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Westpac Online Investing Slashes Brokerage Fees
Westpac Online Investing is seeking to increase its market share by the middle of next year, and as part of that plan has slashed its brokerage fees, bringing them into parity with larger rivals Commec and E*Trade.
Previously Westpac Online Investing customers who held cash investment accounts were charged $24.95. Westpac has reduced the brokerage fee to $19.95 according to a report in the Australian Financial Review.
Additionally, Westpac clients who conduct three or more trades every month, will be eligible for a variable bonus rate of 0.9 per cent, taking the total rate to 5.65 per cent.
Currently, Westpac controls about 10 per cent of the online market, compared with about 50 per cent by Commsec and 18 per cent by E*Trade, according to the AFR.
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RBA Warns Australian Banks Lowering Mortgage Lending Standards
The central bank is warning that Australian lenders have begun to lower their mortgage lending standards as they seek to achieve the turbo charged pre financial crisis growth rates, an objective the RBA says is unrealistic.
The Reserve Bank of Australia says that as lenders compete for new mortgage borrowers, they were increasing their maximum loan to valuation ratios.
“Increasing competition in housing loans is starting to put pressure on lending standards,” the bank said.
Smaller regional lenders, building societies and credit unions have all been trying to re capture some of the market share they ceded to the big four lenders by offering cut price mortgage deals. This has resulted in a number of mortgage borrowers refinancing their home loans to take advantage of lower interest rates offered by second tier lenders.
“If industry participants were to attempt to sustain earlier rates of domestic credit growth, they could be induced to take risks that may subsequently be difficult to manage,” the RBA said.
Despite the decline in lending standards, the central bank says that the proportion of home loans that had become delinquent remains unchanged at a benign at 0.7 per cent.
The central bank has also been following the performance of home loans to property buyers who took advantage of the first time home buyers grant that was introduced as part of the Federal government’s stimulus package in response to the global financial crisis.
The RBA says buyers who took advantage of the grant typically had lower average incomes and borrowed a larger proportion of the purchase price, and relied on record low interest rates compared to the typical mortgage borrower.
However since then interest rates have been hiked several times, and according to the central bank, borrowers who took advantage of the grant, do not seem to be suffering from a greater degree of delinquency compared to any other type of first home buyers and are beginning to pay off their debts.
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ANZ Chief Says Lender Will Not Be Drawn Into Bidding Wars For Assets
Mike Smith, chief executive of Australian banking major says that despite the lenders increased appetite for acquisition, ANZ has no intention of being drawn into bidding wars for any assets.
Mr. Smith believes that ANZ is well positioned to take advantage of an increasing number of European lenders who are gearing up to divest assets as they seek to raise capital to meet stricter prudential and regulation requirements.
In the recent past ANZ has twice been outbid, first in the auction process for the Indian branch network of Royal Bank of Scotland, and later in a failed bid to acquire Korea Exchange Bank.
Mr. Smith says that an acquisition target would need to meet “strict” criteria on pricing, and that ANZ should be able to wring out significant cost savings.
“I don’t think the market is healing itself in Europe,” he said. “Look at the European banks and their need for capital because of Basel III. There are still the sovereign debt issues and that has not been marked-to-market in their books. There is still Portugal, Ireland and Greece. I think they have to be restructured, that’s the only way they have to be restructured. The banks are going to have to take a haircut. They are going to have to sell some of the family silver. They may not want to but they are going to have to.”
ANZ said it would aim to generate 25-30 per cent of profit from Asia, Europe and America by the end of 2017.
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Investors Question ANZ Asian Expansion
Mike Smith, chief executive of Australian banking major ANZ who has set the lender on a course of transforming itself into a super regional bank, is trying to convince investors that his strategy is the best approach for Australia’s third largest bank.
Melbourne based ANZ has the goal of deriving 20 per cent of its earnings from Asia by 2012, a benchmark that has been met by some degree of skepticism by certain investors.
Mr. Smith remains unperturbed however and has even upped the ante, saying he believes that ANZ could derive anywhere between 25 to 30 per cent of its earnings from its international businesses which include Asia, Europe and North America within six years. Since ANZ’s European and North American businesses are fairly minimal, that is ANZ’s coded way of saying it will derive the bulk of its earnings target from Asia within six years.
The upgrade in targeted earnings from Asia is likely to worry those who were already skeptical of ANZ’s plans to begin with for Asia. However there are plenty who believe the plan to transform itself into a pan Asian lender is well conceived, whilst others worry that the Australian business is not being focused on as the lender focuses excessively on Asia.
Critics of the strategy say that whilst Asia will ultimately account for just one fifth of the bank’s total earnings, it dominates the attention of both the board and the senior management of ANZ.
ANZ’s retail business in Australia has performed well, but investors fret over how the business will grow going forward. ANZ seems content to maintain its 14 per cent market share in mortgage lending, in an environment where rivals CBA, NAB and Westpac are battling it out.
Given that further consolidation in the Australian banking sector that includes a big four lender is unlikely to be tolerated by the competition regulator, it could be interpreted as prudence that Mr. Smith has embarked on a strategy of Asian expansion.
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Macquarie Chairman Steps Down For Health Reasons
David Clarke, chairman of Australian investment banking major Macquarie Group has tendered his resignation citing health reasons, 19 months after resuming his responsibilities following treatment for cancer.
Mr. Clarke is being replaced by Kevin McCann, the Sydney based company’s lead independent director. Macquarie spokeswoman Paula Hannaford declined to disclose the nature of Clarke’s illness in a telephone interview.
Mr. McCann also sits on the boards of BlueScope Steel Ltd and Origin Energy Ltd and will oversee Macquarie’s expansion into North and Latin America. Last month Macquarie cut its guidance for second half earnings, and according to UBS, the company risks being caught in an untenable position as it gets squeezed by traditional wall street giants and boutique advisory firms.
Mr. Clarke is considered one of Australia’s “great business leaders” helping transform Macquarie into a truly global operation, employing over 15,500 employees, compared with the 12 staff employed by its predecessor firm Hill Samuel Australia in 1971.
Mr. McCann assumed Mr. Clarke’s responsibilities when the latter took a nine-month leave of absence in November 2008 for medical treatment.
“I speak for every board member, past and present, when I say it was an honor to serve with David to build a successful global operation from such small beginnings,” McCann said in today’s statement.
Clarke was appointed joint managing director of Hill Samuel in 1972, before being appointed managing director in 1977 and executive chairman in 1984, Macquarie said in the statement. He held the post of executive chairman of Macquarie from 1985 to March 2007, when he ceased executive duties.
McCann has been an independent voting director of Macquarie Group since August 2007, and on Macquarie Bank Ltd.’s board since December 1996. McCann is Chairman of Origin Energy, Australia’s largest energy retailer, and a director at BlueScope, the nation’s biggest steelmaker.
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Shares Of Australian Insures Drop As Investors Fret Over Japan
Shares of Australian insurers that have exposure to Japan are vulnerable to sell offs amid investor fears that reinsurance costs will soar.
Australia’s largest insurer QBE Insurance Group also has the biggest exposure to Japan warned on Monday that it expects net claims of US$125 million. Its shares fell by 1 per cent on Monday, whilst rival Insurance Australia Group saw its share price decline by 2.6 per cent, with Suncorp falling 1.3 per cent. Neither IAG nor Suncorp have any exposure to Japan, but their shares still sold off as investors expressed concern that the two companies would be negatively impacted by rising reinsurance costs.
Southern Cross equities director Charlie Aitken warned that Australian insurers were headed for broker downgrades.
“This large-scale disaster may well prove the straw that breaks the reinsurance camel’s back. What’s bad for reinsurers is worse for insurers, with reinsurance rates likely to go through the roof and crush margins,” Mr Aitken said.
On Monday, QBE released a statement saying that its exposure to large individual and catastrophe claims year to date was approximately US$550 million, well below its budgeted US$1.65 billion.
“The majority of our estimated net claims from the devastating Japanese earthquake will come from the relatively low exposure in our reinsurance, marine and energy operations in Europe,” chief executive Frank O’Halloran said.
Goldman Sachs Analyst Ryan Fisher however raised the question of whether QBE’s budget of US$1.65 billion was “no longer looking as large or comfortable as it usually would” given that the US hurricane season usually happens in the second half of the year.
QBE is one of the only Australian insurers with exposure to the earthquake that has devastated Japan and the resulting tsunami. IAG has no exposure to Japan since it does no business there, but does have operations in Thailand and Malaysia, whilst Suncorp is purely Australia and New Zealand focused, with minimal exposure in Asia.
A spokesperson for the Insurance Council of Australia said: “The impact of Japan’s catastrophes is minimal to insurance companies in Australia, with the exception of QBE, which has some exposure in Japan.”
The reinsurance majors such as Swiss Re, Munich Re, and Hannover Re all say that it is far to early to be able to estimate their potential exposure to the disaster or Japan’s losses for the insurance industry.
But Mr Aitken said he expected reinsurers to start rationing reinsurance. “Reinsurance costs would rise sharply as reinsurers become more selective and start rationing reinsurance,” he said.
Munich Re, the world’s No 1 reinsurer has operated in Japan since 1912 and has an office in Tokyo.
Munich Re’s Nikola Kemper in Hong Kong said: “It is still too early to issue any loss estimates (economic and insured) or discuss the impact on reinsurance around the world.” In an earlier statement the company said:”Since this analysis is very complex, it is far too early to provide any reliable statements regarding the insured losses and Munich Re’s loss burden from the quake.”
But Boston-based AIR Worldwide estimated that the earthquake had caused as much as $US35bn in insured property losses excluding the tsunami.
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Central Bank Rejects Proposal For Government Guarantee On Small Business Lending
The Australian central bank has rejected the idea that the government should offer a small business loan guarantee scheme, similar to ones operated in the UK, US and Canada.
Guy Debelle assistant governor of the Reserve Bank of Australia said the central bank had taken a look at such schemes, finding they had achieved mixed success.
Mr. Debelle testifying before a Senate committee inquiry into small business lending, said that the government would require a fee ranging between 2 to 3 per cent, to compensate it for the risk of offering small business loan guarantees.
“It would be a very large obstacle,” he said, adding that it explained the low take-up of the schemes.
John Broadbent who runs the RBA’s domestic market operations said there are always concerns when it comes to any form of government lending guarantee.
“Our view is there’s a threat of moral hazard in guaranteeing anything,” he said, with lenders likely to take bigger risks if they thought the government would pick up the tab for anything going wrong.
Over the last few weeks, Mr. Debelle says there have been signs that banks were keen to increase their lending exposure to small businesses, though still remain cautious on commercial property lending. However some non bank lenders where offering “equity-like funding” for property projects.
“Banks are looking a lot more aggressively at small business lending,” he said, although risk levels had not returned to the practices that prevailed before the global financial crisis.
The Australian Chamber of Commerce and Industry submission to the inquiry recorded that some form of government support to small business lending was offered in the US, Canada, Japan and Korea. It called on Canberra to explore the strategies adopted in these countries.
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St George Rolls Out National Lending Strategy
Westpac subsidiary St. George is betting that the impending re-launch of its Bank of Melbourne brand will improve its prospects for developing a robust national lending business.
Over the last year St George has experienced poor growth in both its business and consumer lending units, so much so that it was criticized by Gail Kelly chief executive of the lenders parent Westpac, who has ordered a complete overhaul in order to restore growth.
As part of its strategy to restore growth, St George is re-branding its branch banking business in Victoria as Bank of Melbourne, after Westpac initially dropped the brand over seven years ago.
St George intends to open as many as 14 new branches under the Bank of Melbourne brand this year, and the re-branding exercise is estimated to cost approximately $90 million
The plan to re-establish the Bank of Melbourne brand is an extension of the multi-brand strategy Westpac operates nationally, according to St George chief executive Rob Chapman.
The group already has the BankSA regional brand and has not ruled out re branding St George’s Queensland and WA operations.
“We do want to chase the premium end of consumer and capture a slice of the small and medium enterprise market because we don’t think any bank does that exceptionally well right now. We want to position the bank so we can tailor-make it. One of the things all banks can become constrained by is thinking this is the way we have always done it. We want it so we can build up what the consumer wants with retail banking, financial advice and wealth management.” Mr. Chapman said.
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Australian Banks Relax Mortgage Lending Credit Standards
As competition intensifies in the market for mortgage lending, and funding costs ease, Australian lenders look set to relax credit standards for mortgage borrowers.
According to a report authored by UBS which polled both the major and regional lenders, banks have relaxed their underwriting standards over the last year as they seek to cling to their individual share of the mortgage lending market against a backdrop of intense competition.
Recently CBA, the nation’s largest mortgage lender said it intends to reduce the loan to valuation ratio on its mortgage product in response to NAB’s aggressive marketing campaign which encourages customers of rivals to switch their lenders, and have their exit fees paid by NAB.
In 2009 in response to rising funding costs and a glut of buyers looking to take advantage of a government subsidy and buy their first homes, lenders tightened their lending standards aggressively.
Many lenders felt pressure on their balance sheets from the increased demand for housing and consciously decided to ensure that new mortgages were written for the highest quality borrowers.
Consumers make up about 65 per cent of the banks’ loan books and account for 40 per cent of the industry’s profitability.
The banks are likely to make further changes to their current discounts applied to new home loans offering as much as 80 basis points off their standard variable rates to new customers.
The report also shows that the banks’ net interest margins are likely to face renewed pressure this year as a result of increased rivalry.
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Australian Banks Prepare To Do Battle With The Government
Australia’s major lenders have signaled their intention to fight a protracted battle against the government’s plans to abolish fees charged to credit card borrowers who exceed their limit, and ban credit limit upgrades, and the government seeks greater regulatory oversight of the industry.
Three of the big four lenders, including NAB, Westpac and CBA are in the process of finalizing their formal submission to the government in which they all heavily criticize the proposal
ANZ has chosen not to prepare its own submission but opted to contribute to one drafted by the Australian Bankers Association instead.
In December last year the government unveiled a package of reform proposals one of which included the scrapping of so called over the limit fees, which amongst the major lenders amounts to $9 every time a credit card borrower exceeds their credit limit.
The government is seeking to ban banks from offering their customers unsolicited credit limit upgrades. Instead, customers will now have to approach the banks to increase their credit-card limits.
The government has been heavily criticized for only allowing the lenders just two days to prepare their submissions in response to the proposed legislation, and as of Tuesday were scrambling to prepare their statements during the consultation period.
In their submissions, Australian lenders are likely to argue that over the limit fees are required because lenders are providing a service to customers who exceed their limit by allowing transactions to occur.
CBA heavily criticized the proposed legislation on Tuesday, saying much more time was needed to contribute to the public debate.
“The Commonwealth Bank is concerned at the short consultation period and also the short period before introduction of any legislation,” a statement from a spokesman said.
“The bank believes that the issues raised should be thoroughly debated and considered before introduction.”