NAB Warns Political Interference Could Result In Higher Fees
Australian banking major NAB, became the latest lender to warn that political meddling could result in higher fees and charges, which could slow economic growth if lenders are forced to implement government reform proposals designed to stimulate competition within the Australian banking sector.
Australia’s fourth largest lender on Tuesday unveiled first quarter cash earnings of $1.3 billion, up 18 per cent from the same time period in the previous year.
Despite the strong result Macquarie maintained its under perform rating on NAB shares, reaffirming the rating based on sustained weak growth in credit and continued pressure on business lending margins.
Cameron Clyne, NAB chief executive said as the economy continued on its path of strong recovery, business conditions in Australia would also improve. However political and regulatory interference pose significant headwinds for Australian lenders going forward.
“The political risks remain, the consumer desires more value and competition …as long as that remains the case the sector will be exposed to political pressures. It’s important for the banks to address these underlying issues and improve our communication around those. But political pressures could be a potential growth headwind in the near term.” Mr. Clyne said.
The government has made some proposals for extensive banking reform designed to stimulate increased competition within the Australian banking industry, the cornerstone of which is permission for lenders to begin issuing covered bonds, which will enable banks to obtain cheaper wholesale funding.
The government has imposed a 5 per cent ceiling on the amount of their total assets that can be held as covered bonds. Mr. Clyne believes that does not go far enough and that lenders would be able to generate larger cost savings if the cap was increased to 10 per cent.
NAB has set aside $25 million to cover potential costs stemming from the flooding in Queensland, and has yet to determine whether the event will result in a spike in bad debt.
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Macquarie Downgrades Full Year Profit Guidance
Australian investment banking major Macquarie Group downgraded guidance on its full year profits in light of subdued global financial markets.
On Tuesday the investment bank said that despite second half profits ending March likely to clock an impressive 35 per cent gain, earnings would decline by 5 per cent compared to the same period in the previous year.
Full year profits are expected to come in at $950 million, compared to previous guidance of $1.05 billion.
Not surprisingly investors were not pleased with the news, and reacted negatively with Macquarie shares trading down 2 per cent on opening, though the stock price has since recovered and are now down just 0.3 per cent, against a backdrop of the broader ASX rising by 0.3 per cent.
Nicholas Moore, chief executive of the investment bank said that market conditions globally remained volatile, negatively impacting Macquarie Securities, the group’s primary trading business.
During December, Macquarie Securities was the group’s only major business which failed to deliver and improved performance.
Mr. Moore added the caveat that Macquarie’s full year result is dependent on market conditions continuing to remain stable and at “more normal levels”.
“In the full-year we would expected to see few one-off items, the compensation ratio will remain at historically average levels. And we would expect to see some of the capital on the balance sheet put to work.’” Mr. Moore said.
Macquarie has increased its capital buffer beyond the minimum requirement imposed by regulators. Currently it holds $3.2 billion, up from $2.9 billion, and Mr. Moore says that the excess liquidity would be deployed across major business lines in order to generate growth.
Mr. Moore ruled out the option of returning the capital to shareholders or increasing the company dividend.
“We have not contemplated that,” Mr Moore said.
“Given the uncertainty over Basel III, I don’t think any financial institution would be going down that path. The key thing is seeing the regulatory regime and how that will work before a decision on anything (capital return) like that could be made.”
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Australians Likely To Have To Pay Higher Home Insurance Premiums
Australians are likely to have to pay higher home insurance premiums as insurers seek to recoup some of the $1.6 billion in claims they will have to pay out as a result of the flooding in Queensland and cyclone Yasi warns QBE Insurance chief executive Frank O’Halloran.
Australian insurers face further pricing pressure as global re-insurers demand higher premiums for substantially increasing their exposure to the risk of Australian natural disasters.
”What you’ll see in Australia is a move in property rates – that’s for sure – on the back of what’s happened/ I have no doubt in my mind you’ll see significant increases in the costs of re-insurance in Australia,” Mr. O’Halloran told a market briefing.
Many analysts expect that premiums in 2011 will likely track the rises of the last two years, which rose 11 and 10 per cent respectively.
”One would expect that after a couple of severe weather events in a short period of time it’s more likely that the overall average increase in household insurance premiums will be more than the 8 per cent predicted [for 2011],” said Elaine Collins, leader of the general insurance actuarial team at Deloitte.
QBE derives most of its earnings from international operations, but still expects a claims bill from the Queensland flooding of at least $145 million.
A ”very preliminary estimate” of claims for damages caused by cyclone Yasi is around $100 million, Mr O’Halloran said. ”I think the industry dodged a bullet – and so did the rest of Queensland – which is a very pleasing thing to happen.”
Australia’s largest insurer Insurance Australia Group (IAG) estimates its bill from the flooding and cyclone to be in the $100 to $130 million range, whilst its exposure to flooding in Victoria is estimated to be between $25 to $40 million.
The Reserve Bank of Australia says that the insurance industry in Australia will easily be able to cope with large rises in claims, and that it is well capitalized with insurers holding double the minimum regulatory capital.
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ANZ Cuts Jobs
Australian banking major ANZ, says it is cutting 45 jobs as part of a restructuring program which will see 20 back office and operational positions cut, with a further 25 positions in Australia, New Zealand and Bangalore also being affected.
“ANZ is completing a small restructure in its retail distribution area with about 20 back office and operational roles being made redundant,” said a spokesman for the bank.
Unnamed sources quoted by The Age said most of the positions being cut were Melbourne based, and none of the lay offs involved shipping jobs overseas.
“At present we have been able to find roles for around 80 per cent of people where change in the business has resulted in redundancies,” the bank said.
Wendy Streets national director for campaign and bargaining of the Financial Services Union said the additional 25 positions that face being cut would be in the lenders accounts payable section.
According to Ms. Streets, the majority of jobs being cut were related to the sourcing of office supplies for ANZ, and “the entire process will be outsourced to a company that does that on a global scale”.
She added that the cut backs were not part of a larger program of laying off staff, but rather part of an “ongoing drive to increase efficiency, simplify the way we do business”.
Last financial year ANZ generated $4.5 billion in net profit, and according to global credit ratings agency Fitch, profits growth of Australia’s four major lenders are likely to moderate in 2011, as loan demand slows and the impact of lower bad debt provisions peters out.
In 2009 ANZ cut 500 back office jobs, moving them to an Indian call centre, a move it said was part of a restructuring designed to refocus on Asia.
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Australian Banks Criticise Proposal For Super Profits Tax
Australia’s largest banks intend to begin a fierce lobbying campaign designed to pressure the government to stick to its commitment over not introducing new taxes on the financial services industry, or yield to popular resentment against super sized profits they generate.
One of the options the Treasury has examined imposing a tax on “excess” bank profits in its bid to return the government to budget surplus by the 2012 to 2013 deadline.
Ken Henry, secretary for the Treasury is said to have looked at a number of methods of raising revenue from the strength and profits of the Australian banking industry.
Speculation over the possibility of a banking super profits tax began after the government announced its intention to impose the unpopular mining tax last May, a proposal it was later forced to abandon and ultimately led to a change in Prime Minister.
The proposal for a tax on banks however has as would be expected come in for intense criticism from the major banks themselves. The big four argue that a tax on the industry would be unfair, and Federal Treasurer Wayne Swan and then assistant treasurer Chris Bowen both ruled out the possibility of such a tax.
The banks have also warned that any tax imposed on them would likely ultimately be passed on to consumers in the form of higher charges. Dr. Henry is said to have carried out the Treasury examination of the proposal without consulting Australia’s top four lenders.
Major lenders were quick to voice strong opposition to the proposals on Wednesday, and many analysts believe that the political will to tax the banks is fairly week.
Steve Munchenberg chief executive of the Australian Bankers Association said the proposal was wrong headed since the industry’s return on assets was less than 1 per cent.
“We don’t think its a serious proposition that the government is going to impose a new tax on the banks, for two reasons. The first is that the banks make big profits, but are big businesses. The return on equity is where it’s been for the past 30 years. The other factor is that it would lead to higher costs for banks. It wouldn’t solve a problem, especially if it were to be passed on to consumers.” Mr. Munchenberg said.
He added that the proposal had the potential to have broad economic ramifications if it resulted in higher fees and charges.
I would be very surprised if the government was to look at it, given it has been ruled out before. If that changes, there would be economic implications. I don’t see this as currently being contemplated by the government.”
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NAB Increases Home Loan Market Share Whilst Losing Deposits
Australian banking major National Australia Bank, which raised its interest rates by less than its big four rivals has managed to capitalize on that differential by increasing its mortgage lending market share, though as the expense of losing some of its deposits.
The Australian Prudential Regulation Authority (APRA) published December statistics earlier this week which showed that NAB has managed to capture some market share at the expense of its rivals with its “Fair Value” banking campaign.
Australia’s fourth largest lender by market capitalisation increased its mortgage portfolio by 1.3 per cent in December, compared with 0.2 per cent for CBA, 0.55 per cent for Westpac and 0.8 per cent for ANZ.
NAB’s mortgage book now consists of $105.5 billion in owner occupied home loans and $50.24 billion in investment loans.
CBA and Westpac Australia’s two largest mortgage lenders have deliberately slowed down their mortgage lending, after having rapidly expanded their portfolio during the economic slowdown.
A consumer backlash against CBA, which raised its mortgage lending rates by nearly double the move by the central bank was also a reason for the slowdown in mortgage lending by Australia’s largest bank.
NAB has the equal cheapest standard variable rate among the majors at 7.67 per cent, with ANZ, compared with Westpac’s 7.86 per cent and CBA’s 7.81 per cent.
The data from APRA also suggests that contrastingly NAB experienced a marked drop in the level of its deposits which fell by 1.8 per cent in December or by $5 billion.
However deposits across all Australian banks grew by 18 per cent on an annualized basis for the month, whilst corporate deposits rose by 13 per cent.
Global credit ratings agency Fitch released a report this week which said that banks in the Asia Pacific Region continued to remain amongst the most stable in the world and highlighted Australian lenders as being in strong shape despite the potential that their earnings growth would fall this year.
“The improvements in profitability in 2010 have been heavily influenced by lower impairment charges and asset quality stabilizing. There is less scope for reductions in these charges in 2011, which together with modest top line growth suggests that return on equity and assets will not improve significantly.” Fitch analyst John Miles said.
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NAB Once Again Experiences Technical Problems With Online Banking
The internet banking portal of Australian banking major National Australia Bank is once again experiencing technical difficulties and has crashed, weeks after a software glitch in its systems processes caused chaos for thousands of customers.
“NAB internet banking is currently experiencing technical difficulties,” the site told visitors. “We are investigating the cause of the interruption and will restore the service as quickly as possible.”
The current problem is not as serious as previous issues faced by the lender. NAB decided to take the site off line when it emerged that the system was not allowing customers to log on in the usual way. NAB says the site will continue to remain off line whilst it works to resolve the issue though it was unable to specify exactly when that would occur.
Last year the lender experienced technical difficulties processing transactions, and made the problem even worse when it botched the initial repair job, which left hundreds of thousands of customers cashless, and unable to access their bank balances.
NAB through its website requested its customers to make use of its telephone banking service which is operating as normal, whilst it works to resume normal services of its internet banking facilities.
An NAB spokesperson said the problem occurred at 9.40am eastern daylight time, and initially also affected its telephone banking system, however that problem has already been resolved. The spokesperson said that today’s issues are not in any way related to the problems that dogged the lender in November last year.
Separately, NAB confirmed that a communications error was responsible for multiple emails and SMS’s sent to its online bank UBank customers.
“On behalf of the team at UBank, I’d like to apologise for any duplicate email or SMS messages you may have received from us yesterday (Sunday, 30 January 2011),” read one update to customers regarding the messages.
“Unfortunately we experienced an issue with our communications system, which meant some customers were re-sent several old messages, that we’d previously sent to them.”