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Brokers Downgrade NAB
Australian banking major National Australia Bank (NAB) has been downgraded by a second broker following its failed acquisition attempt of Axa Asia Pacific Holdings (APH).
Earlier in the week, Macquarie downgraded NAB to “neutral”, whilst on Thursday UBS followed suit and also downgraded the lender to neutral from “buy”.
Jonathan Mott UBS banking analyst said that NAB’s stock price now traded in line with UBS’s valuation, following the competition regulators decision to deny permission for the lenders proposed acquisition of APH.
Mr. Mott added that NAB faced many challenges catching up to its big four rivals despite the relative strength of its business banking unit which produces 50 per cent of the lenders profit.
“This active M&A agenda has often been blamed for the underperformance of its domestic banking and wealth management operations, which perhaps have not seen the same level of management focus as their peers. While we were encouraged by statements by the new management team in its early 2009 strategic update that NAB would focus on its Australian operations and re-invest in higher return on equity businesses, its active M&A agenda has again brought this into question. We believe that recent share price movements around the proposed Axa APH acquisition illustrate both shareholder-dissatisfaction for that transaction and ongoing frustration with NAB’s M&A agenda.” Mr. Mott said
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NAB To Cease Credit Card Negative Payment Hierarchy
One of the worst features of credit cards is what is known as negative payment hierarchy. An example of this if the borrower undertakes a balance transfer to a zero balance account, the interest on the balance transfer is zero, whilst if the borrower uses the same card to make a new purchase, that purchase will attract interest.
Negative payment hierarchy is when credit card companies use any payment made to pay off debt which is accruing at low or zero interest, whilst the debt which carries higher interest continues to accrue charges at the higher rate.
Australian banking major NAB is seeking to end its practice of negative payment hierarchy, and has flipped it on its head by allowing its borrowers to pay off their higher interest debt first.
Negative payment hierarchy is an industry wide practice according to NAB personal banking group executive Lisa Gray.
“This will no longer be the case for NAB customers, credit card transactions attracting the highest interest rate will be paid off before the lower interest rate, helping to reduce the overall interest cost to our customers.” Ms. Gray said.
The changes imply that all balance transfers will shift to the lower interest rate at the end of the introductory period, which will reduce the interest charges for borrowers.
The new systems will apply to all NAB consumer and commercial credit cards, which total about 1.5 million accounts, the bank said.
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Australian Lenders Begin Talks With Government On Credit Card And Banking Reform
Australia’s largest lenders have begun their discussion with the Federal Government on the proposed crackdown on credit card fees which became an election issue.
According to The Australian, senior executives from CBA held meetings with government officials soon after the new government was sworn in over two weeks ago. The newspaper said the discussion was wide ranging covering credit cards to the broader financial system.
Executives from NAB reportedly held discussions with the Treasurer’s office last week, and The Australian is reporting that ANZ is due to begin its discussion with the government this week.
Lenders are preparing themselves for a far stricter credit card regime, after the governing Labor party proposed tough new regulations during the general election campaign.
Labor had made a campaign pledge that lenders would not be allowed a credit card accounts would not be allowed to go overdrawn without the implicit consent of the borrower. Unsolicited credit limit extensions would also become prohibited.
On Monday NAB was the first lender to enact changes ahead of any new regulations as it cut a range of fees on its credit cards. NAB’s move was part of efforts to bridge the widening gap in the credit market between it and its major competitors.
ANZ says it wants guidance from the government on credit card regulation before it enacts any unilateral changes of it s own.
“This is government policy that may become legislation and we are meeting with government this week to discuss the potential changes,” an ANZ spokesperson said.
The other major lenders have yet to comment on what their strategy will entail.
CBA Adds Voice To Warnings That Interest Rates Will Be Hiked
Australian banking major, and the nation’s largest mortgage lender CBA has joined the chorus warning that Australian households and businesses could face the prospect of higher interests, which could be tightened by the central bank as early as next month.
The Sydney based lender says it believes that the Reserve Bank of Australia (RBA) will hike official interest rates by 25 basis points when it meets on October 5th, which will mean that interest rates will stand at 4.5 per cent.
Over the last couple of weeks, the central bank has placed considerable emphasis on how quickly it expects the economy to grow over the next year, and has issued warnings that inflation was likely to rise if economic growth remained unchecked.
Michael Blythe, CBA’s chief economist says that a central bank decision to hike interest rates in October would be the first of a number of rate hikes which will be executed over the following months.
CBA is forecasting that official interest rates are likely to rise to 6 per cent by the end of 2011.
CBA joins its rival NAB and a raft of other economists, all of whom now believe that a central bank rate hike next month is inevitable.
“There is a lot of momentum building up in the economy at the moment, which suggests that rates will have to be raised. Especially given that the bullish commentary and overtones from the RBA, it sounds like they are priming the market that they are going to take the step and move rates,” Mr Blythe added. We think there is more to come after an October move as well. The big issues really for the RBA are the inflation risk and having an economy that is running close to full capacity.” Mr. Blythe said.
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NAB Warns Of Rate Hike
Australia’s fourth largest bank NAB warned mortgage borrowers that they should be prepared for a hike in interest rates next month.
NAB says it now believes that the central bank will tighten interest rates by 25 basis points, lifting the official interest rate to 4.75 per cent when it meets on October 5th.
Not all analysts believe that rates will rise next month, but there is broad consensus that interest rates will be hiked before the end of the year. Alan Oster, chief economist from NAB said that the central bank’s tone in recent communication suggests that a rate hike is imminent.
“Until recently, RBA officials seemed to be signalling that interest rates were around average and growth was close to trend. There are now enough straws in the wind for us to believe that the tightening phase may well begin sooner, rather than later, and probably before the next inflation reading in later October.” Mr. Oster said.
Higher interest rates has prompted NAB to raise its forecast for the Australian dollar.
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ANZ Says It Will Vigorously Defend Itself From Class Action Law Suit
Australian banking major ANZ says it will defend itself vigorously defend itself from what is widely expected to become a number of class action law suits.
Proceedings for litigation which seek the recovery of over $250 million from 12 banks for overcharging on fees has been initiated.
Maurice Blackburn the law firm representing the class action litigants, filed its case in Federal Court on Thursday with a $50 million claim plus interest on behalf of 27,199 claimants who hold approximately 40,000 accounts with ANZ.
Bernard Murphy, chairman of Maurice Blackburn says the case is a very strong one, and alleges that banks were charging their customers illegal fees, and their action in imposing those fees were unfair under the ASIC, Trade Practices and Fair Trading Acts.
The law firm and IMF Australia the organisation which is funding the litigation are set to reap as much as 25 per cent of all damages, and is fighting the case under a “no-win, no-fee” basis.
So far the class action litigation has attracted 150,000 claimants and it is expected that there will be a further significant spike in the number joining the claim.
“The liability is not capped because people can join the (ANZ) case until it’s resolved. We can’t guarantee success, but we think we have a good case.” Mr. Murphy said.
On Wednesday ANZ acknowledged it had been served with a legal notice of the claim, but added that it intended to vigorously defend itself.
ANZ’s CEO for Australia, Phil Chronican said that the bank acknowledged that its fees were indeed unpopular and had moved to introduce a more simple fee structure at the end of 2009.
“It’s a big leap, however, for a fee to go from being unpopular to being unlawful. ANZ will be defending this claim vigorously and we plan to hold IMF accountable for the impact of its actions.” Mr. Chronican said.
The legal basis of the claim is that the fees, which were typically $50, were not genuine and were not charged for a genuine service or cost incurred, but were a penalty instead and as a result illegal.
According to the Reserve Bank of Australia Australian banks reaped $1.2 billion a year from penalty fees, $1 billion of which came from households.
In 2009 Australian banks charged their customers $12.7 billion in fees, a figure which suggests that the average Australian family pays $1622 a year if fees charged to businesses were passed on to consumers , a figure which is higher than the amount the average Australian household spends on electricity.
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HSBC Predicts Five Rate Hikes By The End Of 2011
Global banking giant HSBC has upgraded its Australian economic growth forecast, but also says it expects that interest rates will rise by at least 100 basis points during 2011.
On Tuesday the banking giant predicted that the Australian economy would expand by as much as 4.1 per cent during 2011.
Despite the optimistic outlook for the economy, the buoyant outlook was tempered by the prediction that interest rates may have to be raised by 100 basis points to keep inflation under control.
HSBC’s growth forecast exceeds many of the official predictions, which have the economy pegged at growing between 3 and 3.5 per cent.
Paul Bloxham an economist with HSBC said that economic expansion in Australia would primarily be driven by a booming resources sector, which was set to deliver Australia a revenue or income windfall.
“It’s been clear for a while that while Australia weathered the global financial crisis better than most, but the economy’s resilience continues to surprise. Global fears of a double dip notwithstanding, there are few clouds on the Australian horizon. The economy is benefiting from soaring structural demand for raw materials. For the resources sector, things look resplendent with commodity prices around historic highs and very strong investment in the mining sector expected over the next couple of years.” Mr. Bloxham said
HSBC is forecasting that the central bank will undertake on 25 basis point rate hike before the end of 2010, and a further four rate hikes of 25 basis points during 2011, which would mean official interest rates by the end of next year would be at 5.75 per cent.
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ANZ Faces $50 Million Class Action Law Suit
As many as five Australian lenders could be on the receiving end of legal action during the next few months as a multi-million dollar class action law suit is initiated.
A $50 million law suit which alleges that Australian banking major ANZ charged its customers excessive exception fees during the last six years was filed in a Federal Court in Melbourne on Wednesday.
The legal action was initiated by Maurice Blackburn a law firm, which filed a claim on behalf of 27,000 bank customers holding over 40,000 accounts with ANZ.
The case has become a cause célèbre for both consumer groups and activists who have urged more banking customers to join the suit.
Over 200,000 litigants are also awaiting further legal action which is being launched against other lenders.
Financial Redress, which is funding the litigation says it has only scratched the surface, and that it expects further law suits to begin in the immediate future.
“I think the plan would be to roll out four or five of these cases in the coming months,” managing director James Middleweek told AAP on Wednesday.
Mr. Middleweek added that a lot depends on the result of the ANZ case, a ruling which will have major implications for other lenders.
If successful the ANZ law suit would recover roughly $1,500 in bank fees per person.
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CBA Chief Ralph Norris Highest Paid CEO In Australia
Ralph Norris, chief executive of Australia’s largest bank, Commonwealth Bank of Australia is the highest paid CEO in the country after his pay packet was increased by 75 per cent to $16.2 million.
Mr. Norris’s pay packet exceeds the likes of Westfield Group founder Frank Lowry who earned $16 million and BHP Billiton’s chief Marius Kloppers who made $12.6 million.
Mr. Norris’s closest rival in the banking sector was Mike Smith, chief executive of ANZ, who took home $10.9 million and Gail Kelly, the Westpac chief who earned $10.6 million.
CBA released its annual report on Monday, and the lender revealed that it had made $9.2 million in stock payments to Mr. Norris during the financial year, an amount which triples the level he was granted during 2008-09 financial year.
CBA has seen its share price vault 24.7 per cent over the last financial year, almost tripling the comparable 8.7 per cent rise in the broader ASX 200 index.
In a bid to stop executives from using the company stock price as their targets, CBA’s incentive payment model is staggered and executive pay is based on three financial years. Executives receive their share payments only if they achieve performance targets in the next few years, a CBA spokesman said.
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Mortgage Borrowers Should Shop Around As Under The Table Discounts Abound
There is an emerging battle occurring in the mortgage lending market as Australian lenders barter with their customers, offering incentives such as under the table discounts as the price war with international lenders intensifies.
As banks globally recover from the financial crisis, they have begun re-introducing home loans that require low deposits, a product which all but disappeared during the global financial crisis.
In particular in Australia, international lenders are seeking to poach the most profitable mortgage borrowers from the Big Four Australian banks.
Canstar Cannex, a market research firm is urging potential mortgage borrowers to try and bargain for a better deal from their lenders.
“Customers should definitely go into a branch and negotiate their rate, (Lenders) could be open to what you could consider under-the-counter discounts.Be prepared to go and ask if they can do something better.” financial analyst Mitchell Watson said in an interview with The Australian.
A spokesperson for ANZ confirmed that its managers had the discretionary ability to negotiate interest rates.
“We will consider discretionary pricing on rates on a case by case basis,” a spokesman said.
A spokesperson for Westpac the number two mortgage lender in Australia said they regularly offer a 0.7 per cent discount, which it calls the “premier advantage package”. The lender refused to say whether its managers were empowered to cut rates even further.
CBA Australia’s largest mortgage lender through its “wealth package” offers similar sized discounts of 0.7 per cent, adding that it did not offer further discounts.
“We offer a series of discounts that recognise the value that a customer brings to the bank,” a CBA spokeswoman said.
NAB, which offers the lowest interest mortgages amongst the Big Four lenders offers a 0.8 per cent discount for customers who are able to provide a 25 per cent deposit.
Australian banks had ceased to offer low deposit home loans following the global financial crisis, but of late have begun re-introducing the product.
Existing customers of ANZ and Westpac have the ability to borrow as much as 97 per cent of the value of a house, whilst new customers could borrow as much as 92 per cent.
NAB allows all its customers to borrow up to 95 per cent of a home’s value, whilst CBA lends 95 per cent to existing customers, and up to 90 per cent to new customers.
Steven Munchenberg chief executive of the Australian Bankers’ Association in an interview with The Australian said that Australia’s major lenders were facing more intense competition from international lenders such as HSBC and Citibank.
“There is increasing competition from the smaller players and international banks, and non-bank lenders, Mortgage lending, particularly for owner-occupiers, is always an attractive proposition as we do have such a strong housing market and we do not have the corrections that the UK and the US experienced. The likelihood of a mortgage going bad is much lower than, say business lending, particularly in economically uncertain times.” he said.