Monthly Archives: July 2016

Two of the big bank that you need to know

NAB’s two year rate will lift by 23 basis points to 3.98 per cent, its three-year rate will rise 20 basis points to 4.09 per cent, and its four-year rate will jump 60 basis points to 4.59 per cent. At the same, NAB is reducing its one-year rate by 10 basis points to 3.89 per cent.

On Friday, ANZ increased rates on two-year loans by 23 basis points to 3.9 per cent, and three-year loans 4 per ent. ANZ reduced its four year fixed rate by 10 basis points to 4.74 per cent.

The banks are hiking rates for both owner-occupier loans and loans for property investors. These changes will only new fixed loans, not existing borrowers.

Even so, there has been speculation among analysts that banks may also increase their variable interest rates that most borrowers pay in 2017, in response to higher funding costs.

The big four all raised variable interest rates for property investors in the lead-up to Christmas, but spared owner-occupiers who are a more politically sensitive group of customers.

However, smaller banks have increased variable rates for owner-occupiers, and NAB’s chief operating officer, Antony Cahill said the funding costs for variable loans remained above historical averages.

“We often talk about cost of funds when we are referring to our variable rate mortgages. What I can say is the cost of funds for those mortgages absolutely remains elevated compared to historical levels,” Mr Cahill told BusinessDay.

“That is something we are continuing to see, and it’s something we’re still grappling with in working through how we reflect that longer term in terms of competitive positioning and pricing, etc.”

Soaring iron ore futures as well

  • Fuelling the rises in local mining stocks, iron ore futures in China have jumped another 7.4 per cent
  • DUET shares soar after the company recommends a takeover offer from a Cheung Kong led consortium
  • NAB follows ANZ in hiking fixed-rate mortgage rates again, with investors being hit hardest
  • Kogan.com shares jump after the online retailer sets the scene for another upgrade to 2017 earnings
  • The pound slumps on reports PM Theresa May will call for a hard Brexit in a landmark speech tomorrow

“What’s amazing is that he hasn’t said anything about the yen,” Tatsuo Yamasaki, a former vice finance minister for international affairs, said in an interview. “Last year Yellen was saying that the dollar’s effective rate was up 20 per cent, and it was holding back exports, weighing on profits, and holding down inflation.”

The yen has weakened about 8 per cent since Trump’s win in November and is down about 26 per cent since Prime Minister Shinzo Abe came to power in late December 2012.

Trump has not shied away from bringing up foreign exchange in the past, including promising during the campaign to label China a currency manipulator as soon as he took office. He has also been vocal on trade, vowing to withdraw the US from the Trans-Pacific Partnership negotiations and singling out China, Mexico and Japan at his press conference on Wednesday.

“We have hundreds of billions of dollars of losses on a yearly basis – hundreds of billions with China on trade and trade imbalance, with Japan, with Mexico, with just about everybody. We don’t make good deals anymore,” Trump said in New York last week.

Although Trump did comment on the yen and manipulation in 2015 during the primary, there has been little on the subject from him since that has been noticed by those in Japanese policy circles, like Yamasaki.

Outlook for the Australian

Fitch said while its rating for the banks remained stable, its outlook for the year ahead had been impacted in particular by rising household debt, which was making borrowers more sensitive to interest rate changes or changes in the labour market.

“We still think the labour market is in good condition but there are pockets of underemployment that are impacting affordability,” Fitch director Andrea Jaehne said.

“Salaries are not increasing therefore peoples’ ability to repay loans becomes restrained. People are accepting lower paid jobs, or jobs that are three days a week instead of five.”

Fitch said the banks’ profit growth would likely continue to slow in 2017 due to low interest rates, slow asset growth, higher funding costs and a rise in loan impairment charges.

It forecast the banks would also be under pressure to manage a rise in bad loans, particularly in the mining states of Western Australia and Queensland.

“There are more risks in the market, and the banks’ profits are likely to slow because of the remaining low interest rate environment,” Ms Jaehne said.

“There are too many indications that this year will not be as good as the previous year.”

The banking regulator, the Australian Prudential Regulation Authority, said on Monday it did not believe there was enough systemic risk to enforce extra capital requirements on the banks.

It said it would continue to monitor riskier segments of the housing market, particularly lending to investors and interest-only lending.

“APRA believes the industry has appreciably improved its residential lending standards,” it said.

“APRA is continuing to work to have the improved standards firmly embedded into industry practice.”

The regulator views strong growth in lending to property investors as a key risk indicator for the financial system.

It said that while lending to investors had picked up in recent months, in had slowed on the whole, with investor housing credit growth falling from 10 per cent to 4.9 per cent in the year to September.

Positive sentiment overflowing

“This positive feeling is likely to help the broader Australian market in the short term and we’ll get a price-to-earnings increase in the banks, ” says Paul Taylor, portfolio manager of the Fidelity Australian Equities fund.

“But that valuation-driven sentiment can only take you so far. You really need those underlying earnings of our companies need to come through, though I don’t expect a huge divergence from the US market.”

Bank of America, JPMorgan and Wells Fargo all reported strong results and in response investors lifted their share prices to multi-year highs.

“US financials have had a very good run post-election,” says Jon Adams, senior investment strategist at BMO Global Asset Management.

“The data we’ve gotten from the big banks has been very good and we do expect this sector to post strong earnings mostly due to the rising interest rate environment.”

While American banks are looking to the prospect of more expensive debt, Australian banks, which begin reporting in February, are likely to keep growing slowly as lending growth remains constrained, with limited expansion in interest margins and some bad debts on the books.

“There are still headwinds for the banks, but generally they’ll be okay,” says Mr Taylor. “There’s not a lot of growth, maybe mid-single digit growth, but investors will see that as a reasonable job.”

In a note to clients on Monday, Deutsche Bank suggests Australia’s major banks are now cheaper than a selection of offshore banks, excluding Asia and UK banks, on a 12 month forward per-share basis.

“Overall they provide a much better forward yield,” says Andrew Triggs, research analyst at Deutsche Bank.

Mr Trigg’s and his team calculate the average 12 month forward dividend yield for the big four banks is 5.5 per cent, now well below the 5-year average of 6.2 per cent.

“On a relative basis the sector still looks attractive against other interest-rate sensitive sectors,” he says.

Business consultancy

The court heard Comiskey was working for CDI Pinnacle Management in 2011 when he started sending invoices to clients providing his own bank details instead of a company account.

He used this system to siphon off $108,000 from CDI through 29 separate transactions in 2011.

The court was told Comiskey’s business partner discovered the fraud when he noticed some shortfalls in the accounts.

He confronted Comiskey, who admitted to the offending, which he said was to feed a gambling addiction.

Comiskey agreed to repay all of the money, but was declared bankrupt in early 2012, leaving $65,000 of the debt outstanding.

Judge Julie Ryrie said his gambling addiction “explains but doesn’t excuse” his offending.

 

Trump has not shied away from bringing up foreign exchange in the past, including promising during the campaign to label China a currency manipulator as soon as he took office. He has also been vocal on trade, vowing to withdraw the US from the Trans-Pacific Partnership negotiations and singling out China, Mexico and Japan at his press conference on Wednesday.

“We have hundreds of billions of dollars of losses on a yearly basis – hundreds of billions with China on trade and trade imbalance, with Japan, with Mexico, with just about everybody. We don’t make good deals anymore,” Trump said in New York last week.