Australian Banks Deny Gouging Customers With Mortgage Lending Rates
The Australian Bankers Association says that claims that lenders are gouging their customers with their mortgage lending rates are “manipulated”. The ABA issued the rejection of the claim, after think tank the Australia Institute told a newspaper that the banks had lifted their rates higher than the increase in their funding costs.
The Australia Institute says that whilst the official rise in interest rates during the June quarter of last year was an average of 136 basis points, funding costs had risen by only 88 basis points.
Steven Munchenberg chief executive of the ABA says the think tank’s calculations were flawed, because the Australia Institute used interest rates that were averaged over a year.
According to calculations carried out by ABA statisticians, the official cash rate rose by only 68 basis points.
“My quotes were misrepresented — we don’t agree with the Australia Institute calculations or their conclusions. Clearly, if the Australia Institute was correct, bank margins would have grown enormously. The RBA and APRA have both said bank margins have fallen.” Mr. Munchenberg said.
According to the latest data from the Australian Prudential and Regulatory Authority (APRA), margins for the Big Four lenders fell from 2 per cent to 1.9 per cent for the year ending June.
CBA chief executive Ralph Norris echoed Mr. Munchenberg’s comments, saying that Australian lenders were not profiting from lifting their interest rates in excess of official rate rises.
“I think the RBA’s analysis is somewhat at odds with the Australia Institute, and I would tend to take the view of the RBA over the Australia Institute. If you work on averages, you have a situation where you have a starting point and the end point. When you take the average, you draw the line in the middle.” Mr. Norris said.
The Australia Institute rejected the notion that its calculations were inaccurate and said both CBA and ABA were “defending the indefensible”
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Suncorp To Sell Fund Management Business To Nikko Asset Management
Bancassurance firm Suncorp on Tuesday announced the sales of its Tyndall Investment Management fund management business as it moves to further streamline its operations.
Suncorp is selling the division to Nikko Asset Management, a Japanese financial services firm that is seeking to enter the Australian market for $128.5 million. Tyndall manages approximately $18 billion for Suncorp, and the bancassurer will remain its major client even after Nikko assumes control of the business.
Over the last decade, Suncorp’s growth has largely been fuelled through acquisition. Many of its acquisitions brought with them businesses that were not core to Suncorp’s primary business activities. Suncorps ownership of Tyndall stems from its acquisition of Promina.
Since September, when current Suncorp chief executive Patrick Snowball assumed the helm, the company has embarked on a strategy of streamlining its operations by selling of non-core assets. The bancassurer decided that its fund management unit did not compliment its general insurance business.
Nikko is planning to use the acquisition as a platform for building a substantial business in Australia.
Nikko, which has $122.15 billion under management is currently owned by Sumitomo Trust and Banking which acquired its 64 per cent stake in the financial services firm from Citigroup last year.
Tyndall manages $25 billion of assets in New Zealand and Australia.
Charles Beazley who heads up Nikko’s international and institutional business said that Nikko is keen to build a business in Australia, which has one of the largest fund management markets in the world.
“We have ambitions to be the biggest fund managers in Asia, and so, in addition to a presence in Singapore, London, New York and Tokyo, we’ll now have a presence in Brisbane, Sydney, Melbourne and Auckland. It’s a good strategic opportunity for us as a company, but we also like the local opportunity that this acquisition signals.” he said.
Tyndall last year made a profit of $10.2m, so the sale implies a multiple of up to 12.6 times Tyndall’s normalised 2010 net profit.
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ANZ Says It Remains In The Running For Korea Exchange Bank Acquisition
Australian banking major ANZ says it remains confident it will be successful in its attempt to acquire a controlling stake in Korea Exchange Bank (KEB), after its bid price was trumped by Korean financial services firm Hana Financial.
On Tuesday The Wall Street Journal reported that Hana Financial had already clinched the deal, after acquiring preferred business status for the 51 per cent stake which has been put up for sale by US Private Equity group Lone Star Funds.
Should Hana Financial ultimately prevail it would represent a significant setback for ANZ’s efforts to transform itself into a pan Asian player, with a strong presence in a developed market such as Korea.
Hana Financial is the fourth largest financial services player in Korea, and according to the Wall Street Journal, the company is already in exclusive negotiations with Lone Star, and a deal could be announced as early as next week.
For its part ANZ says it continues to conduct due diligence on the proposed transaction.
“Korea is an important market in the global economy with strong trade ties across Asia and ANZ believes that exploring strategic and organic growth opportunities in Korea is a logical fit with its super regional strategy,” the bank said in a statement to the Australian Stock Exchange. “ANZ has previously advised that it would only proceed with a transaction if it satisfies its disciplined criteria, including an anticipation of shareholder value accretion.”
The KEB stake that is being sold also includes Export Import Bank of Korea’s 6.27 per cent holding. Lone Star’s stake had a $3.8 billion valuation attached to it, however it is believed that Hana Financial had offered a 10 per cent premium to that valuation.
According to news reports. Hana Financial and Lone Star have already signed an MoU, with a sales and purchase agreement expected to follow shortly.
“We have signed a non-binding memorandum of understanding with Lone Star to take over Korea Exchange Bank. Currently, we are doing a due diligence study of Korea Exchange Bank.” Hana Financial chairman Kim Seung-Yu said.
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Westpac Chief Takes $1 Million Pay Cut
Gail Kelly, chief executive of Australian banking major Westpac has taken a $1.12 million pay despite delivering a record profit result during the last financial year. Even with the pay cut, Mrs. Kelly still earned a hefty pay package worth $9.58 million.
According to Westpac’s annual report, Mrs. Kelly received a base salary of $2.68 million, and short term incentives worth $2.83 million as a result of Westpac’s performance. Mrs. Kelly’s overall compensation fell because of a decline in the value of shares she received as part of her signing on bonus.
In 2009, Mrs Kelly earned $3.7m worth of shares, but that fell to $1.73m in 2010.
ANZ chief Mike Smith saw his pay packet remain steady at $10.9 million. According to The Australian Mr. Smith received $1.4 million in short term incentives which compensated for a decline in Mr. Smith’s alternative equity allocation which fell to $1.6 million from $3.1 million.
ANZ chairman Charles Goode received a $1.4m termination benefit after retiring at the end of February.
In 2009 Mrs. Kelly was the highest paid Australian chief executive after topping CBA’s Ralph Norris’s pay package. Mr. Norris is this year’s highest paid chief executive, earning $16.2 million.
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Wall Street Journal Reports Shock ANZ Loss In Bid To Acquire Korea Exchange Bank
The Wall Street Journal has reported that Korean financial services firm Hana Financial has already acquired a 51 per cent stake in Korea Exchange Bank (KEB) from US Private Equity Firm Lone Star Funds for US$4.2 billion.
IF the report is true, it would mean that Hana Financial has managed to snatch the target company out of the arms of suitor ANZ, which has yet to confirm or acknowledge that a transaction has taken place.
ANZ was in the process of conducting due diligence on the proposed acquisition of the 51 per cent stake in KEB from Lone Star, and was the lender was thought to be the only buyer interested in acquiring the stake. News of a done deal with Hana Financial will most certainly come as a shock to ANZ.
Losing out on the deal would be a blow to ANZ’s aspirations of transforming itself into a super regional lender, even if the reported purchase price is higher than the level ANZ was prepared to pay.
The acquisition seems to have come out of nowhere, since it was widely believed that Hana Financial was the front runner for acquiring the impending divestment by the Korean Government of its stake in Woori Finance.
Lone Star acquired its stake in KEB for US$1.3 billion back in 2003. The 51 per cent stake is currently valued at US$3.8 billion. Lone Star has been shopping its KEB stake around for many months now, with several deals coming close to be concluded before collapsing for a variety of reasons.
ANZ chief Mike Smith for the last few months has been talking up the prospects of acquiring the KEB stake, saying the Korean banks specialization in trade and foreign exchange would be a good fit for ANZ’s portfolio of Asian assets.
He has also successfully sold the Asian story to investors so this deal would maintain momentum at a time when ANZ enjoys a market premium in Australia.
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AMP To Launch Fresh Bid For AXA APH
Australian wealth manager AMP has launched a fresh bid for AXA Asia Pacific Holdings (APH) using a mix of both cash and stock which values the company at $14 billion or $6.43 a share.
It is widely expected that APH’s board will approve the proposed acquisition this week. AMP suspended trading in its stock on Monday pending a material announcement, whilst APH is also expected to undergo a similar suspension of trading.
A deal approved by the targets board will represent a coup for AMP which will end up owning APH’s Australian fund management business for just $300 million more than the price proposed during its first bid, following AXA SA substantially increasing the price it is willing to pay for APH’s Asian businesses.
As part of the terms of the deal AXA SA will underwrite the stock component of the deal which essentially places a floor underneath AMP’s stock price. The new bid is almost identical to the all cash bid that was made by NAB, which was accepted by APH’s board, but blocked by the competition regulator. AMP will not have to raise fresh equity in order to finance the deal and the bid is structured to give APH shareholders the ability to take advantage of any increase in AMP’s stock price.
AMP has a free run at Axa APH after a rival bid from NAB was rejected by the ACCC earlier this year.
AMP in its lobbying against the NAB bid argued that its acquisition of APH would give Australia the ability to build a fifth pillar in the Australian financial services industry.
Last week, as investors anticipated the imminent arrival of a new bid, APH’s stock price rallied 4 per cent.
Given APH’s French parent AXA SA’s intense desire to acquire its subsidiary’s Asian assets, it made sense for it to raise the level of its contribution to the renewed joint bid.
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Australia’s Small Lenders Say Exit Fees Are Critical
Non bank financial lenders have expressed their concern at proposed government regulations that would ban unfair mortgage exit fees, with the lenders arguing that they should not be subject to the same rules as the big four banks.
Fred Rasheed, sales and marketing director for lenders Rate Busters and Assured Home Loans, said in an interview with The Australian:
“deferred establishment fees” were an essential way to recover the cost of the loan if mortgagees left within five years. Non-bank lenders virtually could not operate; it would probably be the worst thing that could happen, the biggest change to non-bank lenders that has happened since non-bank lending started. The deferred establishment fee has to stay: if that goes the market is going to be in big trouble.”
On Sunday Green Party leader proposed plans for introducing legislations which would seek to prevent Australian banks from raising their interest rates beyond official hikes for up to two years.
“Let’s take action to see that they can’t do the unjustifiable again and let’s make it for 24 months. It can be reviewed then,” Mr Brown said.
Gino Marra chief executive of Carrington National says that whilst he does not support early exit fees, he believes them to be a necessity. Mr. Marra again speaking to The Australian said that any attempt to cut exit fees would result in lenders lifting their interest rates in order to compensate.
“I don’t think it will reduce competition, but it will push rates up and borrowers will be the losers,” he said.
The Australian Securities & Investments Commission has begun actively targeting home loan exit fees which it deems “unconscionable”. ASIC has issued a directive to Australian banks which says that lenders may only charge exit fees which cover their cost, and fees may not include any charges which cover profits that have been lost as a result of a borrower terminating a loan.
The corporate regulator is threatening lenders who fail to comply with the regulations with legal action, and to have the charges either reduced or abolished.
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St. George Says Mobile Banking Transactions Growing Rapidly
St. George Bank has revealed that the volume of banking transactions conducted using smartphones over the last 12 months is now equal to that of 40 physical branches.
St. George spent $2 million designing new and improving existing applications for the booming mobile applications market. This is a small fraction of the $2 billion parent Westpac has budgeted for its information technology program.
St. George’s intention is to establish a specific niche for itself in the digital arena, which will help differentiate itself from rival lenders.
Dhiren Kulkarni, chief information officer for St. George says that the volume of transaction conducted using smartphones is growing by 20 per cent a month.
St. George was one of the first Australian lenders to release an iPhone app, which it launched over 12 months ago, having spent less than half a million dollars developing. It will be the first Australian bank to launch a mobile banking application for the BlackBerry platform. The lender also has mobile banking applications for the Android operating system and the Apple iPad.
According to Mr. Kulkarni, the lender has spent under $2 million developing applications for smartphone and tablet devices.
Mr. Kulkarni said that St. George customers had adopted the use of smartphones for banking, faster than they did so with the internet.
“Transactions on the smartphone … we’re doing the equivalent of about 40 branches and increasing by about 20 per cent a month. The smartphone is with everybody … it’s mobile, you don’t have to log in (like a browser) … it’s convenient.” he said.
St George customers can use its mobile applications to conduct a number of transactions including fund transfers and requesting credit limit increases.
Over 280,000 financial transactions are conducted using mobile devices every month.
St. George BlackBerry application goes live next week, and whilst some rivals have ignored the BlackBerry platform altogether, in favour of concentrating their efforts on the iPhone and iPad, Mr. Kulkarni says St. George could not ignore the BlackBerry.
“Most of our big customers have a BlackBerry and they’ve want this (app),” he said.
St George has around 1 million active internet banking customers and 150,000 active mobile banking customers.
Australian Banks To Cut Exit Fees
Australian banks have begun to review their charges ahead of a class action law suit by consumers, which will likely result in borrowers receiving cuts to their exit fees on mortgages.
The Australian Securities & Investments Commission (ASIC) on Wednesday issued guidance for a new law designed to make it easier for borrowers to switch banks, saying that fees were meant to only cover the cost incurred by lenders.
ASIC has also told the banks that they must stop the practice of “double dipping” where lenders charge borrowers both exit fees and up front loan establishment fees.
The regulator said it will take banks to court if it becomes aware that lenders are deriving profits from exit fees which can be as high as $8,000 on a $300,000 mortgage.
ANZ became the first Australian lender to scrap its exit fees on existing mortgages, whilst other banks have said they are examining ASIC guidelines which were released on Wednesday as part of new consumer laws that came into effect on July 1st.
Tony D’Aloisio chairman of ASIC says the regulator planned to target lenders who charged the highest fees.
“We will challenge lenders who charge high fees to justify how their fee reflects actual losses caused by early termination. Lenders cannot use exit fees to discourage a borrower from switching their loan or to punish them for doing so.” Mr. D’Aloisio said.
As part of the new regulations, customers will be able to sue their lenders in Federal Court, either individually or by class action in order to obtain reduced or refunded fees.
ASIC says that banks are not permitted to charge exit fees on variable interest rate loans which include either loss of profits or costs pertaining to marketing and development of new products.
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ANZ Angers Politicians By Raising Interest Rates By 39 Basis Points
Australian banking major ANZ has added to the intense political fire-storm surrounding the banking industry by increasing its standard variable mortgage lending rate by 39 basis points, 14 basis points higher than the official rise in interest rates.
ANZ in an attempt to soften the blow of its rate hike included a number of sweeteners such as abolishing exit fees and discounting switching costs.
Finance minister Penny Wong in condemning the rate hike said that the move would be met by intense public hostility.
Prime Minister Julia Gillard added her voice to the growing criticism by saying that Australian lenders had no excuse for lifting their interest rates above that of the official rate.
Joe Hockey, Treasury spokesperson for the opposition said ANZ “made a mockery of the Gillard government and had kicked sand in the face of Wayne Swan.”
ANZ’s 39 basis point rate hike takes its standard variable rate mortgage to 7.8 per cent and adds another $77 a month in repayments to a $300,000 loan which has a 25 year tenure.
ANZ’s decision follows that of CBA’s move last week to lift its lending rates by 45 basis points. The decision by CBA sparked a political fire-storm which has resulted in ASIC saying the banking industry will come under intense scrutiny and an all out assault on the sector by Mr. Hockey.
ANZ chief executive of Australian operations Philip Chronican said “intense competition for deposits and high wholesale funding costs” had increased the bank’s cost of lending.
“Politicians have their own issues that they are trying to deal with it; we didn’t want to engage in a political debate,” he said.
“I think the issue got out of control in the last week or so and I think we need to bring it back down to a substantive level. We hope it passes and we can have a genuine dialogue with Canberra.”
ANZ sought to soften the blow by introducing a raft of measures designed to placate politicians and consumers. ANZ says it will abolish mortgage exit fees, it will also offer a 44 basis point discount on three year mortgage rates until the end of the year, and will also offer as much as $1,600 in fee discounts, which will have the effect of lowering switching costs for loans.
Prime Minister Gillard speaking whilst attending the G20 summit in Seoul Korea described ANZ’s decision as arrogant and added that it would anger the Australian people. The Prime Minister issued a stark warning to Australian lenders not to doubt the government’s resolve to raise the level of competition within the banking industry.
Penny Wong said that ANZ’s decision showed that the lender had failed to learn from the lessons of the last week and that it would face the same kind of hostility from the Australian people as CBA.