Compare Credit Cards
- Credit Cards Home
- Balance Transfer Rate
- Low Interest
- No Annual Fee
- Reward Credit Cards
- Business Credit Cards
- Gold & Platinum
- Debit Cards
Compare Banking
Compare Loans
Compare Insurance
- Insurance Home
- Health Insurance
- Home Insurance
- Life Insurance
- Motor & Bike Insurance
- Travel Insurance
Investment Providers
Links
Ratings Downgrade May Result In Big Four Lenders Becoming Target Of Short Sellers
After being downgraded by credit ratings agency Moody’s Investor Services last week, the major Australia banks may find themselves the target of short selling by global hedge fund managers.
Influential analyst Charlie Aitken of Southern Cross Equities said “While just about everyone, including the banks themselves, dismissed Moody’s downgrade, I would suggest it is significant and may well trigger global hedge funds shorting the big four banks, particularly now that all but NAB are ex-dividend.”
Last week Moody’s downgraded the long term senior unsecured debt of the big four Australian lenders from Aa1 to Aa2 on concerns by the ratings agency of the lenders dependence on wholesale funding markets.
As the Australian economy becomes increasingly skewed around the commodity boom that have produced favourable terms of trade and high asset prices “there is a potential for confidence shocks to impact the banks’ access to funding”, Moody’s said.
Of the major lenders, according to Mr. Aitken Westpac was most vulnerable.
“My gut feel is the stock the hedge funds will target from the short side is Westpac, with the highest percentage of domestic earnings and the highest exposure to east coast Australian property, small and medium enterprises and households,” he wrote. Westpac also had the highest wholesale funding requirements, he said.
Despite the warning, many analysts remain unperturbed by the downgrade. In a note to clients Macquarie said that the big four banks were amongst the highest rated lenders in the world in spite of a downgrade by the credit ratings agency.
“In addition, given that asset growth is largely being funded by deposit growth now (which is likely to be the case in the future), the downgrade would seem a moot point anyway,” the analysts said.
“We believe this is likely to seal the low asset growth outlook for the sector as the banks steadily move to lower loan-to-deposit ratios and a more balanced funding structure.” NAB appeared most exposed to issues highlighted by Moody’s, it said.
Compare Australian Business Bank Account Deals
Chief Executives Warn Australian Central Bank Against Further Rate Hikes
Over the next few months the Australian central bank will tighten interest rates despite concern by executives who run some of the country’s largest companies that the economy faces problems that are not being reflected or accounted for properly, due to the impact of the booming mining sector.
During the Reserve Bank of Australia’s May board meeting, the minutes of which were published on Tuesday, the RBA confirmed it was leaning towards pushing interest rates higher as it seeks to wrest back control of inflation, and harness the future growth of the Australian economy.
The RBA did not indicate the timing of any future interest rate rise, but financial markets are pricing in a rate rise within the next three months, which would take the official cash rate from its current 4.75 per cent to at least 5 per cent.
Such a move will anger chief executives of Australia’s largest companies, who are aggressively lobbying the RBA to maintain rates at their current level, rather than risk further deterioration of consumer sentiment as a result of higher interest rates.
Fairfax chairman Roger Corbett who is also on the RBA board said that the Australian economy outside of the mining sector remained remarkably weak.
“The average Australian could quite rightly ask: ‘How is it we are going through the biggest resources boom in the nation’s history and at the same time I am finding it quite hard to make ends meet?’
“This ongoing debate about the economy, and the obvious implication that if things continue there will be further increases in interest rates, is very sobering for most Australians.”
Mr. Corbett’s warning came just a day after Kerry stokes, chairman of Seven Group, Gail Kelly chief executive of Westpac, and Westfield managing director Steven Lowy all said that the economy was not strong enough to cope with tighter interest rates.
Mrs. Kelly in particular said that Australian consumers at best could only cope with a single rate hike this year, whilst Mr. Stokes said that when the Reserve Bank lifted rates in November of last year, the economy effectively ground to a halt.
Compare Australian Health Insurance Deals
Housing Continues Slump As Home Loans Dive To Ten Month Low
Flooding in Queensland and higher interest have taken their toll on the market for housing in Australia which saw finance for home loans in March fall to a 10 month low, suggesting that the property market will remain flat throughout the rest of the year, particularly since the prospect of even higher interest rates loom.
Seasonally adjusted, the number of approvals for housing finance declined by 1.5 per cent during March from February according to the Australian Bureau of Statistics.
Queensland has so far failed to recover from the impact of natural disasters it experienced during the first quarter, which included some of the worst flooding ever recorded in history as well as a huge cyclone which hit the state in February.
In March, home loans declined by 2.4 per cent in Queensland, adding to the 0.5 per cent decline felt in February and the whopping 15.7 per cent drop in January the ABS said.
Wayne Swan, Federal Treasurer last week said that the natural disasters in Queensland could cost the economy as much as $9 billion, two thirds of which as a result of lost coal production in Queensland which saw open cut mines filled with floodwater.
Tourism in the state, which drives much of the economy has also been hit hard as a result of the strong Australian dollar.
Sharp rate hikes have also sent the housing industry reeling as banks reacted to higher funding costs by hiking mortgage lending rates.
The Australian central bank has signalled that it will lift interest rates further during the coming months, as it seeks to counter inflationary pressures that are being felt throughout the economy.
The Reserve Bank of Australia has hike interest rates seven times since the end of 2009, with the cash rate currently standing at 4.75 per cent.
Earlier in the month, the central bank revised its forecast for inflation upward over the medium term, suggesting that it now feel there is urgency in countering price rise pressure now building in the economy.
The resource sector or mining boom has engulfed the entire Australian economy, bringing with it both full employment and upward pressure on wages. Higher interest rates represent a significant headwind for house prices, which are already high by historical standards, and have been moving sideways or lower over the course of the last year.
The data however has not been all bad. Loans to property investors rose 2.1 per cent in March while the proportion of first-home buyers in the market rose to 16 per cent from 14.9 per cent in February.
Compare Australian Bank Account Deals
Competition Regulator To Examine Joint Venture Credit Agency
The competition regulator is considering market concerns over the creation of a credit agency that will be part owned by the major Australian banks.
The major lenders will each own a four per cent stake in a joint venture to be called Experian Australia Credit Services, the remaining 76 per cent of the venture will be held by Britain’s Experian group.
Other shareholders, with 4 per cent stakes include Citigroup and GE.
The venture was announced by Experian in April, which will seek to provide business and consumer credit information to banks.
The fact that major lenders will own equity stakes in the proposed venture has raised concerns within the industry from rivals such as Veda Advantage and Dun & Bradstreet.
The Australian Competition & Consumer Commission says it will now look closely at the extent to which the joint venture may affect competition within the industry by reducing or even refusing rivals access to credit data.
The competition regulator has noted however, that under the terms of the agreement signed by joint venture partners, the investor banks will continue to supply credit data to rival agencies. The ACCC says it will focus on the issues related to continued access by rival agencies to their customers, with the participant banks continuing to have an incentive to use rival agencies in order to provide competition.
The lenders might value the large, historical databases of the other agencies.
Finally, the ACCC said the terms of the joint venture allowed the investors to use the rival agencies.
Market participants worry whether rival agencies would get the same credit information as Experian, and whether the joint venture would offer the same terms to other banks and credit unions who are not shareholders in the venture.
Compare Australian Term Deposit Account Deals
CBA Says At Least To Further Rate Rises In Next Six Months
Australian banking major CBA says it expects at least one if not two more official interest rate hikes over the next half year, which the lender says it will pass on to its mortgage borrowers.
CBA chief executive Ralph Norris made the comments whilst announcing a $1.7 billion unaudited quarterly profit. Mr. Norris described the federal budget as being “reasonable” adding that its “bark was probably worse than the bite” though the “The trajectory of the budget is very much in the right direction,” he said.
CBA completes the earnings reporting season of the major lenders with March quarter trading update, after rivals Westpac, ANZ and NAB all made interim profits announcements last week.
Like its rivals CBA said that demand for credit remains subdued as a result of poor consumer and business confidence, though the lender did say there were signs of a rebound.
Like the other banks, CBA said credit demand was subdued due to fragile business and consumer confidence, despite early signs of a rebound in business credit.
“Notwithstanding present challenges, we continue to expect a gradual improvement in operating conditions through calendar 2011, as the economy recovery strengthens and system credit growth rebounds,” Mr Norris said.
Like rivals Westpac and ANZ, CBA also reported a rise in home loan arrears, though that has been attributed to the impact of natural disasters, and normal seasonal factors post Christmas, rather than anything which could be considered systemic.
Compare Australian Bank Account Deals
Senate Committee Recommends Overturning Mortgage Exit Fee Ban
A Senate committee has rejected a key banking reform proposed by Federal Treasurer Wayne Swan, saying that the government must reconsider its proposal seeking to ban mortgage exit fees.
The Senate economics committee inquiry into competition in the banking sector said that the ban on exit fees may well result in less competition and higher upfront fees.
“The committee recommends that the government reconsider its decision to ban exit fees, before the amended regulations come into effect, with a view to allowing enough time for the effectiveness of the existing ban on unfair and unconscionable exit fees … to be assessed If it proceeds with the ban, it should only apply to authorised deposit-taking institutions.” The committee, which is primarily made up of opposition lawmakers said.
The proposal to ban exit fees is set to be implemented by July 1st.
The exit fee ban has been enacted by regulation and is due to take effect from July 1 this year.
A minority report authored by a separate group of government senators said it was surprised by the committee’s findings.
“The government senators cannot support the Coalition’s majority report recommendation to keep exit fees in place. Exit fees for new customers only reinforce the barrier to switching, and weaken the power of customers.” it said.
As part of its much hyped set of banking reforms, the government announced a ban on mortgage exit fees in December of last year, which was immediately challenged by the Australian Banker’s Association, which said such a ban would result in either higher interest rates or higher establishment fees.
Banking majors NAB and ANZ have both voluntarily ceased charging mortgage exit fees, pre-empting the introduction of legislation.
“An outright ban will reduce competition from this sector. The committee believes that banning exit fees may lead to higher upfront fees, including for borrowers who never incur exit fees. It is notable that the only financial intermediaries that openly welcomed the abolition of exit fees were the major banks.” the majority report noted.
Wayne Swan said he was disappointing by the fact that the Coalition believes Australian families should be locked into uncompetitive mortgages.
“The Liberals need to stop standing up for the big banks and start standing up for Australian families,” Mr. Swan said.
Compare Australian Savings Account Deals
Australian Banks Not To Be Impacted By Growing Mortgage Arrears
Noted banking analysts James Ellis and Jarrod Martin of Credit Suisse say that the trend of rising arrears in mortgages reported by the major Australian banks during earnings season is unlikely to have a significant impact or result in losses.
In its review of half year results Credit Suisse said that the overall asset quality for the major lender had suffered from “modest” deterioration, with all lenders suffering from increased impairment with the exception of ANZ.
“But it’s difficult to see substantial losses (in home lending),” Mr Ellis said.
Unemployment remained low, he said, and the price of houses was stable.
Despite the cautious optimism with regard to mortgage losses, Credit Suisse says the key risk faced by major lenders in a dual speed economy is the re-emergence of bad debt charges. Last week banking chieftains said that the strong Australian dollar was taking its toll on the tourism, retail and manufacturing sectors.
Credit Suisse rates NAB as “outperform” and rates its rivals Westpac, ANZ and CBA as “neutral”.
According to the investment bank, NAB has momentum in lending which will last well into the second half of the year. NAB’s return on equity also appears to be improving, and Credit Suisse expects NAB to benefit from a potential recovery in earnings from its British banking assert, and a possible capital release from winding down non core assets.
Mr Martin said NAB’s rising share of the mortgage market had so far been achieved without any cost to the net interest margin, despite the bank having the lowest variable interest rate.
“If they can maintain market share growth without compromising the margin, then the strategy will be a winner,” he said.
Compare Australian Home Insurance Deals
Westpac Chairman To Step Down In December
Ted Evans, chairman of Australian banking major Westpac will retire after the lender’s annual general meeting which is scheduled for December, and is set to be replaced by Lindsay Maxsted, the current chairman of the board’s audit committee.
Mr. Evans assumed the chairman’s role in 2007, having joined Westpac in 2001. He successfully helped guide the bank through its transformative acquisition of St George, as well the global financial crisis.
“With the success of the St George merger now assured, and the group performing very strongly under our talented and stable management team, I judged the time right to announce my retirement,” said Mr Evans in a statement. “Lindsay is an enormously experienced and capable director, and I know I will leave the chair of this great company in the very best of hands.”
“Ted’s wisdom and guidance as chairman have been invaluable as Westpac successfully navigated the global financial crisis and the worst of its aftermath, while at the same time bedding down the biggest financial services merger in this country’s history,” Mr Maxsted said.
“It has been a privilege to serve under Ted’s leadership and I am acutely aware that he leaves very large shoes to fill.”
Compare Australian Bank Account Deals
ANZ Chief Worried By Rising Defaults
Mike Smith, chief executive of Australian banking major ANZ says he is increasingly concerned that consumers will start to struggle to repay their loans against a backdrop of ever higher interest rates.
Mr. Smith said that he was worried about the quality of credit since people had stopped making payments on their credit card debt. The ANZ chief added that the trend was strange since poor credit quality usually only occurred during periods of high and rising unemployment.
Mr. Smith said it appears that the trend is seasonal, and that it is occurring at a time when people were taking annual leave, and as a result not repaying their monthly credit card bill whilst away.
“But I think that interest rates are beginning to hurt a little bit now, so the recent rises are beginning to bite,” he said, adding that the Queensland floods had contributed to the issue.
Mr. Smith went on to say that he did not believe that credit growth would ever return to the levels seen prior to the onset of the global financial crisis, and that credit growth had slowed as a result of businesses and consumers having become more cautious or wishing to save more.
The ANZ boss said that the manufacturing industry as well as tourism and retail had all been negatively impacted by the strong Australian dollar, and would have to modify their business models so that they could compete against cheaper imports.
Mr. Smith said the Aussie dollar would continue to rise.
“I think we will see it move through $1.10 and get even stronger than that. I can’t see anything that will knock it off the perch because it’s not only the strong Australian dollar, it’s also the weak US dollar. When you think about what is happening in the States, I can’t see them increasing rates for at least 18 months.” he said.
Compare Australian Term Deposit Account Deals
New Australian Credit Bureau Set To Be Launched
Experian a global information services company is set to launch a joint venture with ANZ, CBA, GE Capital, NAB and Westpac.
The venture will be called Experian Australia Credit Services and will function as an Australian credit bureau that will offer business and consumer credit information to credit providers.
Experian says the new joint venture would provide services that will enable lenders to asses risk and therefore provide credit more consistently and efficiently.
The venture will face competition from rival credit companies such as Dun & Bradstreet and Veda Advantage.
“We believe Australia is ripe for healthy competition. Our global experience shows that increased bureau competition drives innovation and delivers better services for clients and consumers.The prospect of an inclusive bureau in Australia, accessible to all industry sectors, will strengthen standards in credit reporting, data quality and governance — which is particularly important in a changing regulatory environment,” said Experian’s newly appointed managing director, Kim Jenkins.