ANZ Keeps KEB Funding Options Open
Australian banking major ANZ says it is keeping its options over regarding funding should it decide to go ahead with a $4.3 billion acquisition of a controlling stake in Korea Exchange Bank (KEB).
The lender already has enough regulatory capital to support the acquisition from existing cash reserves and debt. ANZ has a tier one capital ratio of 10.5 per cent and has said it will not rule out a future capital raising to maintain its strong position.
Reports surfaced over the weekend that the lender had finished its due diligence on KEB, but was continuing its examination of KEB’s books, with a deal likely to be completed by November at the earliest.
US private equity firm Lone Star has been seeking to sell its 51 per cent stake in KEB.
Many believe that should ANZ undertake a entitlements based equity raising, it would be well received by investors, given the recent strong performance of the lenders shares against its big four rivals.
ANZ was initially lukewarm towards a proposed acquisition in Korea, saying that the market was “a bit left field”, and that Korea did not constitute a key franchise market in the same way China and India under pin its super regional strategy.
Citing an opportunistic strategy ANZ chief Mike Smith says such an acquisition needs to evolve to include less important by attractively priced assets.
KEB controls as much as 45 per cent of the market for trade finance, and there is almost no pressure from other bidders, after ANZ bid an initial $2.6 billion.
ANZ’s board is currently holding its meeting in Shanghai this week, ahead of a likely announcement that the lender will incorporate a wholly owned local subsidiary in China.
ANZ said last November that it would invest an additional US$400 million in China as it seeks to expand in China by establishing as many as 20 branches by 2012.
The bank’s objective is to lift regional profits to 20 per cent of group earnings by 2012.
Compare Australian Home Loan Deals
Ageing Population Likely To Moderate Australian Property And Stock Prices
According to the Switzerland based Bank of International Settlements (BIS) the pace at which Australian house prices appreciate will slow down, and in about 40 years will be about 30 per cent less than they otherwise would have been, largely as a result of an ageing population.
The results of the study also suggest that as the population begins to retire and starts living of their capital accumulated, which will also result in declining equity prices.
The study did however reject the assertion that retiring baby boomer’s will result in a crash of asset prices, but did say that capital appreciation will become much more difficult to achieve.
The study, which sought to examine the impact of an ageing population globally, suggests Australian property prices had up till now been the fourth fastest growing in the world during the last 40 years growing by just under 200 per cent during that time frame.
Spain and the UK, two markets where house prices had tripled during the same time frame have also suffered price crashes in the last couple of years.
The BIS also added that if a house price crash occurred in Australia, it would not be as a result of demographic factors alone.
“They suggest that in the next 40 years, house prices in advanced economies will face a more difficult environment than in the past 40 years,” the study says.
The bank says that changes to demography will not dictate prices in the property market, but does have the ability to influence the. The study suggests that demographic factors helped propel Australian property prices up by 33 per cent higher than they otherwise would have been from between 1979 and 2009.
The study also suggests that the pressure on property prices will also have an effect on equity prices, by as much as a full percentage point and is likely to occur far more rapidly than the impact on property prices.
“Ageing is likely to affect future asset prices substantially negatively, though asset price declines, let alone a meltdown, are unlikely,” the study says.
“Advanced economies, households, private institutions and the public, have accumulated substantial debt in the past few years. The results suggest that the assets financed by this debt could come under long-run pressure.”
Compare Australian Home Loan Deals
Australian Consumer Inflation Expectations Rise
A new survey suggests that as a result of strong economic data, September consumer inflation expectations have risen, after four consecutive months of decline.
The survey of consumer expectations was conducted by the Melbourne Institute, and suggests that the median expected inflation rate rose to 3.1 per cent in September from 2.8 per cent in the previous month.
74.5 per cent of respondents expected inflation rise, up from 73.5 per cent in the previous month, whilst the number of respondents who expect inflation to remain unchanged fell to 13.9 per cent, from 16.6 per cent in August.
Dr. Michal Chua of the Melbourne Institute says he believes that expectations had risen on the back of better than expected jobs data, as well as robust GDP growth.
The Melbourne Institute conducted its survey during the week where national unemployment figures were revealed, surprising many by falling to 5.1 per cent from 5.3 per cent. The central bank also held interest rates steady at 4.5 per cent that same week for the fourth consecutive month.
Salespersons and clerks were the sector that registered the highest median expected inflation rate of four per cent.
For the states, Queensland recorded the highest expected inflation rate of 4.2 per cent, while South Australia recorded the lowest, at 1.9 per cent.
Compare Australian Car Loan Deals
CBA Wants To Raise Stake In Vietnamese Lender
Australian banking major CBA says it wants to raise its holdings in Vietnam International Bank (VIB), from the current level of 15 per cent to a proposed level of 20 per cent.
The lender said on Wednesday that intends to raise its holding in VIB once it completes its negotiation with the bank for strategic partnership.
CBA acquired the 15 per cent stake in the Vietnamese lender after it had confirmed it received regulatory approval for the sale which made CBA the solitary foreign strategic shareholder in April.
“Consistent with the strategic partnership agreement signed earlier this year, Commonwealth Bank intends to request an increase in the VIB investment to 20 per cent at the earliest opportunity – the maximum investment allowed by the State Bank of Vietnam,” CBA said in a statement.
CBA failed to disclose financial aspects of the transaction citing that the money concerned is below the materiality threshold for the company.
Compare Australian Credit Card Deals
NAB Officially Withdraws AXA Bid Paving Way For AMP
Australian wealth manager AMP is firmly in the driver’s seat to acquire AXA Asia Pacific Holdings (APH) after NAB officially withdrew its 10 month long $14 billion bid.
Cameron Clyne, chief executive of NAB made the decision public after the close of the market on Tuesday, following the decision by the competition regulator to deny support for the lenders bid to acquire APH.
“NAB remains very committed to participating in the wealth management industry, which is an important part of the bank’s future,” he said. “However, considering all the options, continuing with this agreement is not in the best interests of shareholders.”Mr. Clyne said in a statement.
NAB had re-tabled its bid, after the initial proposal was rejected by the Australian Competition & Consumer Commission (ACCC) in April.
The lender had proposed some concessions designed to allay the competition concerns held by the regulator, which included the divestment of retail investment platforms owned by the target to third parties.
After a long running saga, last week the ACCC once again failed to support the bid, ruling that a divestment would still fail to guarantee that there would be sufficient competition within the Australian wealth management industry.
NAB’s withdrawal no paves the way forward for AMP to proceed with its rival bid for APH, and a spokesperson for the company said the wealth manage remained strategically interested in APH at the right price.
With NAB’s acquisition attempt effectively over, the spokesperson added that AMP was “considering our position in the light of this announcement”.
The problem with AMP’s bid lies in the fact that a large fraction of its bid was made up of shares, the value of which has declined in recent months.
The Australian citing an unnamed source close to APH chairman Rick Allert suggests that Mr. Allert had a strong sense of value, and would refuse to endorse a bid that valued the company significantly below the price NAB had offered to pay.
In order for AMP to win board approval from APH, and access the company books, AMP will in all likelihood have to increase the value of its bid, and most likely increase its contribution whilst convincing APH’s parent AXA SA to do likewise.
Compare Australian Business Banking Deals
ANZ Appoints Chief Executive For New Zealand Operation
Australian banking major ANZ has appointed a new chief executive of its New Zealand operations.
ANZ has formally appointed David Hisco as CEO of ANZ in New Zealand, Mr. Hisco will replace Jenny Fagg who has had to step down from the role due to health reasons.
Mr. Hisco’s appointment is effective immediately. Mr. Hisco who is a 30 year ANZ veteran will also retain his current responsibilities as global head of commercial banking, and stay in his role as a member of the lenders management board.
Sir Dryden Spring, ANZ’s chairman said of Mr. Hisco “David is also a strong replacement for Jenny Fagg. We understand her treatment is progressing well and I know she’s been buoyed by the support she’s received from her friends and colleagues here in New Zealand,” he said.
Compare Australian Savings Account Deals
Australian Banks Will Positioned For Basel Banking Reform
Australian lenders have more than enough existing capital to cope with new global capital requirements banking analysts say.
According to Deutsche Bank Analyst James Freeman” Australian banks are already above the requirement and hence there will be no need for capital raisings. If anything Australian banks look to have excess capital if using the FSA basis of calculating common equity ratio and hence there is the prospect for capital management over the coming years.”
As part of the global banking regulatory reform undertaken by the Basel Committee, the minimum common equity requirement has more than doubled from the current 2 per cent to 4.5 per cent, a measure which is expected to be phased in by January 1st 2015.
The tier one capital requirement will also be increased from the current 4 per cent to 6 per cent during the same period.
Lenders will also be required to hold a further 2.5 per cent capital conservation buffer, which would be used to help lenders withstand periods of extreme stress. This means that total common equity requirements now stand at 7 per cent, which will be phased in by January 1st 2019.
Lenders who find themselves below the 7 per cent level will be required to retain earnings in order to achieve the target as soon as possible,
Analysts believe that Australian banks are well positioned to meet the requirement, provided they are spared a further round of deteriorating assets.
Craig Turton an analyst with Macquarie said that Australian lenders should be able to easily achieve both the common equity and total tier one requirements by 2013.
“Australian banks look well positioned to meet the new rules but it is likely that Australian bank tier one ratios will be at least 10 per cent under the new regime,” he said.
Compare Australian Savings Accounts Deals
CBA Likely To Be First Major Lender To Raise Rates Independent Of RBA
An analyst with JP Morgan says he believes that at least one of the major Australian lenders is likely to raise its interest rates independently of any rate hike initiated by the Reserve Bank of Australia.
JP Morgan’s Scott Manning says he believes that comments passed by CBA last month, whilst reporting full year earnings suggest it will be at least one of the major lenders to raise rates out of step with the central bank.
Ralph Norris, CBA’s chief executive at the time complained that the lender was experiencing an erosion of margins, and could not guarantee that the bank would not raise rates unilaterally, and independent of the central bank, going so far to say that such a guarantee would be inappropriate.
“Our view is that if you look at the position of the presentation of margins through the Commonwealth Bank result, as well as some other disclosures around the importance of the broader economy, that would suggest they may be positioning for an out of cycle rate rise, but certainly the timing and quantum of that is yet to be determined.” Mr. Manning said
The other major lenders will be focusing on profitability according to Mr. Manning, which will prove more critical than even achieving lending growth in the year that follows in light of the fact that the cost of overseas funding has become prohibitive.
“You get the same amount of profitability uplift from modest re-pricing of your loan book as opposed to adding to your funding burden and going out to try and grow your loan book. So we don’t think Westpac and CBA will look to pull the growth lever in the domestic lending book. Managing the profitability is, I think, more likely.”
According to the latest report on the mortgage industry authored by both JP Morgan and Fujitsu Consulting Australia, Westpac and CBA have both maintained their dominance and market share in the home loan market for the half year ending July, after both lenders managed to increase their market share in the previous year.
CBA holds the largest share of mortgages with 26 per cent, Westpac accounts for 24.3 per cent, National Australia Bank Ltd has 13.1 per cent and ANZ Banking Group Ltd 12.9 per cent.
Compare Australian Home Loan Deals
Competition Regulator Rejects NABs Proposed Acquisition Of AXA Asia Pacific Holdings
The Australian Competition and Consumer (ACCC) has given its final verdict on the proposed acquisition of AXA Asia Pacific Holdings (APH) by NAB, delivering what can only be described as a death blow to the proposed $13.3 billion bid, by saying it remains opposed to any deal.
The failure to give its blessing stalls NAB’s plan to become the clear dominant player in the Australian wealth management space, and further complicates APH’s parent AXA SA ambition to expand substantially in Asia.
The regulator stood by its earlier decision on April 19th when it rejected what would have been the second largest deal in Australian financial services history.
The completion watchdog argued that the acquisition would curtail competition in the market for supply of retail investment platforms, internet portals that link retail investors with the wide range of investment products that fund management companies provide.
Peter Kell, deputy chairman of the commission said that the proposed concessions by NAB and APH to divest the target company’s North investment platform to a smaller wealth manager, IOOF, “do not provide sufficient certainty that the ACCC’s competition concerns will be addressed”.
The regulators reasoning was that IOOF lacked the infrastructure required to make the investment platform a competitive force to be reckoned with in its own right.
The ACCC added that because both the acquirer and target company’s had failed to agree to include their combined distribution network of financial planners, or sell products supported by the North platform to IOOF, there was “considerable uncertainty” that IOOF could become an effective competitor to the combined NAB-AXA.
“The undertakings as proposed place a heavy reliance upon IOOF having sufficient distribution capability to provide an effective competitive constraint upon existing key players in the foreseeable future,” said Mr Kell.
APH’s stock price fell sharply as trading opened, falling by as much as 8.6 per cent by early afternoon trading, with Goldman Sachs saying that NAB was likely to call it a day with its bid.
“In our view, the most likely option is for NAB to walk away and pursue an organic acquisition strategy of advisers rather than a large acquisition,” Goldman Sachs analyst Ben Koo said in an early note to clients.
Contrastingly NAB stock rallied 3.8 per cent on the news.
Goldman’s Koo said that whilst it was possible that NAB may challenge the decision, or restructure its bid to include the sale of its financial planning network, cosmetic changes to a deal may still not guarantee approval.
“In the near term, fears of a large capital raising will now dissipate for NAB however M&A uncertainty will remain an overhang until NAB clarifies its response to the ACCC decision,” said Mr Koo.
NAB said earlier it is considering the implications of the decision and will update the market “as soon as possible”.
The other interested parties to the deal including rival bidder AMP all said they would evaluate their position before outlining what their next steps would be.
AXA SA, the French parent of APH said through a spokesperson that it was disappointed with the regulators decision, but will review the decision carefully before further commenting.
APH said through a statement that it had taken note of the decision but a spokeswoman wasn’t immediately available for further comment.
Rival bidder AMP for its part welcomed the decision and said it continues to find APH an attractive strategic target, but did not feel compelled or sense any urgency in making any quick moves.
A spokeswoman for AMP said whether the group will seek fresh talks with AXA SA is “a decision for another day”.
Compare Australian Bank Account Deals
Competition Regulator Decision On AXA Takeover Imminent
The Australian completion regulator says it will make public its final decision over whether NAB will be given approval to acquire AXA Asia Pacific Holdings (APH) on Thursday.
It remains to be seen whether NAB has done enough in the long running takeover saga to satisfy the concerns of the Australian Competition and Consumer Commission (ACCC), and finally be given approval to go ahead with the merger valued at $13.3 billion.
The ACCC for its part has indeed confirmed that it expects to announce its final decision on the compromises offered by both NAB and APH, for what could quite well possibly end up being the second largest deal in the Australian financial services sector.
The regulator have previously provided guidance of September 9th as the day it would reveal its final decision, and on Wednesday a spokesperson said the date remained unchanged.
As a concession to the regulator’s concerns, NAB had pledged to divest APH’s North investment platform.
If the concession is accepted, and the bid ultimately successful, the acquisition would then become the second largest financial services takeover since Westpac acquired St. George in a $16 billion merger in 2008.