meet the fundamental requirement for significant credit risk transfer and have retained the requisite risk assets and capital requirements on their balance sheets. In other cases, however, . . . regulatory capital relief for credit risk has been claimed inappropriately.”
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Moody’s Says Outlook For Australian Mortgage Backed Securities Stable
The collateral used to construct Australian residential and commercial mortgage backed securities has a stable outlook according to a credit ratings agency which made its assessment following Australian investment banking major Macquarie pricing a $750 million offer.
Global credit ratings agency Moody’s on Thursday said it would maintain its stable outlook for the performance of collateral used to construct Australian asset backed securities over the next 12 to 18 months.
The ratings agency also said that the surge in house prices would slow down, after data released by the Australian Bureau of Statistics suggested that house prices had spiked a stunning 18.4 per cent for the year ending June.
“We expect that the up-to-now strong appreciation in housing prices will slow down a bit, but undersupply — as well as net migration — will continue to support prices,” said Moody’s senior credit officer Richard Lorenzo.
Mr. Lorenzo added that the trend would more than likely limit actions on rating for RMBS.The uncertainties plaguing commercial real estate have declined over the past year, Moody’s said.
The ratings agencies outlook report came as Macquarie Securitisation today priced a $750m RMBS offer.
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IAG Full Year Profits Slump
Australian insurance major IAG has had its bottom line severely hit by storms that have raged in Melbourne and Perth, as well as losses incurred at its UK division.
Australia’s largest general insurance company as measured by written premiums said its net profit for the year ending June 30th fell precipitously year on year. Net profit dropped from $181 million last year, to just under half, or $91 million this year, after the insurer’s UK unit generated a substantial loss, and unprecedented weather in Melbourne and Perth drove up natural peril claim costs.
IAG had previously issued guidance warning of the poor result late last month, when it said it expected its full year insurance margin, a closely watched measure of the profitability of its underwriting business was expected to fall to 7 per cent.
The insurer absorbed a pre tax charged $367 million incurred by its UK unit, after a profound rise in claims at its UK motor insurance business, in line with previous guidance.
Revenue at the insurer fell to $9.38 billion, and the company says it will pay a final dividend of 4.5 cents a share, down from 6 cents a share in the previous year, which was in line with guidance.
The insurer is now forecasting gross written premium growth of 3 to 5 per cent in the current financial, and is maintaining its guidance for insurance margin during the 2011 financial year of between 10.5 to 12.5 per cent.
“Our focus for FY11 is to build on the strong performance we have seen from our largest businesses in Australia and New Zealand and to restore profitability in the UK, while continuing to pursue growth opportunities in our chosen markets, particularly Asia,” the group’s chief executive Michael Wilkins said.
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Suncorp Metway Profits Jump By More Than Double
Banc-assurance group Suncorp Metway, following the lead set by the big four banking groups, posted a full year profit result that grew by more than double from the previous year.
Suncorp says it is making good progress recovering from challenges presented by the global financial crisis.
Net profit for the year ending June 30th leapt to $780 million, more than double the $348 million the company made in the previous year, whilst revenue at the group rose to $15.7 billion, up from $14.2 billion last year.
“Suncorp is making good progress in recovering from the challenges that became apparent during the global financial crisis,” chief executive Patrick Snowball said.
Suncorp’s banking division posted a pre tax net profit of $78 million for the year, clearly benefiting for having delineated its lending portfolios into core and non core lines.
The banc-assurers general insurance division, which runs brands such as GIO and AAMI generated a pre-tax profit of $774 million with gross written premium rising 3.1 per cent for the year to $7 billion. Net claims expenses were stable at $4.6 billion.
Suncorp’s life insurance divisions generated pre-tax profits of $310 million, with underlying profit rising 6.7 per cent at 192 million.
Suncorp-Metway said it would pay a final dividend of 20 cents a share, steady on year.
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Mortgage Choice Sounds Warning
Mortgage Choice, a leading Australian mortgage broker has reported a fall in annual profit, signalling the impact on the economy of the effects of a housing under-supply on the housing market.
Mortgage Choice reported a net profit after tax of $23.479 million in 2009/10, down 12.5 per cent from $26.849 million in the prior year.
The company declared a final dividend of 6.5 cents, which the broker says represents a 17 per cent increase from its 5.5 cent payout in the previous year.
Mortgage Choice says that its decline in net profit was as a result of an adjustment made to its 2008/09 future loan book cash flow estimates.
The broker said it was not concerned by lacklustre growth in demand for housing finance; however the company did issue a warning for the future market.
“Housing under supply continues to remain a problem that places strain on housing affordability for a large number of property buyers as well as renters,” Mortgage Choice chief executive officer Michael Russell said.
“Australia has serious blockages in its land and dwellings supply pipeline. This must be cleared if we are to tackle the under supply problem that continues to stress housing affordability,” he said.
“While under supply is good news for many investors, with tight rental vacancy rates seeing rental price rises, it is bad news for others. Our three tiers of government need to work together on effective and immediate action.”
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Technical Problem Results In ANZ Machine Outage
A technical problem resulted in thousands of in store POS and credit card machines issued by ANZ to stop functioning throughout Australia for several hours.
ANZ’s ability to handle and process credit card and POS transactions came to a halt as a result of the system outage for several hours on Tuesday according to ANZ spokesperson Stephen Ries.
Mr. Ries said a “high percentage” of machines nationwide were affected, but customers could still access funds through ATMs and ANZ branches.
ANZ has apologized for the inconvenience and says it will be looking into the exact cause behind the outage.
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Westpac Delivers Strong Results
Gail Kelly, chief executive of Australian banking major Westpac is the latest banking chief to warn that the sector faces significant revenue head winds, that will slow their growth in earnings.
Westpac, which reported earnings on Monday, posted a $1.4 billion underlying net profit for the quarter ending June, representing a leap of 27 per cent.
The lender, like its peers, benefited from a sharp decline in provisions for bad and doubtful debt, but despite its success, the Sydney based bank followed the larger trend that has emerged amongst its peers, with revenues, and net interest margins under siege.
Westpac’s quarterly revenue fell by 1 per cent, with net interest margins falling by two basis points as a result of higher funding costs, and volatility in financial markets.
“This has been a solid quarter and I’m happy with the way that we are dealing with a challenging environment,” Mrs Kelly said.
Mrs. Kelly joined the chorus of banking chiefs issuing her own warning that there is fresh pressure on revenue as a result of more expensive funding costs, and intense competition for retail deposits.
“We have had a few revenue headwinds — the whole sector has seen some of them flow through. The first one was the reduction in exception fees, but that was a headwind dealt with at the start of 2010. But there are going to be further revenue headwinds as the average cost of funds goes up — there’s a number of moving parts.” Mrs. Kelly said.
The Westpac chief said the declines in revenue may intensify the lower lending and credit growth outlook.
During the quarter, Westpac increased lending to Australian households and small businesses by an additional $7 billion, whilst increasing its deposit base by $4 billion.
Mrs. Kelly added that the lender has experienced a sharp rise in the number of customers taking advantage of the lenders online deposit accounts, instead of traditional term deposits. Mrs. Kelly said that competition between the major lender remained intense.
“There are always waves of particular intensity around pricing,” she said. “We saw a wave of intensity at the start of the calendar year, then it waned mid-year and now it’s starting to pick up. The online pricing out there is very, very competitive and that creates a negative impact for us.”
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Foster’s In Play
The share price of Australian brewing and drinks major Fosters Group leapt as much as six per cent during trading on Monday as reports began to emerge that Beer giant SAB Miller is planning a $12.22 billion takeover attempt of Foster’s beer arm, CUB.
The report which first surfaces in the Sunday Times of London, suggests that London listed SAB Miller has Carlton United Breweries (CUB) in its sights, CUB has the Victoria Bitter and Carlton Draught brands.
If SAB Miller can reach an agreement, a deal of this kind would put it in a position to challenge the world’s largest brewer Anheuser-Busch InBev for the top spot.
According to the Sunday Times SAB chief executive Graham Mackay is apparently keen to pull off a big deal before his retirement.
SAM owns Foster’s in India and has brewing rights to the brand in America. A deal with the Melbourne-based company could provide them with a platform for expansion into Asia.
In May, Foster’s announced it would be dividing its beer and wine assets, but such a demerger is not expected to take place until next year.
The Sunday Times also suggests that SAB Miller is keen to act quickly, since the beer maker is already in play, with Japanese brewing giant Asahi considered the favourite to acquire the company.
American company Molson Coors and Coca-Cola Amatil also are thought to be interested in buying Foster’s.
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ANZ Chief Issues Stark Warning On Interest Rates
Mike Smith, chief executive of Australian banking major ANZ has issued a stark warning, suggesting that world’s bank will be forced to alter their business model in response to the “permanently” higher cost of banking.
Mr. Smith issued the warning whilst unveiling the latest set of ANZ results last week. ANZ’s third quarter underlying profits leapt 37 per cent.
Despite the great performance, Mr. Smith added a note of caution, saying that the costs of wholesale funding were now a permanent feature of banking a result of the global financial crisis.
“We have to face up to the fact that banks now have permanently higher costs of doing business, these include continuing pressures on wholesale funding costs and at the same time rates for deposits have never been higher compared to short-term wholesale rates. We also have to carry significant costs associated with the new international capital and liquidity requirements. The result is we simply to have think differently about our business. We need to change, we need to streamline our structures and do things in new and different ways.” he said.
Mr. Smith’s comments immediately started speculation that Australian lenders would raise their interest rates once the results of the election became clear.
ANZ’s warning followed similar comments from NAB and CBA, both of whom say that debt that have issued which is about to mature will have to be rolled over with more expensive current funding.
Analysts believe that lenders would increasingly try to shift the burden of higher funding costs on to their customers, by increasing mortgage and consumer lending rates, as well as increasing interest rates on business loans.