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Bitter Rivals Refuse To Accept Telstra Invitation To Lunch
Telecom incumbent Telstra’s recent attempt at improving its relations with key rivals seems to have failed with the refusal of one competitor to attend a lunch hosted by David Thodey.
According to those invited Telstra’ belated attempt at reconciliation has come “several years” too late, and that problems that have arisen over the long term simply could not be solved “over a cup of tea.
Mr. Thodey, Telstra CEO was forced to cancel his event in response.
Telstra rivals say that the incumbent fails to understand their grievances, and has taken too long to fix major systemic issues.
Glenn Osborne, who runs Telstra’s wholesale business says that one company who turned down the invite could have: ”no substantive issues regarding Telstra Wholesale’s performance and that the concerns … relating to separation are of a more philosophical nature”.
Telstra’s bid to extend an olive branch comes against a backdrop of dramatic change that is poised to occur within the competitive structure of the telecommunications industry. The incumbent is preparing to live a life after fixed line monopoly, as the fibre optic network being constructed by the NBN company owned by the Australian government comes into play.
Between 1997 and June 2009, Telstra’s wholesale customers have filed 95 access disputes with the competition watchdog.
A Telstra spokeswoman said yesterday that Mr Thodey had initiated the forum in ”good faith to meet together to discuss the challenges and opportunities we face as an industry at a time of unprecedented change. It was a genuine opportunity for open dialogue with our customers, communicated directly to our customers – we didn’t publicise it in the media because it wasn’t a publicity stunt.”
But Telstra’s long-term wholesale customers replied that tougher government reform was needed precisely because Telstra believed there were no problems at the wholesale level.
”We are looking to refuse the offer on the basis that the problems are systemic and can only be fixed by those that establish and police the system – the government and the ACCC,” Macquarie Telecom’s executive on regulatory and government, Matt Healy, wrote to fellow invitees.
”Telstra benefits from the system and it is disingenuous to think they would voluntarily give this up over a cup of tea. In any event, their letter says there is no problem to fix.”
Optus’s head of regulatory affairs, Andrew Sheridan, replied: ”If Telstra wishes to alleviate industry concern then it can do so by implementing new equivalence arrangements that will guarantee that there is real equality of access between your retail and wholesale customers.”
Banning of Exit Fees To Hurt Smaller Lenders The Most
As of next week, exit fees on mortgages are officially banned, and whilst on the face of things, that may seem great, it is now too late to be careful what you wish for.
In this particular case, borrowers should be extremely careful. It seems to have slipped those who have been pushing for the ban, that the big banks seem awfully relaxed about a regulation that on the surface should cost them a lot of moolah.
Two of the big four lenders, ANZ, and NAB have already scrapped their exit fees. A large part of that policy is driven by the desire to win goodwill from customers, by being ahead of the curve on a move that was inevitable.
NAB has been basing its entire marketing strategy on just such a premise, differentiating itself from its evil big four rivals. That seems to have worked well for it at least in terms of capturing market share, though it remains to be seen what impact that will have on the bottom line.
The point being made however, is that if the banks don’t really seem to be worried by the ban, what exactly does that mean for borrowers, do they benefit in any way from the ban?
The brutal answer to that question is no. Exit Fees are primarily serve smaller lenders and non bank financials, enabling them to stay competitive against intense competition from the big four.
Exit fees are really deferred establishment fees, charges that lenders would levy upfront to cover the cost of establishing a mortgage, which they recoup over the ten to twenty year term of the loan.
Therefore if a borrower exits the mortgage after a couple of years, either because they sold their property, or swapped lenders, smaller banks claw back the establishment cost by charging an exit fee.
The same thing is true for the big banks, however they have far more options available to them in how the claw back this money.
So the bottom line is that those who argued the strongest for the banning of exit fees, the smaller lenders like Aussie Home Loans and such, are likely to be hurt the most by it.
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CBA Refuses To Properly Explain Technical Problem That Caused Internet Banking Failure
After a technical error interrupted services, hundreds of CBA customers were unable to access their bank accounts last week.Despite the interruption to its internet banking services, CBA declined to explain the issue, which resulted in its online banking facility not being fully functional for several hours last Wednesday.
Customers of the bank found they could not access their accounts, were unable to undertake the payment of bills, transfers or remittances whilst the problem was in effect, with some of the bank’s customers saying they had been having problems for two days.
The bank said a “communication system failure” had interrupted its services.
A statement posted at the bank’s NetBank site last night said : “We are currently experiencing some intermittent issues with NetBank affecting transfers, bill payments & International MoneyNetBank should be working but something appears to have gone wrong.”
A Commonwealth Bank spokesman said the problem had been resolved at 8pm.
“Netbank is fully operational. Full service was restored last night, after customers earlier in the day had encountered difficulties completing transfers, bill payments and International Money Transfers, the bank said in a statement issued this afternoon. The Bank identified a communication issue to be the cause, and is continuing to investigate the incident. Restoring services for customers was the first priority. We apologise to customers that were affected yesterday for any inconvenience caused.”
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Australian Consumers Paying Less In Bank Fees
Australian banks are slowly beginning to transfer the burden of fees from consumers to businesses, which now have to bear as much as 13 per cent of the increase in the fee income of Australian lenders.
The scrapping of exception fees, and lower income generated by deposits has resulted in a 16 per cent fall in the amount of fees paid by households according to the central bank, which released the results of an analysis of data from 17 different banks on Thursday.
According to the central bank, consumers paid out a total of $4.2 billion in fees during the 2009-2010 financial year, the lowest they have paid since 2006 as the effect of the scrapping of exception fees began to have an impact, which resulted in lower fees generated from late payment, over drawn and over limit charges.
The average weekly fee paid by consumers dropped by 18 per cent according to the Australian Bankers Association, whilst the RBA says the fee income generated by credit cards also fell by 11 per cent. Deposit income was the most significantly affected, plunging 36 per cent according to the central bank.
Despite those declines, the aggregate fee income across all 17 lenders that were analysed remained unchanged, as fee income derived from businesses leapt by 13.9 per cent, after having risen by 10 per cent in the previous year.
Of this increase, 57 per cent was borne by large businesses, the ABA said.
Lending fees paid by businesses, including both loans and bank bill facilities, surged 25 per cent.
“This largely reflects the repricing of establishment and line fees, which are charged by banks to maintain a line of credit regardless of use,” the RBA said.
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NAB Dares Its Rivals To Match Its Credit Card Reforms
Australian banking major NAB, is adding fuel to the competition war fire, challenging its big four rivals to match it, as the lender applies credit card changes to both new and existing accounts, that will save its customers a combined $225 million.
Credit card reforms proposed by the federal government were passed by the lower house of parliament’s yesterday and also received support from the opposition. Under the proposed changes, unsolicited credit limit upgrades will be banned, while over-the-limit fees will be scaled back. Banks will also have to alter “payment hierarchies”, which effectively direct customer repayments to the credit card debt with the highest interest rates.
The reform proposals still must pass the Senate, but are likely to do so without amendments.
The changes are meant to be applicable only to new accounts, despite an attempt by the Green Party to make the law applicable to existing accounts. NAB however has already unilaterally abolished its over the limit fees and cut its late payment charges, daring its rivals to follow its lead.
Lisa Gray, who runs NAB’s personal banking business says the move by the lender to cut its fees ahead of being forced to by the government had greatly benefited the bank.
NAB as measured by market cap is the fourth largest Australian lender, and it argues that if its rivals do as it does, then customers could save a combined $225 million.
“The other banks should not be waiting for new laws to reform their credit card practices,” Ms Gray said.
“Our personal banking customers have already saved about $60m as a result of our reforms to our credit cards last year.”
The bank says customers of its three rivals would save an estimated $68m from the change in payment hierarchies, $80m by abolishing over-the-limit fees and $70m by cutting late payment fees.
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NAB Index Reveals Broader Australian Economy Merely Limping Along
The results of the most recent monthly business survey conducted by Australian banking major NAB makes it clear that the economy is operating at two speeds, with the mining sector leaving the rest of the economy in its wake.
Overall, though, the economy is merely limping by.
Apart from a dip during the first couple of months, due to natural disasters hitting eastern Australia, the NAB index of business conditions hit its lowest level in May since early 2009, when the economy was still dealing with the aftermath of the global financial crisis.
The index is produced based on a number of measures including employment, profitability and trading conditions.
During May, all three were either at or very near their lowest levels for the last couple of years, excluding the period at the start of the year. However it would be inaccurate to describe the performance of various sectors as being far from even.
But the performance between sectors is far from even.
“Conditions in retail, manufacturing, wholesale and construction are still very poor, while mining conditions outperformed all other industries” said NAB.
The economy is being weighed down by a number of factors including historically higher than average interest rates, property and equity markets which are stagnant, a fiscal policy which is tight, the strong domestic currency, caution being expressed by both households and businesses, tighter lending criteria being imposed by banks, rising energy prices, the Japanese Tsunami and a round of tightening taking place in Asia.
Bubbling underneath all of that. is fears that the property market in China is overextended and may cause a crash in that country’s economy, and worries over whether the debt crisis in Europe will continue to worsen before it gets any better.
Economists believe however that many of those factors will be mitigated by the effects of the long and protracted boom in mining, though economists fail to agree on the actual timing of any recovery in the broader economy.
Most economists expect at least one rise this year. The NAB’s economists reiterated their forecast of two increases in the cash rate by the end of 2011 in a note attached to the results of the index.
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Mining Giant Xstrata Begins Iron Ore Exports From Australia
Mining giant Xstrata PLC says it will begin to export magnetite, a form of iron ore as it seeks to service Asian demand from its mining interests in Australia. The company spent $589 million redeveloping its Ernest Henry copper and gold mine in order to give it iron ore extraction capability.
Xstrata will have a capacity to export 1.2 million tons of iron ore per year, and the move is a key part of the company’s plan, which seeks to transform the Ernest Henry mine, into an underground mine from an open cut mine.
Magnetite is being produces as a by products of the gold and copper ore being extracted from the site, which previously had simply been discounted.
Magnetite, is iron ore which has much lower ferrous (iron) content then typical iron ore which is known as haematite. The former accounts for just one per cent of Australia’s total iron ore production, and has an ferrous contend of 36 per cent, compared with haematite 61 per cent minimum. As a result, magnetite must be upgraded for use in steel making, and is usually converted into pellet form with a much higher ferrous content then in its original state, making it suitable for steel making.
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Lack Of Arrears At NAB Make Investors Comfortable
Lisa Gray, the boss of personal banking at Australian banking major NAB says that despite offering the lowest standard variable home loan rate in the industry, the lender remains immune to rising level of arrears that seems to be affecting the mortgage books of its big four rivals.
Ms Gray said she was still “very comfortable” with arrears rates in the 2009 and 2010 mortgage vintages.
“They’re still performing where we’d expect them to be, and I put that down to a few things,” she said. “First, we have risk-based pricing, so applications with a loan-to-valuation (LVR) of less than 75 are well priced and applications above 85 per cent attract a slightly higher price, which means we get a higher proportion of lower-risk business.”
NAB also benefits from the application of a consistent approach to how it prices its home loans, whilst other banks tend to adjust their rates depending on the customer.
“We’re finding that many customers are asking why they had to threaten to leave before they were offered a better deal,” Ms Gray said.
During last month’s profit reporting season of the big four bank, NAB was the only lender who said it had not experience a rising level of delinquencies.
One of the reasons behind this is NAB was still nursing itself back to health at a time when its rivals were benefiting from strong demand driven by the government assisted first home buyer market which existed in 2008, as part of the response to the financial crisis. Arrears tend to culminate in a peak roughly a couple of years after the loan is drawn down.
In its assessment of the first half year result UBS said that NAB was widely regarded as the banking industry’s strongest, and investors were exceedingly comfortable holding the bank’s shares.
Analyst Jonathan Mott said weakening housing finance approvals, and the “psychological dampener” of falling house prices, could not only lift arrears levels, but also provisioning and losses.
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Big Banks Need To Do More For Green Energy Project Finance
There is a simple logic that underpins investment. Risk versus reward. Nobody will invest in something if they do not see the potential for a return and they expect a greater return for a greater risk. Simple. So how does this relate to coal power stations in the current climate?
Investment in infrastructure seems to be a safe and long-term bet – this has long been the case for power infrastructure. Small risk but consistent reward. It’s not anymore. Despite the noise in the public sphere doubting climate change science, there is little doubt among the scientific community and most governments know that it’s only a matter of time before they need to act on this issue. This, on top of the awareness that fossil fuels are finite resources, has led to most investors clocking on to the reality that investment in non-renewable power sources is a relatively short term bet. Whichever way you think, there is a foreseeable point at which a coal burning power plant becomes worthless. If we can’t burn coal anymore or if there’s no coal to burn, that multi-billion dollar investment is worth only the sum of its scrap value. The end of coal is still down the road but it is signposted and it’s coming up.
Energy costs are rising and the decisions being made about Australia’s energy future have more resonance today than they have in the past. While climate policies in Australia remain unresolved, there is uncertainty about the future of the Australian energy industry and investment has been stifled. What is clear around the world, however, is that investing in renewable energy projects has become a better investment than traditional high pollutant power sources.
Yet in Australia, plans still exist to build 11 new coal power stations around the nation. The recent approval of the new brown coal station in the Latrobe valley is controversial for a number of reasons – but not least for the admission of Australia’s big four banks that they won’t finance the project. Greenpeace’s 2010 Pillars of Pollution report brought substantive focus onto this issue and the banks’ role in the climate crisis.
Westpac responded quickly to the issue and have since released a new policy on “financing sustainable energy” last year. The reform of their lending policy aims to address public concerns that its sustainability rhetoric doesn’t match its lending practices. ANZ has also committed to an increased level of funding of renewable projects.
Despite their policy shifts and their welcomed refusal to fund the Latrobe station, none of the big four have ruled out future funding of new coal power projects.
ANZ, Westpac and the NAB have been intent on marketing their sustainability efforts. But ANZ in particular has been singled out as the worst of the major banks by Greenpeace and are the target of a sustained campaign by a coalition of groups who share those concerns. Over the last five years, ANZ has poured $1.6 billion into the coal industry – more than six times greater than its renewable energy investments.
If ANZ and the other big four made a commitment not to finance new coal power stations and instead put those finances into supporting large-scale renewable energy projects, they would be avoiding the economic uncertainty of backing polluting coal power and guiding the much needed transition to a low carbon economy.
The author of this piece is Sam Rooke, an activist with the organisation Greenpeace, and the opinions expressed are his own, and do not reflect those of money-au.
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ANZ Warned IT Systems Could Buckle
Australian banking major was warned over a year ago that its IT systems were under intense pressure and could buckle.
The bank was warned by consultancy firm Ernst & Young, which had been hired to analyse the company’s operations, and who then spent many months studying the lenders Information Technology systems, concluding that ANZ could save as much as $70 million by consolidating its platforms onto Oracle.
Instead of complying with all the recommendations, chose to adopt only some of them, and ordered a second internal review.
The results of the second review were revealed in April by the Australian, which suggested that ANZ’s ERP systems face operational risks, data inconsistency and business continuity problems.
The report in The Australian quoted sources who said that
The report authored by E&Y and also revealed by The Australian provides details on the entire ANZ corporate system, including modules for human resources, finance and risk.
“Oracle has a wide range of mature solutions that cover the majority of ANZ corporate centre functional requirements.
“The good functional fit, product maturity and strong integration capability of Oracle’s solutions indicates ANZ’s corporate centre requirements can be met quicker and with lower risk,” Ernst &Young says.