Archive for January, 2010

AMP could ward off takeover by buying regional bank

01.21.10

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ERIC JOHNSTON

A MEETING of the AMP board this month mapped out the options for the wealth giant if, as widely expected, National Australia Bank emerged with AXA Asia Pacific.

One of these is a defence strategy aimed at ensuring AMP remains the so-called ”fifth pillar” of the nation’s financial services market, should a big-four bank begin circling.

The logical poison pill in any takeover attempt would be for AMP to try to turn the game on its head and make a play for a regional bank. Such a move would result in AMP becoming too large for a big-four bank to digest, both in terms of pricing and likely competition hurdles.

The aim of the banks over the past decade has been to diversify into wealth management, so it should not be too much of a stretch for a wealth manager to buy into a mid-sized bank.

Among the most obvious targets for AMP would be Bank of Queensland, given the regional lender’s willingness to enter into a partnership. And at the same time, a deal is affordable and its share registry is largely wide open.

Other candidates include the banking arm of Suncorp Metway, although its new chief executive, Patrick Snowball, has said he is keen to retain the business, which is largely focused on the Queensland market. Bendigo Bank, while attractive with a national footprint, is regarded as less likely, given cultural differences.

AMP is no stranger to lending and transaction accounts, having operated a small banking business for the past two decades. The chief executive of AMP, Craig Dunn, has talked up a greater strategic focus on its banking business to position itself a alternative to the big four lenders.

Of the eight non-executive directors on AMP’s board, three, including the chairman, Peter Mason, and director Paul Fegan, come from a banking background. When it comes to AMP, ANZ is widely regarded as being the best placed to make a takeover offer for the wealth giant.

Any deal would transform ANZ into a dominant player in the financial services market, but it would come at a cost.

On Axiome Equities calculations, ANZ would have to pay about $16.5 billion for AMP for the acquisition to be mildly dilutive, but this would mostly be financed by a monster $10 billion capital raising.

Re-establish a true national bank

01.16.10

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Citizens Electoral Council of Australia sent us the followings:

Media Release  14th of January 2010. To defeat the Money Power and guarantee Australia’s economic future:

Re-establish a true national bank

Fifty years ago today—14th January‚ 1960—Prime Minister Robert Menzies committed an act of treachery on behalf of his private banker friends‚ and neutered Australia’s national bank‚ by removing the Commonwealth Bank’s central banking powers‚ and reducing it to a mere trading and savings bank.

The powerful central banking function‚ by which the Commonwealth Bank had regulated and leashed the private banks‚ was renamed the Reserve Bank of Australia‚ and placed under the control of a private board of directors; its first Governor‚ H.C. “Nugget” Coombs‚ boasted that he was a member of “the international freemasonry of central bankers”.

The City of London?directed private banker fraternity‚ including Menzies’ best friend‚ financier Staniforth Ricketson of J.B. Were & Son‚ whom the patriots in the early Labor Party called the “Money Power”‚ had finally achieved what they had strived for since the Commonwealth Bank’s establishment in 1911—the end of sovereign government control over banking.

Today‚ Citizens Electoral Council leader Craig Isherwood called on Australians to rejoin “old” Labor’s fight against the Money Power‚ and demand the re?establishment of a true national bank like the Commonwealth Bank.

“If Australia is to have a prosperous economic future‚ we must harness the nation’s credit to build large?scale water‚ power and transport infrastructure‚ and foster essential agricultural and manufacturing industries‚ which means we need a true national bank‚ owned and run by the government for the common good‚” he said.

“The early Labor Party fought against the Money Power’s private control of banking‚ because they understood that a government only had true sovereignty‚ if it exercised ultimate control over the monetary system through a national bank.

“Thanks to the influence of pro?American forces in the early Labor Party and among the writers of our Constitution‚ Australia is a unique country‚ in that we are the only nation outside of the U.S. to have had a true‚ Hamiltonian?style national bank‚ which was expatriate American and Commonwealth Bank architect King O’Malley’s intention when he created it‚ going so far as to proclaim‚ ‘I am the Hamilton of Australia…’” [Alexander Hamilton was the 1st U.S. Treasury Secretary under President George Washington‚ and the inventor of national banking.]

In the two periods when the Commonwealth Bank was able to function as a true national bank under government control and directing finance for the public good‚ 1912?1923 (under the governorship of Sir Denison Miller) and 1941?1945 (under the Labor government during WWII)‚ its achievements were stunning:

  • The Trans?Australian Railway;
  • Financing the national wool clip in WWI;
  • Stopping a run on the private banks during WWI;
  • Financing Australia’s miraculous war?time economic mobilisation in WWII;
  • Zero war?time inflation during WWII.

In 2001‚ the CEC published its book‚ What Australia Must Do to Survive the Depression‚ which includes ready?to?enact legislation for a new national bank‚ the Commonwealth National Credit Bank Bill‚ and an explanation for how a new national bank would function to be as successful as its predecessor.

Mr Isherwood concluded with a challenge: “Next year‚ 2011‚ is the 100th anniversary of the 22nd of December‚ 1911 passage of the Commonwealth Bank Act‚ the single most important piece of legislation in our history‚” he said.

“Join the CEC’s fight to re?establish a national bank‚ and let us set that anniversary as the deadline to achieve it.

“God knows we need it‚” he said.

RBA rate rises hit home

01.12.10

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CHRIS ZAPPONE

Update Australians took out fewer home loans than expected in November as the Reserve Bank’s interest rate rises took effect.

Total home loans slumped 5.6 per cent, seasonally adjusted, to 59,516, worse than the 0.5 per cent fall economists had been expecting. The result for the previous month, October, was also revised lower to a 1.9 per cent drop, the Australian Bureau of Statistics reported.

Total housing finance by value dropped by 1.6 per cent in November, seasonally adjusted, to $22.82 billion, while owner occupied housing dropped 2.9 per cent to 19.5 billion.

“While it looks weak at face value, the decline is merely the washing out of extraordinary fiscal stimulus,” said TD Securities economist Annette Beacher of the November figure.

“The housing market couldn’t be overstimulated from the demand side indefinitely.”

The dollar sank on the news, falling to 92.7 US cents from 92.9 US cents before the data was released.

Prior to today’s housing loan figures, investors were pricing the chance of another rise in official interest rates next month at about 65 per cent. The RBA board is scheduled to meet on February 2.

Rates

The official cash rate stands at 3.75 per cent after an unprecedented third month in a row of increases by the RBA. Commercial lenders, in particular Westpac, have faced widespread criticism for lifting rates even more than the Reserve Bank during the period.

Analysts expect new loan numbers to continue to falter as the central bank lifts rates to prevent a resurgence in inflation.

”We suspect that demand for home loans will continue to ease thanks to rising mortgage rates, tighter lending standards, the phasing out of the expanded portion of the First Home Buyer’s grant,” said JP Morgan economist Helen Kevans.

”A moderation in home loan demand probably will be welcomed by the RBA, given Governor Stevens has flagged the risks associated with excesses forming in the housing market, highlighting that increased demand could push up prices without creating enough new dwellings.”

First-home buyers

The number of first-home buyer commitments as a percentage of total owner occupied housing finance loans dropped to 22.1 per cent in November from 26 per cent in October, reflecting the post market lull after the curtailment of the full First Home Buyer’s Grant boost in October.

The value of investment housing increased by 2.1 per cent to 6.2 billion in the month.

”Investors are yet to move back into the housing market in a major way,” said Westpac economics.

”We suspect that investors will begin to return in 2010, assuming that banks begin to ease their lending standards and given strength in rentals and with house prices rising.”

By state

In New South Wales, home loans dropped by 4.1 per cent while in Victoria they fell 2.6 per cent.

Queensland home loans dropped 7.9 per cent and in South Australia they fell 5.8 per cent.

Home loans in Western Australia fell 2.5 per cent while in Tasmania and the Northern Territory they plummeted by 15.2 per cent and 15.5 per cent, respectively.

czappone@fairfax.com.au
BusinessDay

Westpac rate rise ‘pushes customers to switch banks’

01.06.10

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PETER MARTIN ECONOMICS CORRESPONDENT

CUSTOMERS angry at the big interest rate rise imposed by Westpac are leaving the bank, according to Australia’s largest mortgage broker.

AFG said a ”large proportion” of its business last month came from Westpac customers switching to other lenders in protest at the bank’s outsized rate rise in December.

AFG would not reveal the number of customers it switched but said anti-Westpac sentiment pushed refinancing to a high for the year and made the Commonwealth Bank its largest source of mortgages, replacing Westpac.

”There are people who are fed up with Westpac and are making a stance,” the AFG sales manager, Mark Hewitt, said.

People did not typically think it worthwhile to change lenders if their rate exceeded the market by 20 basis because rates could change again, he said.

”But in this case people are making a protest. It’s hard to switch banks but when you feel strongly about something you tend to endure a bit of pain to get your point across.”

Westpac disputed the AFG analysis. A spokesman said growth in new lending remained strong. Asked why it should remain strong when Westpac’s rates were well above those of other lenders, he said the bank offered a good discount to ”premium customers” and other benefits such as no credit card and account-keeping fees.

Westpac had not noticed an ”abnormal level” of refinancing last month. AFG might merely have been logging more inquiries from disgruntled customers.

Westpac’s decision to increase its variable rates by 45 basis points, compared with the Reserve Bank’s 25-point rise has opened the biggest gap between the rates of the big banks.

A National Australia Bank mortgage is now 0.27 points cheaper than a Westpac one, representing a saving of $50 a month on a $300,000 loan.

The consumer group Choice said the move by AFG customers was welcome, but only a start. ”There’s a public appetite for switching and some pioneers are already doing it. But they are going to be necessarily small in number until it is made easier to switch and borrowers know the interest differential will be maintained,” a spokesman, Christopher Zinn, said.

Customers who want to switch to banks with which they do not already have an account will need to prove identity, using documents such as driver’s licences and passports. They will also need to produce bank statements and group certificates to establish savings and earnings records and obtain or pay for a property valuation. They will need to provide other documents on request, such as rates notices and child support agreements.

Mr Zinn said: ”It needs to be much simpler in terms of the costs and paperwork. The Government’s bank-switching package wasn’t enough.”

The AFG figures reveal the near death of fixed-rate mortgages, with the proportion sold by AFG falling to a record low of 2 per cent last month, down from 22 per cent two years before.

Loan volumes slid in October, November and December after the Reserve Bank’s rate rises. The average mortgage size hit a record of $414,200 in NSW.