If the investment cycle still works and some say its broken, then we need to expect to see property prices to fall next year. This will then herald the start of a new cycle.
A few months ago industrial stocks were being hammered but the overall impact was cushioned by strong resource shares. Commodity prices were holding up because of the supposed strong future economic growth in China. That now has collapsed, by the way.
Many investment experts were still preaching the China story as the reason why Australia would be immune from the US credit crunch. At the time I explained that this rationale was fundamentally flawed because simple logic says if China's biggest customer slows then China will follow. Unless China develops infrastructure and their domestic market then they will follow and we are in trouble. Probably something between the two scanarios will play out and we will still have a soft ride ahead.
If US consumers stop spending at big retailers like Walmart, Walmart in turn will not order as much from their Chinese manufacturers, who won't need to buy as much steel from their Chinese steelmaker, who won't buy as much coal or iron ore from their Australian miners - and certainly not at the boom prices of previous years.
But they are building power stationsat a rate of two a week and that suggests to me that domestic demand will soak up a lot of chinese production.
So are property market may fall, but to a lesser degree than in the US, where 3 million properties have been repossessed and there are predictions of another 1 million to come.
The key Standard & Poor's/Case-Shiller housing index of the top 20 US cities came out last week and the results were ugly.
Home prices had their biggest annual drop in July. Average home prices were down 16.3 per cent for the year and more than 20 per cent since their peak in July 2006.
Las Vegas home prices were down 30 per cent, Phoenix by 29 per cent and Miami by 28 per cent. Almost one-third of US households will have negative equity in their homes by the end of the year.
It is very unlikely the Australian residential property market will plunge by anywhere near as much as in the US because we haven't been through a huge construction boom, borrowers haven't leveraged themselves to quite the same extent and we have strong immigration to underpin demand.
But - and it is a big but - the tightening of bank finance will have an impact on residential property values.
The banks are already starting to ration credit, making it more difficult for people to borrow. The banks are lifting their standards. We're starting to see the old-fashioned request for a 25 per cent deposit on a home loan and demands that mortgage repayments be less than 30 per cent of the borrower's income.
Tightening the criteria for home loans means fewer borrowers will be eligible.
There will be fewer potential buyers and less competition in the market.
On the other side of the coin, because of the fall in the sharemarket, more existing homeowners will be under pressure from their banks to boost the level of security behind their loans and may even be asked to sell their properties.
Fewer bidders combined with more homes on the market equals a softening of prices. That is all ahead of us.
At the top end of the market, the tightening of finance is already starting.
The Government support for the non bank lending may soften this credit squeeze by lenders.
Monday, December 15, 2008
Discount home loans you need to know about
Banking packages that used to be called professional packages, that combine a mortgage, transaction account and credit card with the one institution are the best value on the home-lending market.
These packages offer a discount to the advertised rate and the saving on the interest more than covers the package fee. The bundling of services also offers convenience. They also tend to lock you in.
More than half of all new mortgages written by the major banks are "super sized" to packages these days.
Borrowers like them because they get the features of a standard variable-rate loan (and, increasingly, other types of loans) at the discounted price of a basic variable-rate loan.
Discounts are 0.4 to 0.7 percentage points, depending on the size of the loan. At one stage last year some brokers were given discretion to offer discounts of as much as 0.9 percentage points for loans over $300,000, but with the general tightening in the market, those deals are now hard to find.
Traditionally aimed at typical home-buyers, package banking has broadened its appeal to attract property investors and the self-employed.
Investors value loan options such as interest only, line-of-credit and discounts. Those who own their own business usually need a package with a good low-doc loan.
The top variable-rate packages are Adelaide Bank's Executive Offer, Newcastle Permanent's Premium Plus Package, Commonwealth Bank's Wealth Package and AMP Banking's Select Package.
The top five fixed-rate packages were offered by Commonwealth Bank, HSBC, BankSA and St George. [We do not recommend fixed rate mortgages at this time].
When taking out a package loan, there is a requirement to take other products, usually a deposit account and a credit card. This is attractive because the annual fee is bundled into the package's annual fee.
However, if the product offered in the package does not suit, there is no obligation to use them.
The type of credit card does vary between institutions. Many will offer their standard credit card but some, such as St George, offer a platinum card.
But there are some things to watch out for. Westpac includes its Altitude Gold card but the card fee is waived in only the first year rather than for the life of the package.
ANZ offers the choice of a rewards Visa gold card or a frequent flyer Visa gold card. The annual fee is waived but the rewards program fee is not.
We feel that home buyers shopping for a package should focus on the features of the home loan, making sure it offers a good rate and has plenty of flexibility, such as redraw and offset.
Property investors should look for deals that incorporate line-of-credit and interest-only options.
Some lenders offer discounts on fixed-rate loans, which could be useful.
Self-employed people will need a package with a low-doc mortgage at a reasonable price.
One very important trend of which borrowers should take note is that the major banks have used the credit-market turmoil of the past year to reassert their role as price-setters in the mortgage market - a role they have not played since specialist home-loan originators entered our market a decade ago.
The package-rate discount comes off the standard variable rate and should bring the cost of the loan close to rates on basic home loans. The only downer are the casts of teh addons which can erode the benefits of these discounts when the loan amounts are smaller.
These packages offer a discount to the advertised rate and the saving on the interest more than covers the package fee. The bundling of services also offers convenience. They also tend to lock you in.
More than half of all new mortgages written by the major banks are "super sized" to packages these days.
Borrowers like them because they get the features of a standard variable-rate loan (and, increasingly, other types of loans) at the discounted price of a basic variable-rate loan.
Discounts are 0.4 to 0.7 percentage points, depending on the size of the loan. At one stage last year some brokers were given discretion to offer discounts of as much as 0.9 percentage points for loans over $300,000, but with the general tightening in the market, those deals are now hard to find.
Traditionally aimed at typical home-buyers, package banking has broadened its appeal to attract property investors and the self-employed.
Investors value loan options such as interest only, line-of-credit and discounts. Those who own their own business usually need a package with a good low-doc loan.
The top variable-rate packages are Adelaide Bank's Executive Offer, Newcastle Permanent's Premium Plus Package, Commonwealth Bank's Wealth Package and AMP Banking's Select Package.
The top five fixed-rate packages were offered by Commonwealth Bank, HSBC, BankSA and St George. [We do not recommend fixed rate mortgages at this time].
When taking out a package loan, there is a requirement to take other products, usually a deposit account and a credit card. This is attractive because the annual fee is bundled into the package's annual fee.
However, if the product offered in the package does not suit, there is no obligation to use them.
The type of credit card does vary between institutions. Many will offer their standard credit card but some, such as St George, offer a platinum card.
But there are some things to watch out for. Westpac includes its Altitude Gold card but the card fee is waived in only the first year rather than for the life of the package.
ANZ offers the choice of a rewards Visa gold card or a frequent flyer Visa gold card. The annual fee is waived but the rewards program fee is not.
We feel that home buyers shopping for a package should focus on the features of the home loan, making sure it offers a good rate and has plenty of flexibility, such as redraw and offset.
Property investors should look for deals that incorporate line-of-credit and interest-only options.
Some lenders offer discounts on fixed-rate loans, which could be useful.
Self-employed people will need a package with a low-doc mortgage at a reasonable price.
One very important trend of which borrowers should take note is that the major banks have used the credit-market turmoil of the past year to reassert their role as price-setters in the mortgage market - a role they have not played since specialist home-loan originators entered our market a decade ago.
The package-rate discount comes off the standard variable rate and should bring the cost of the loan close to rates on basic home loans. The only downer are the casts of teh addons which can erode the benefits of these discounts when the loan amounts are smaller.
Credit unions get personal
Big banks don't like personal loans, they are small and you can't make a lot of money and there is no security offered. So it's good to have a customer-friendly alternative for those car loans and other unsecured loans.
As the banks losses in other areas start to sink in, banks and other financial institutions have become increasingly reluctant to provide certain types of loans, pulling back on marketing unsecured finance - personal loans and credit cards to get the balance of risk and return redressed.
If you are looking for a loan to finance a car, renovate the home or an overseas holiday, you might have to be prepared for some legwork.
Recent figures show consumer lending has slowed dramatically in recent months. This trend results from a combination of factors including consumers tightening their belts and reducing their borrowings and lenders tightening their lending criteria.
In one example, the Queensland insurance and banking group Suncorp reported its consumer lending business was down more than 6 per cent in the September quarter.
The trend is evident across the industry. Reserve Bank figures show personal lending fell in each of the five months from June to October, a level of weakness that has not been seen for 15 years.
One group of institutions still open for business is credit unions. Their executives believe the times suit the way they do business, providing member services at reasonable cost.
Queensland Police Credit Union executive manager corporate services, Stephen Howell, says: "The credit union sector has been relatively undamaged by large jumps in bad debts the banks have experienced. It is business as usual for us."
SO if you are looking for a personal loan, try your friendly credit union.
As the banks losses in other areas start to sink in, banks and other financial institutions have become increasingly reluctant to provide certain types of loans, pulling back on marketing unsecured finance - personal loans and credit cards to get the balance of risk and return redressed.
If you are looking for a loan to finance a car, renovate the home or an overseas holiday, you might have to be prepared for some legwork.
Recent figures show consumer lending has slowed dramatically in recent months. This trend results from a combination of factors including consumers tightening their belts and reducing their borrowings and lenders tightening their lending criteria.
In one example, the Queensland insurance and banking group Suncorp reported its consumer lending business was down more than 6 per cent in the September quarter.
The trend is evident across the industry. Reserve Bank figures show personal lending fell in each of the five months from June to October, a level of weakness that has not been seen for 15 years.
One group of institutions still open for business is credit unions. Their executives believe the times suit the way they do business, providing member services at reasonable cost.
Queensland Police Credit Union executive manager corporate services, Stephen Howell, says: "The credit union sector has been relatively undamaged by large jumps in bad debts the banks have experienced. It is business as usual for us."
SO if you are looking for a personal loan, try your friendly credit union.
Credit card crime is on the rise. How not to become a victim
Credit and debit card scams are on the rise but you can take steps to stay safe.
According to the first official survey of personal fraud in Australia, about 3 per cent of credit card holders can expect to experience card fraud this year, while nearly 60,000 people could be conned out of their confidential banking details in "phishing" scams.
And don't think it won't happen to you. In the case of card fraud, the Australian Bureau of Statistics study found the vast majority of victims - 70 per cent - were employed, married and Australian-born, with nearly half of them highly educated.
The chief executive of the Australian Bankers' Association, David Bell, says: "So long as there's been money in the system, there's been fraud - it's an ongoing issue. In terms of the quantum, it's relatively small but that's not the point - the point is it should be prevented . . . because not only does it result in financial issues for customers and banks, it also goes to the person's sense of security with their accounts."
Australian Payments Clearing Association data for last year shows fraud remains a fraction of overall payments: 44.5 cents in every $1000 of transactions in the case of credit and charge card fraud, 7.1 cents in every $1000 for debit cards and less than one cent in every $1000 for cheques. However, while cheque and debit card fraud are falling, credit and charge card fraud are rising - up from 36.9 cents the previous year. About 70 per cent of that increase relates to cardholders making purchases overseas via the internet and telephone.
Generally speaking, you won't be held liable for losses to fraud, Bell says, as long as you don't contribute to the loss by your actions.
"So, for example, with a debit card if you were to write your PIN [personal identification number] on the card and you lost it and someone removed funds, it would be a hard ask to get your money back," he says.
However, even if you're not financially liable, there will be a cost in terms of time and inconvenience as you sort out genuine transactions from fraudulent ones, rearrange any direct debits and wait for a new card.
So what can people do to protect themselves from financial fraud? These days it's not just a matter of never signing a blank cheque or making sure no one is "shoulder surfing" while you enter your PIN at the ATM.
Crime agencies and regulators say the increasing technological sophistication of criminals means it's also about safeguarding your computer from hackers and protecting yourself from identity theft when you go online.
DEBIT CARDS
Your PIN is the key to debit card security, Bell says. You should never give it to anyone, even a member of your family. And your bank will never, ever ask you to reveal it.
You should have a different PIN for each financial instrument or channel, such as your debit card, credit card and internet banking.
As with passwords, it doesn't hurt to change your PIN occasionally. But don't use numbers or codes that relate to things such as your birthday or age.
That's why social networking sites such as Facebook and MySpace are causing concern. Some people put sufficient personal information on them that a fraudster can "steal" their identity.
CREDIT CARDS
Never, ever lose sight of your credit card when you're paying.
"When you go to a restaurant, don't hand over your credit card and let someone take it away," Bell says.
Unscrupulous operators can record card details (including its three or four-digit verification code) and then use them for online or phone transactions.
Email is not a secure way to transmit information and if you're going to give your credit card number to somebody over the phone, make sure you know who you're talking to. Make sure you sign your card as soon as you receive it and have your mail collected or diverted if you're expecting a card while you're away.
Having a separate card with a low limit for internet transactions may save you some heartache if your details are intercepted online.
"Having a very large credit limit on a credit card does potentially expose you," Bell says.
The new chip-and-PIN credit cards offer a step up in security but, again, you must protect your PIN.
PHISHING
Criminals hope to catch people when they send out "phishing" emails purporting to be from the bank asking you to confirm your account details, password and PIN, supposedly for a "security upgrade" or some other ruse. The email may even contain a link to a replica website. Crime agencies say you should never click on such a link and it's good practice to always type your financial institution's website address into your browser.
Remember, your bank will never ask you for your password or PIN, Bell says, and certainly not via insecure email.
The ABA, the Australian Securities and Investments Commission and the Australian High Tech Crime Centre have a joint website (protectfinancialid.org.au) that provides more detail on how to protect your financial identity, while the Australian Competition and Consumer Commission's scamwatch.gov.au site offers help in identifying common internet scams.
ONLINE TRANSACTIONS
The Government's Stay Smart Online website, http://www.staysmartonline.gov.au, says you need to protect passwords for online banking and other internet transactions just as much as you would your PIN for a debit card.
That involves making sure your computer is protected by up-to-date anti-virus, anti-spyware and firewall programs and setting your browser security at a sufficiently high level.
It also suggests you should confirm the data is encrypted and safe from prying eyes by looking for the prefix "https://" in the address bar and for a locked padlock symbol at the bottom of your browser window.
Always log out from internet banking when you're finished and go the extra step of also closing your browser.
"If any other windows 'pop up' during an internet banking session, be suspicious, especially if it directs you to another website which then requests your customer identification or password," the website says.
SOCIAL NETWORKING
An Australian Federal Police spokesman says you should configure your web browser so it won't remember the data you enter into forms and you should never select "Remember me on this computer" or similar boxes on websites.
You could even go as far as deleting cookies after your internet session.
If you use social networking sites, treat everything on the site as if it were publicly available information. Don't display your date of birth, address or other personal information. Check the site's privacy settings to make sure they're high enough to resist non-friends finding out too much about you.
Don't accept "friend" invites from people you don't know and don't accept the name of a user at face value - they may not be who you think they are.
Be careful about using applications on these sites as they're run by third-party companies that may also get access to all your personal information.
The growth of identity theft has prompted credit bureau Veda Advantage and security group Secure Sentinel to announce last week a $65-a-year service that alerts individuals by email whenever there's a change in their credit file.
IF YOU BECOME A VICTIM
Tell the police immediately.
* Alert your bank or financial institution.
* Get a copy of your credit report and check it.
* Close all unauthorised accounts.
* Keep all documentation.
Source: Australian Federal Police
According to the first official survey of personal fraud in Australia, about 3 per cent of credit card holders can expect to experience card fraud this year, while nearly 60,000 people could be conned out of their confidential banking details in "phishing" scams.
And don't think it won't happen to you. In the case of card fraud, the Australian Bureau of Statistics study found the vast majority of victims - 70 per cent - were employed, married and Australian-born, with nearly half of them highly educated.
The chief executive of the Australian Bankers' Association, David Bell, says: "So long as there's been money in the system, there's been fraud - it's an ongoing issue. In terms of the quantum, it's relatively small but that's not the point - the point is it should be prevented . . . because not only does it result in financial issues for customers and banks, it also goes to the person's sense of security with their accounts."
Australian Payments Clearing Association data for last year shows fraud remains a fraction of overall payments: 44.5 cents in every $1000 of transactions in the case of credit and charge card fraud, 7.1 cents in every $1000 for debit cards and less than one cent in every $1000 for cheques. However, while cheque and debit card fraud are falling, credit and charge card fraud are rising - up from 36.9 cents the previous year. About 70 per cent of that increase relates to cardholders making purchases overseas via the internet and telephone.
Generally speaking, you won't be held liable for losses to fraud, Bell says, as long as you don't contribute to the loss by your actions.
"So, for example, with a debit card if you were to write your PIN [personal identification number] on the card and you lost it and someone removed funds, it would be a hard ask to get your money back," he says.
However, even if you're not financially liable, there will be a cost in terms of time and inconvenience as you sort out genuine transactions from fraudulent ones, rearrange any direct debits and wait for a new card.
So what can people do to protect themselves from financial fraud? These days it's not just a matter of never signing a blank cheque or making sure no one is "shoulder surfing" while you enter your PIN at the ATM.
Crime agencies and regulators say the increasing technological sophistication of criminals means it's also about safeguarding your computer from hackers and protecting yourself from identity theft when you go online.
DEBIT CARDS
Your PIN is the key to debit card security, Bell says. You should never give it to anyone, even a member of your family. And your bank will never, ever ask you to reveal it.
You should have a different PIN for each financial instrument or channel, such as your debit card, credit card and internet banking.
As with passwords, it doesn't hurt to change your PIN occasionally. But don't use numbers or codes that relate to things such as your birthday or age.
That's why social networking sites such as Facebook and MySpace are causing concern. Some people put sufficient personal information on them that a fraudster can "steal" their identity.
CREDIT CARDS
Never, ever lose sight of your credit card when you're paying.
"When you go to a restaurant, don't hand over your credit card and let someone take it away," Bell says.
Unscrupulous operators can record card details (including its three or four-digit verification code) and then use them for online or phone transactions.
Email is not a secure way to transmit information and if you're going to give your credit card number to somebody over the phone, make sure you know who you're talking to. Make sure you sign your card as soon as you receive it and have your mail collected or diverted if you're expecting a card while you're away.
Having a separate card with a low limit for internet transactions may save you some heartache if your details are intercepted online.
"Having a very large credit limit on a credit card does potentially expose you," Bell says.
The new chip-and-PIN credit cards offer a step up in security but, again, you must protect your PIN.
PHISHING
Criminals hope to catch people when they send out "phishing" emails purporting to be from the bank asking you to confirm your account details, password and PIN, supposedly for a "security upgrade" or some other ruse. The email may even contain a link to a replica website. Crime agencies say you should never click on such a link and it's good practice to always type your financial institution's website address into your browser.
Remember, your bank will never ask you for your password or PIN, Bell says, and certainly not via insecure email.
The ABA, the Australian Securities and Investments Commission and the Australian High Tech Crime Centre have a joint website (protectfinancialid.org.au) that provides more detail on how to protect your financial identity, while the Australian Competition and Consumer Commission's scamwatch.gov.au site offers help in identifying common internet scams.
ONLINE TRANSACTIONS
The Government's Stay Smart Online website, http://www.staysmartonline.gov.au, says you need to protect passwords for online banking and other internet transactions just as much as you would your PIN for a debit card.
That involves making sure your computer is protected by up-to-date anti-virus, anti-spyware and firewall programs and setting your browser security at a sufficiently high level.
It also suggests you should confirm the data is encrypted and safe from prying eyes by looking for the prefix "https://" in the address bar and for a locked padlock symbol at the bottom of your browser window.
Always log out from internet banking when you're finished and go the extra step of also closing your browser.
"If any other windows 'pop up' during an internet banking session, be suspicious, especially if it directs you to another website which then requests your customer identification or password," the website says.
SOCIAL NETWORKING
An Australian Federal Police spokesman says you should configure your web browser so it won't remember the data you enter into forms and you should never select "Remember me on this computer" or similar boxes on websites.
You could even go as far as deleting cookies after your internet session.
If you use social networking sites, treat everything on the site as if it were publicly available information. Don't display your date of birth, address or other personal information. Check the site's privacy settings to make sure they're high enough to resist non-friends finding out too much about you.
Don't accept "friend" invites from people you don't know and don't accept the name of a user at face value - they may not be who you think they are.
Be careful about using applications on these sites as they're run by third-party companies that may also get access to all your personal information.
The growth of identity theft has prompted credit bureau Veda Advantage and security group Secure Sentinel to announce last week a $65-a-year service that alerts individuals by email whenever there's a change in their credit file.
IF YOU BECOME A VICTIM
Tell the police immediately.
* Alert your bank or financial institution.
* Get a copy of your credit report and check it.
* Close all unauthorised accounts.
* Keep all documentation.
Source: Australian Federal Police
Saturday, December 13, 2008
Queensland property sales slump causes real estate sales people to walk
In a sign that price expectations of home sellers are above the market, the Real Estate Institute of Queensland (REIQ) says hundreds of real estate sales staff are leaving the property sales industry as the property market slows across the state.
This ahs also reflected on the Mortgage industry in homes sales transactions, but has a lesser effect in the mortgage industry due to te fact that mortgage lenders can help people with refinancing existing loans when property transactions fall.
The REIQ says this year's sales are down by between 20 and 50 per cent in parts of Queensland and that has led to at least a 25 per cent drop in the number of staff.
It says many of those who have walked away could not cope with the current conditions or the loss of income.
REIQ chairman Peter McGrath says a lot of those who have left have only had experience during a property boom.
"A lot of them haven't got the income they had this time last year and secondly, they find doing the hard work in some cases just too hard for them," he said.
"We were overstaffed to a degree to service the very hectic demands of particularly this time last year, but a lot of those people will come back into the industry.
"This time last year, we were on the most extreme high of turnover that this state has ever seen, so we are feeling the drop.
"We are back to sales levels of 2002/03, which were still reasonable years I must point out, but compared to 2007 they looked very lean years."
This ahs also reflected on the Mortgage industry in homes sales transactions, but has a lesser effect in the mortgage industry due to te fact that mortgage lenders can help people with refinancing existing loans when property transactions fall.
The REIQ says this year's sales are down by between 20 and 50 per cent in parts of Queensland and that has led to at least a 25 per cent drop in the number of staff.
It says many of those who have walked away could not cope with the current conditions or the loss of income.
REIQ chairman Peter McGrath says a lot of those who have left have only had experience during a property boom.
"A lot of them haven't got the income they had this time last year and secondly, they find doing the hard work in some cases just too hard for them," he said.
"We were overstaffed to a degree to service the very hectic demands of particularly this time last year, but a lot of those people will come back into the industry.
"This time last year, we were on the most extreme high of turnover that this state has ever seen, so we are feeling the drop.
"We are back to sales levels of 2002/03, which were still reasonable years I must point out, but compared to 2007 they looked very lean years."
Monday, December 08, 2008
Credit cards holders get the short end of the stick, but whose complaining?
If you are like me and you have a credit card, chance are you are feeling hard done by.
The Government is out there asking people to spend, spend spend, and mortgage rates are dropping like a lead balloon, but we don't get any joy from equality in rate reductions on credit card debt.
I just don't get it. I thought that when the cost of money is going down then the banks would reduce the rates of money for all clients. But business customers and credit card holders seem to be holding up the banks bid to smash profit targets in spite of poor decisions and rampant wage and bonus claims by top level [not top performing] managers.
It would be one thing if nobody cared or was hurting financially right now, or who was facing financial hardship.
It would see obvious that we have a lack of credit card competition, and that may be the answer to our question. With the major players in credit card finance taking a heavy hit in the US recently, and with these guys suffering loses in the US due to a long recession which only looks like getting worse over there, these guys are leaving our markets or taking as much profit as they can muster, and letting our banks get away with what seems to be like daylight robbery when it comes to credit card interest rate charges.
If this was Italy, Governments would fall, in France there would be riots in the streets, in Greece they would be throwing Molotov cocktails, but hey this is Australia. She'd be right Mate!
The Government is out there asking people to spend, spend spend, and mortgage rates are dropping like a lead balloon, but we don't get any joy from equality in rate reductions on credit card debt.
I just don't get it. I thought that when the cost of money is going down then the banks would reduce the rates of money for all clients. But business customers and credit card holders seem to be holding up the banks bid to smash profit targets in spite of poor decisions and rampant wage and bonus claims by top level [not top performing] managers.
It would be one thing if nobody cared or was hurting financially right now, or who was facing financial hardship.
It would see obvious that we have a lack of credit card competition, and that may be the answer to our question. With the major players in credit card finance taking a heavy hit in the US recently, and with these guys suffering loses in the US due to a long recession which only looks like getting worse over there, these guys are leaving our markets or taking as much profit as they can muster, and letting our banks get away with what seems to be like daylight robbery when it comes to credit card interest rate charges.
If this was Italy, Governments would fall, in France there would be riots in the streets, in Greece they would be throwing Molotov cocktails, but hey this is Australia. She'd be right Mate!
Massive market opens for mortagge brokers to ease the pain.
over half the recipients of a recent survet said they were hurting under mortagge stress. The recent mortgage rate reductions would have eased this a little, but this shows how much mortgage brokers who can assist these homeowners are needed right now.
Clients are particularly looking for ways to reduce monthly finance costs and give them some kind of buffer should they need it in the uncertain times ahead.
More than half of the respondents admitted that their mortgage repayments were more than 30 per cent of their gross household income. This used to be the acid test for the maxium borrowing capacity, but these have been stretched to dangerously high levels in the past four years as competition with the banks against mortgage brokers hotted up.
And half of those were feeling mortgage stress. That's about 25% of the total mortgage borrowers.
The Problem is house prices
In the last decade, house prices in Australia had risen to almost nine times the average income. This is from 3 times the average income 40 years ago.
This had left borrowers at significant risk when interest rates rose sharply and house prices remained constant or fell.
The risk could be mitigated by the greater availability of land supply, the use of employment continuation insurance, shared equity mortgages or salary-adjusted mortgages.
But that is for new home buyers.
Mortgage brokers would do better focusing on the needs that already exist. The mortgage stressed homeowner.
Clients are particularly looking for ways to reduce monthly finance costs and give them some kind of buffer should they need it in the uncertain times ahead.
More than half of the respondents admitted that their mortgage repayments were more than 30 per cent of their gross household income. This used to be the acid test for the maxium borrowing capacity, but these have been stretched to dangerously high levels in the past four years as competition with the banks against mortgage brokers hotted up.
And half of those were feeling mortgage stress. That's about 25% of the total mortgage borrowers.
The Problem is house prices
In the last decade, house prices in Australia had risen to almost nine times the average income. This is from 3 times the average income 40 years ago.
This had left borrowers at significant risk when interest rates rose sharply and house prices remained constant or fell.
The risk could be mitigated by the greater availability of land supply, the use of employment continuation insurance, shared equity mortgages or salary-adjusted mortgages.
But that is for new home buyers.
Mortgage brokers would do better focusing on the needs that already exist. The mortgage stressed homeowner.
Mortgage rate fixers are homeowners biggest losers
Mortgage interest fixed-rate borrowers face hefty fees if they want to switch to a standard variable loan right now. The horse has bolted and the banks have to set their rate and costing long term to fix a rate. (
A further massive mortgage interest rate cut this week has made more than 43,000 home borrowers who chose to fix their rate, Australia's biggest mortgage losers.
The costs of exiting an average fixed-rate mortgage jumped to $18,000 because break fees for the loan rise as interest rates fall.
Banks charge break fees to exit fixed-rate home loans so they can meet interest payment obligations to term deposit customers.
The Reserve Bank of Australia (RBA) on Tuesday announced it would slash official interest rates by 100 basis points point to a six-and-a-half year low of 4.25 per cent.
The 43,632 borrowers who opted for fixed-rate mortgages between March and August this year, when interest rates were at a decade-high peak, face hefty fees if they want to switch to a standard variable loan.
Official interest rates would have to fall to the lowest levels since February 1965 for these borrowers to recoup the cost of switching out of a fixed loan through cheaper mortgage repayments. [This is on teh cards according to Mr Mortgage]
A further home loan rate cut of .5% is expected in February, and there could be more to come to assist home sales and home owners to weather the storm and have money to spend to get the economy from sliding into recession.
We are in for some interesting mortage times ahead!
A further massive mortgage interest rate cut this week has made more than 43,000 home borrowers who chose to fix their rate, Australia's biggest mortgage losers.
The costs of exiting an average fixed-rate mortgage jumped to $18,000 because break fees for the loan rise as interest rates fall.
Banks charge break fees to exit fixed-rate home loans so they can meet interest payment obligations to term deposit customers.
The Reserve Bank of Australia (RBA) on Tuesday announced it would slash official interest rates by 100 basis points point to a six-and-a-half year low of 4.25 per cent.
The 43,632 borrowers who opted for fixed-rate mortgages between March and August this year, when interest rates were at a decade-high peak, face hefty fees if they want to switch to a standard variable loan.
Official interest rates would have to fall to the lowest levels since February 1965 for these borrowers to recoup the cost of switching out of a fixed loan through cheaper mortgage repayments. [This is on teh cards according to Mr Mortgage]
A further home loan rate cut of .5% is expected in February, and there could be more to come to assist home sales and home owners to weather the storm and have money to spend to get the economy from sliding into recession.
We are in for some interesting mortage times ahead!
Mortgage Rate cuts are hurting those who fixed their home loan rates at the highest point in the mortgage rate cycle
As predicted by Mr Mortgage for the past ten years, those who fix their mortgage rates will lose money.
The people that mortgage rate reductions are hurting most are the one's who recently took other so called experts advice and fixed their home loan mortgage rate, at what has turned out to be, the then highest rate its been this century, whilst watching rates fall to the lowest rates, maybe ever!
As soon as home loan mortgage rates start to climb, banks and the media start to talk up fixed interest rates.
What's wrong with that?
Well if the banks thinks it a good idea, then bet your last dollar that it will be bad for the homeowner. What is good for Banks is not always aligned with what's good for their mortgage customers.
There has only been two occasions that I can recall slim windows for a three year fixed loan to give you any sort of advantage.
About three and seven years ago. Once those tiny windows past fixing your interest rate was a losing proposition.
Unlike the US market were a 30 years fixed was a good idea, and adjustable rate mortgages are a bad thing that has contributed to the pain of the financial credit crisis.
Rates are predicted to fall much further so read my lips. Take the ride down the interest rate elevator as the Reserve Bank pulls on its levers to soften any economic hurt that this looming Global recession may have on your economic situation.
If you must fix, wait till we are at rock bottom, and that could be in 18 months time, and then maybe fix for three years.
Remember we are going through new territory and the landscape is changing and we may be soon seeing the cheapest money ever on offer in two or three years time. Nobody knows.
Enjoy the ride with a variable interest rate or squirm with a fixed one. Its your choice.
Mr Mortgage
The people that mortgage rate reductions are hurting most are the one's who recently took other so called experts advice and fixed their home loan mortgage rate, at what has turned out to be, the then highest rate its been this century, whilst watching rates fall to the lowest rates, maybe ever!
As soon as home loan mortgage rates start to climb, banks and the media start to talk up fixed interest rates.
What's wrong with that?
Well if the banks thinks it a good idea, then bet your last dollar that it will be bad for the homeowner. What is good for Banks is not always aligned with what's good for their mortgage customers.
There has only been two occasions that I can recall slim windows for a three year fixed loan to give you any sort of advantage.
About three and seven years ago. Once those tiny windows past fixing your interest rate was a losing proposition.
Unlike the US market were a 30 years fixed was a good idea, and adjustable rate mortgages are a bad thing that has contributed to the pain of the financial credit crisis.
Rates are predicted to fall much further so read my lips. Take the ride down the interest rate elevator as the Reserve Bank pulls on its levers to soften any economic hurt that this looming Global recession may have on your economic situation.
If you must fix, wait till we are at rock bottom, and that could be in 18 months time, and then maybe fix for three years.
Remember we are going through new territory and the landscape is changing and we may be soon seeing the cheapest money ever on offer in two or three years time. Nobody knows.
Enjoy the ride with a variable interest rate or squirm with a fixed one. Its your choice.
Mr Mortgage
Wednesday, November 26, 2008
Helensvale, Gold Coast tops the mortgage stress list
Hevensvale, on the Gold Coast, has been named as the most mortgage-stressed suburb in Australia by the global ratings agency Fitch Ratings.
The Gold Coast and Sydney's Vaucluse have joined southwestern Sydney as the areas suffering the most from mortgage stress and loan defaults.
More than 840,000 residential mortgages - valued at $140 billion - were outstanding at the end of September, with interest rate rises in late 2007 and 2008 to blame.
Australian mortgage delinquency rose in the six months between April and September this year, Fitch Ratings said.
Southwestern and western Sydney remain the nation's mortgage stress hotspots, but there have been significant changes in the suburbs of Perth, southeast Queensland and New South Wales regional areas, such as Wollongong, Newcastle and the Central Coast.
One of the nation's most affluent addresses - Vaucluse - is rated seventh worst by loan value.
The top 10 suburbs and towns listed as suffering the most mortgage stress are: Helensvale (Queensland), Nelson Bay (NSW), Raymond Terrace (NSW), Katoomba (NSW), Greenacre (NSW), Guildford (NSW), Vaucluse (NSW), Fairfield (NSW), Cessnock (NSW) and St Marys (NSW).
Mortgage performance is expected to continue to deteriorate on the back of the Christmas spending season and the rapidly slowing economy, Fitch says.
"On a national basis, Australian mortgages, by value, that missed one or more payments, increased to 2.13 per cent from 1.88 per cent," said Ben McCarthy, from Structured Finance, who authored the Fitch report.
However a finding in the report suggests loans made between 2002 and 2007 are easier to service today than when the loan was first taken out.
"From this point of view if unemployment can remain subdued the Australian mortgage market will continue to perform well," Mr McCarthy said.
The Gold Coast and Sydney's Vaucluse have joined southwestern Sydney as the areas suffering the most from mortgage stress and loan defaults.
More than 840,000 residential mortgages - valued at $140 billion - were outstanding at the end of September, with interest rate rises in late 2007 and 2008 to blame.
Australian mortgage delinquency rose in the six months between April and September this year, Fitch Ratings said.
Southwestern and western Sydney remain the nation's mortgage stress hotspots, but there have been significant changes in the suburbs of Perth, southeast Queensland and New South Wales regional areas, such as Wollongong, Newcastle and the Central Coast.
One of the nation's most affluent addresses - Vaucluse - is rated seventh worst by loan value.
The top 10 suburbs and towns listed as suffering the most mortgage stress are: Helensvale (Queensland), Nelson Bay (NSW), Raymond Terrace (NSW), Katoomba (NSW), Greenacre (NSW), Guildford (NSW), Vaucluse (NSW), Fairfield (NSW), Cessnock (NSW) and St Marys (NSW).
Mortgage performance is expected to continue to deteriorate on the back of the Christmas spending season and the rapidly slowing economy, Fitch says.
"On a national basis, Australian mortgages, by value, that missed one or more payments, increased to 2.13 per cent from 1.88 per cent," said Ben McCarthy, from Structured Finance, who authored the Fitch report.
However a finding in the report suggests loans made between 2002 and 2007 are easier to service today than when the loan was first taken out.
"From this point of view if unemployment can remain subdued the Australian mortgage market will continue to perform well," Mr McCarthy said.
How low will house prices go in 2009
Recovery in house prices in the UK will be a long way off.
This past year will go down in the UK as the one in which the housing market raced from boom to bust.
In the autumn of 2007 prices began to fall each month as the international banking crisis took hold.
With the mortgage supply drying up, house sales have now slumped by more than half, first-time buyers have increasingly been driven from the market and the construction industry has plunged head-long into recession.
Building sites have been mothballed, thousands of workers laid off, and millions of unsold bricks are now being stockpiled around the country. And if the surveys by the Halifax and the Nationwide are anything to go by, house prices will end this year between 15% and 20% lower than they started - easily the biggest annual slump on record. About £30,000 has already been knocked off the selling price of the average house in the past year, and people have stopped borrowing extra cash against the now deflating value of their homes. So what will 2009 bring? More of the same or the beginning of an upturn?
More falls to come A year ago many experts were predicting that prices would be flat this year or might even rise a bit. Those views were rapidly outstripped by events. Now most commentators believe that prices will continue falling well into 2009, indeed maybe for the whole of the year. "We will expect prices to continue to fall because of the economic conditions; you wouldn't expect the market to turnaround in those conditions", says the Nationwide's chief economist
Fionnuala Earley, referring to the growing recession. Her counterpart at the Halifax, Martin Ellis, echoes that view. "We are comfortable with the view that there will be a 20% fall over 2008 and 2009". So if prices fall 15% this year, will they drop by just 5% next year? "We don't want to be too specific about next year," he replies.
Both lenders in fact will publish their formal house price predictions, with more specific figures, in the next few weeks and so will the lenders' trade body the Council of Mortgage Lenders. It recently described making short term house price predictions in the current market as "futile". But CML spokesman Bernard Clarke says it will stick its head above the parapet again soon. "We are going to be publishing something before the year end but we are currently working on it," he says. "Prices are likely to keep falling, at least in the early part of the year." Recession The economic downturn is one obvious factor that might help to push prices lower.
The availability of money remains restricted - which is where the key lies
Jonathan Davis, a chartered financial planner at Armstrong Davis, and spokesman for housepricecrash.co.uk says next year reality will kick in, even more than in 2008. "Next year prices will fall by 15-20% because unemployment is kicking in, house repossessions will rise rapidly and houses will go through auctions at previously silly prices - and banks aren't lending," he predicts. After forecasting the end of the house price bubble for several years, his worst predictions now seem to be coming true. "By 2010 prices will be significantly lower than the peak in late summer 2007; if they fall 15% next year then that will take us to 68% of the high point - a 32% fall," he points out. The key factor in the slump so far has been the rapidity with which the mortgage tap has been turned off, as banks and building societies have found they simply have much less money to lend. The industry is keeping its fingers crossed that the government's attempts to bail out the banking system, along with cuts in interest rates, will eventually see more money flow to borrowers. "Things are very fluid - credit is still in very short supply; interest rates are coming down quite sharply; and Libor is also coming down," says Simon Rubinsohn, chief economist at the Royal Institution of Chartered Surveyors (Rics). "So the cost of borrowing is falling, but the availability of money remains restricted - which is where the key lies." "And in truth no-one knows when that will change," he adds. Higher sales? The possibility that the mortgage market may free up a bit is hinted at by the Nationwide. HOUSE PRICE Predictions for 2009
It has just raised a further £1.5bn to bolster its finances by selling bonds to international investors, backed by the government's recently launched guarantee scheme for lending institutions. Rics, which is also working on its formal forecasts for next year, points out that there are some indications that sales, if not prices, might pick up next year. "Looking at our surveys, transaction levels do seem to be close to a floor and buyer enquiries are picking up, which is very significant, so there are potential buyers out there" says Mr Rubinsohn. "Prices will slip in the first half of the year and maybe all next year as well, but sales may pick up over the course of 2009." An even more optimistic view comes from Ray Boulger of the mortgage brokers John Charcol who reckons that house prices will stabilise by the middle of 2009. "The significant cut in rates will have a stimulating effect because some will see this as an opportunity to buy," he says. "Prices will drift in 2009, with the rate of decline reducing, and for the year as a whole will be broadly unchanged with a fall of 4% in the first half and a recovery of a similar amount in the second half." "Human psychology and the desire to buy a property is out there," he believes. Insurmountable problem For the moment Mr Boulger is in a minority. The leading economic consultancy Capital Economics has long predicted a big fall in house prices which, in its view, had risen far too high to be sustainable. Its housing spokesman Ed Stansfield is not about to change his tune, and predicts more of the same in the next 12 months. "There is not much evidence that the mortgage market is freeing up so I think we will see another 15-20% off prices in the coming year, so a one-third fall will have happened in just two years, reflecting the deterioration of the economy in the past year," he says. "Potentially base rates coming down may spark a revival of buyer interest, but the scale of the problem is beyond the government and I don't really think there is anything it can do," he adds. What about those efforts by the government and the Bank of England to make life a bit easier for banks and their borrowers? "Whether sentiment can be turned round when the chancellor and the governor of the Bank of England are saying there is a recession on the way is debatable," he says, pointedly.
This past year will go down in the UK as the one in which the housing market raced from boom to bust.
In the autumn of 2007 prices began to fall each month as the international banking crisis took hold.
With the mortgage supply drying up, house sales have now slumped by more than half, first-time buyers have increasingly been driven from the market and the construction industry has plunged head-long into recession.
Building sites have been mothballed, thousands of workers laid off, and millions of unsold bricks are now being stockpiled around the country. And if the surveys by the Halifax and the Nationwide are anything to go by, house prices will end this year between 15% and 20% lower than they started - easily the biggest annual slump on record. About £30,000 has already been knocked off the selling price of the average house in the past year, and people have stopped borrowing extra cash against the now deflating value of their homes. So what will 2009 bring? More of the same or the beginning of an upturn?
More falls to come A year ago many experts were predicting that prices would be flat this year or might even rise a bit. Those views were rapidly outstripped by events. Now most commentators believe that prices will continue falling well into 2009, indeed maybe for the whole of the year. "We will expect prices to continue to fall because of the economic conditions; you wouldn't expect the market to turnaround in those conditions", says the Nationwide's chief economist
Fionnuala Earley, referring to the growing recession. Her counterpart at the Halifax, Martin Ellis, echoes that view. "We are comfortable with the view that there will be a 20% fall over 2008 and 2009". So if prices fall 15% this year, will they drop by just 5% next year? "We don't want to be too specific about next year," he replies.
Both lenders in fact will publish their formal house price predictions, with more specific figures, in the next few weeks and so will the lenders' trade body the Council of Mortgage Lenders. It recently described making short term house price predictions in the current market as "futile". But CML spokesman Bernard Clarke says it will stick its head above the parapet again soon. "We are going to be publishing something before the year end but we are currently working on it," he says. "Prices are likely to keep falling, at least in the early part of the year." Recession The economic downturn is one obvious factor that might help to push prices lower.
The availability of money remains restricted - which is where the key lies
Jonathan Davis, a chartered financial planner at Armstrong Davis, and spokesman for housepricecrash.co.uk says next year reality will kick in, even more than in 2008. "Next year prices will fall by 15-20% because unemployment is kicking in, house repossessions will rise rapidly and houses will go through auctions at previously silly prices - and banks aren't lending," he predicts. After forecasting the end of the house price bubble for several years, his worst predictions now seem to be coming true. "By 2010 prices will be significantly lower than the peak in late summer 2007; if they fall 15% next year then that will take us to 68% of the high point - a 32% fall," he points out. The key factor in the slump so far has been the rapidity with which the mortgage tap has been turned off, as banks and building societies have found they simply have much less money to lend. The industry is keeping its fingers crossed that the government's attempts to bail out the banking system, along with cuts in interest rates, will eventually see more money flow to borrowers. "Things are very fluid - credit is still in very short supply; interest rates are coming down quite sharply; and Libor is also coming down," says Simon Rubinsohn, chief economist at the Royal Institution of Chartered Surveyors (Rics). "So the cost of borrowing is falling, but the availability of money remains restricted - which is where the key lies." "And in truth no-one knows when that will change," he adds. Higher sales? The possibility that the mortgage market may free up a bit is hinted at by the Nationwide. HOUSE PRICE Predictions for 2009
It has just raised a further £1.5bn to bolster its finances by selling bonds to international investors, backed by the government's recently launched guarantee scheme for lending institutions. Rics, which is also working on its formal forecasts for next year, points out that there are some indications that sales, if not prices, might pick up next year. "Looking at our surveys, transaction levels do seem to be close to a floor and buyer enquiries are picking up, which is very significant, so there are potential buyers out there" says Mr Rubinsohn. "Prices will slip in the first half of the year and maybe all next year as well, but sales may pick up over the course of 2009." An even more optimistic view comes from Ray Boulger of the mortgage brokers John Charcol who reckons that house prices will stabilise by the middle of 2009. "The significant cut in rates will have a stimulating effect because some will see this as an opportunity to buy," he says. "Prices will drift in 2009, with the rate of decline reducing, and for the year as a whole will be broadly unchanged with a fall of 4% in the first half and a recovery of a similar amount in the second half." "Human psychology and the desire to buy a property is out there," he believes. Insurmountable problem For the moment Mr Boulger is in a minority. The leading economic consultancy Capital Economics has long predicted a big fall in house prices which, in its view, had risen far too high to be sustainable. Its housing spokesman Ed Stansfield is not about to change his tune, and predicts more of the same in the next 12 months. "There is not much evidence that the mortgage market is freeing up so I think we will see another 15-20% off prices in the coming year, so a one-third fall will have happened in just two years, reflecting the deterioration of the economy in the past year," he says. "Potentially base rates coming down may spark a revival of buyer interest, but the scale of the problem is beyond the government and I don't really think there is anything it can do," he adds. What about those efforts by the government and the Bank of England to make life a bit easier for banks and their borrowers? "Whether sentiment can be turned round when the chancellor and the governor of the Bank of England are saying there is a recession on the way is debatable," he says, pointedly.
UK Northern Rock using 125% mortgage loans will be facing arrears trouble
Arrears on controversial home loans of up to 125% of the value of a property are driving Northern Rock's repossession rate. "Together" deals account for a third of the the Rock's mortgage book, but half of the number of mortgages in arrears and three-quarters of repossessions.
But Rock bosses told a committee of MPs they wanted to lead the way in helping people avoid losing their homes.
Buy-to-let specialist Bradford and Bingley was also under the spotlight. The two nationalised bank's management teams faced a Treasury Committee banking inquiry hearing.
High-value deals Northern Rock came under particular scrutiny over claims that the lender was "aggressive" in its repossessions policy.
This claim was strenuously denied by chief executive Gary Hoffman, although he warned that rising unemployment and falling house prices would increase the numbers in arrears. Northern Rock's Together mortgages - which offered loans of up to 125% of a property's value - were heavily criticised when the bank was nationalised. I believe you have inherited a shambolic organisation with a giant headache
John McFallTreasury Committee chairman about B&BMr Hoffman said that these mortgages had worked well in getting first-time buyers on the property ladder during the booming market. But now with some customers struggling to repay these mortgages, because they are often less well-off, Northern Rock's repossession rate has risen above the national average. Latest figures showed the proportion of Together mortgage customers in arrears for more than three months stood at 3.1%, whereas the industry average was 1.33%.
Mr Hoffman said he wanted the bank to lead the way in creating schemes to help people avoid repossessions, but the bank had to act in the same way as the rest of the industry. "We want to make sure customers stay in their home.
Repossession is a last resort," he said. Executive chairman Ron Sandler said only 1% of the repayment of the debt to the government was funded by repossessions, so there was no benefit in trying to push up the repossession rate for that purpose.
He said there would be no return of the bank to private ownership in the near future, with the economic situation making it more difficult. Buy-to-let 'closed' The Rock is doubling the number of staff dealing with arrears. The same trend can be seen at Bradford and Bingley (B&B), which has dominated the UK buy-to-let mortgage market in recent years.
Job losses at Bradford and Bingley will happen over timeB&B executive chairman Richard Pym said he expected the number of staff dealing with arrears inquiries to double, from the 200 employed in August, by the time arrears levels hit their peak next year. He added that the buy-to-let housing market was "closed". So many deals had been withdrawn that the market was completely different to a year ago. B&B, which had its mortgage business nationalised in September, has a £40bn loan book.
Some 60% of these mortgages are buy-to-let customers and another 20% are self-certified mortgages, which are common among people such as the self-employed. Mr Pym told the committee that at the end of September the proportion of borrowers in arrears on their mortgages stood at 3%, higher than the industry average.
One independent report suggested that, taking falling house prices into account, B&B could lose about £1.2bn.
The buy-to-let market is expected to be worse hit than the residential mortgage market. Mr Pym, however, said the recent cut in the Bank rate to 3% would have a "significant effect" in assisting landlords, assuming rents did not also fall dramatically. Job losses At the end of August, B&B had 3,100 staff, the committee heard.
This dropped by 1,700 following the transfer of the savings business to Abbey, and another 300 jobs went when business was closed to new mortgages. Mr Pym said it was "mindful of its obligations" to the community in West Yorkshire. Any further job losses would be phased, with 50 to 100 voluntary redundancies in the pipeline.
An agreement with the government means there will be no compulsory redundancies before 31 March next year. Yet he was unable to give a final level of job losses by the end of next year. Former chairman Rod Kent said the board was "deeply sorry" that the bank needed to be nationalised. Mr Pym said that there were only queues at four branches at the height of the crisis, and every customer who wanted to move savings could do so when the outflow of customers' funds reached £200m online.
Committee chairman John McFall, closing the session, told Mr Pym: "I believe you have inherited a shambolic organisation with a giant headache." Mr Pym confirmed he would step down from his job next summer, without any compensation, but having picked up a guaranteed cash bonus of £326,000 spread over two years.
But Rock bosses told a committee of MPs they wanted to lead the way in helping people avoid losing their homes.
Buy-to-let specialist Bradford and Bingley was also under the spotlight. The two nationalised bank's management teams faced a Treasury Committee banking inquiry hearing.
High-value deals Northern Rock came under particular scrutiny over claims that the lender was "aggressive" in its repossessions policy.
This claim was strenuously denied by chief executive Gary Hoffman, although he warned that rising unemployment and falling house prices would increase the numbers in arrears. Northern Rock's Together mortgages - which offered loans of up to 125% of a property's value - were heavily criticised when the bank was nationalised. I believe you have inherited a shambolic organisation with a giant headache
John McFallTreasury Committee chairman about B&BMr Hoffman said that these mortgages had worked well in getting first-time buyers on the property ladder during the booming market. But now with some customers struggling to repay these mortgages, because they are often less well-off, Northern Rock's repossession rate has risen above the national average. Latest figures showed the proportion of Together mortgage customers in arrears for more than three months stood at 3.1%, whereas the industry average was 1.33%.
Mr Hoffman said he wanted the bank to lead the way in creating schemes to help people avoid repossessions, but the bank had to act in the same way as the rest of the industry. "We want to make sure customers stay in their home.
Repossession is a last resort," he said. Executive chairman Ron Sandler said only 1% of the repayment of the debt to the government was funded by repossessions, so there was no benefit in trying to push up the repossession rate for that purpose.
He said there would be no return of the bank to private ownership in the near future, with the economic situation making it more difficult. Buy-to-let 'closed' The Rock is doubling the number of staff dealing with arrears. The same trend can be seen at Bradford and Bingley (B&B), which has dominated the UK buy-to-let mortgage market in recent years.
Job losses at Bradford and Bingley will happen over timeB&B executive chairman Richard Pym said he expected the number of staff dealing with arrears inquiries to double, from the 200 employed in August, by the time arrears levels hit their peak next year. He added that the buy-to-let housing market was "closed". So many deals had been withdrawn that the market was completely different to a year ago. B&B, which had its mortgage business nationalised in September, has a £40bn loan book.
Some 60% of these mortgages are buy-to-let customers and another 20% are self-certified mortgages, which are common among people such as the self-employed. Mr Pym told the committee that at the end of September the proportion of borrowers in arrears on their mortgages stood at 3%, higher than the industry average.
One independent report suggested that, taking falling house prices into account, B&B could lose about £1.2bn.
The buy-to-let market is expected to be worse hit than the residential mortgage market. Mr Pym, however, said the recent cut in the Bank rate to 3% would have a "significant effect" in assisting landlords, assuming rents did not also fall dramatically. Job losses At the end of August, B&B had 3,100 staff, the committee heard.
This dropped by 1,700 following the transfer of the savings business to Abbey, and another 300 jobs went when business was closed to new mortgages. Mr Pym said it was "mindful of its obligations" to the community in West Yorkshire. Any further job losses would be phased, with 50 to 100 voluntary redundancies in the pipeline.
An agreement with the government means there will be no compulsory redundancies before 31 March next year. Yet he was unable to give a final level of job losses by the end of next year. Former chairman Rod Kent said the board was "deeply sorry" that the bank needed to be nationalised. Mr Pym said that there were only queues at four branches at the height of the crisis, and every customer who wanted to move savings could do so when the outflow of customers' funds reached £200m online.
Committee chairman John McFall, closing the session, told Mr Pym: "I believe you have inherited a shambolic organisation with a giant headache." Mr Pym confirmed he would step down from his job next summer, without any compensation, but having picked up a guaranteed cash bonus of £326,000 spread over two years.
Citigroup executives consider sale of all or part of bank
With Citigroup stock value plunging, top executives at the financial giant are considering the sale of all or parts of the company, the Wall Street Journal reported on its website.
The debate within the company is at a "preliminary stage," and officials said the company has "ample capital, funding and strategic direction," the daily said.
The sale option is one of a range of dire scenarios company executives were considering after Citigroup stock fell another 26 percent Thursday, after a 23 percent drop on Wednesday.
The company's board of directors is expected to meet Friday to discuss options to reverse the stock slide, people familiar with the situation told the daily.
Citigroup, a component of the blue-chip Dow Jones Industrial Average, has tumbled more than 70 percent since the start of the year, with the bank hit by hefty writeoffs linked to the US real estate crisis.
Chief Executive Vikram Pandit and other company executives have told colleagues they are frustrated and confused by this week's 50 percent stock decline, the daily said.
Citigroup stocks on Thursday closed at 4.71 US dollars, their lowest level in 15 years, despite Wednesday's announcement by Saudi Arabian investor Prince Alwaleed bin Talal bin Abdulaziz Al Saud that he would increase his holdings in Citigroup Inc. to 5.0 percent, adding that he supports the banking giant's management.
At 25.6 billion US dollars, Citigroup's value on the stock market is barely higher than the 25 billion dollar aid package the US Treasury extended it last month, in the framework of its 700 billion dollar bailout plan for stricken financial institutions.
Besides considering selling the company to another bank, Citigroup executives are also looking into selling parts of the company, including the Smith Barney retail brokerage, the global credit-card division and transaction-services unit, Citigroup's most lucrative and fast-growing businesses, the newspaper said.
They are also exploring the possibility of merging with a rival. Some analysts have pointed to Morgan Stanley and Goldman Sachs Group Inc. as potential suitors, market analysts told the daily.
Citigroup also want to make it more difficult for investors to place bets that the company's share price will fall, a strategy known as "short selling," and have been lobbying the Securities and Exchange Commission to reinstate a ban on the trading strategy imposed at the start of the stock market crash.
Citigroup on Monday announced it was slashing a near-record 50,000 jobs worldwide in further belt tightening to cope with the global financial crisis and heavy losses. At its peak last year, the company employed 375,000 people.
It was the second largest job-cut announcement on record, according to global outplacement consultancy Challenger, Gray & Christmas, tying with 50,000 job cuts by retailer Sears, Roebuck & Co. in 1993 behind the all-time largest the same year: 60,000 by IBM.
The debate within the company is at a "preliminary stage," and officials said the company has "ample capital, funding and strategic direction," the daily said.
The sale option is one of a range of dire scenarios company executives were considering after Citigroup stock fell another 26 percent Thursday, after a 23 percent drop on Wednesday.
The company's board of directors is expected to meet Friday to discuss options to reverse the stock slide, people familiar with the situation told the daily.
Citigroup, a component of the blue-chip Dow Jones Industrial Average, has tumbled more than 70 percent since the start of the year, with the bank hit by hefty writeoffs linked to the US real estate crisis.
Chief Executive Vikram Pandit and other company executives have told colleagues they are frustrated and confused by this week's 50 percent stock decline, the daily said.
Citigroup stocks on Thursday closed at 4.71 US dollars, their lowest level in 15 years, despite Wednesday's announcement by Saudi Arabian investor Prince Alwaleed bin Talal bin Abdulaziz Al Saud that he would increase his holdings in Citigroup Inc. to 5.0 percent, adding that he supports the banking giant's management.
At 25.6 billion US dollars, Citigroup's value on the stock market is barely higher than the 25 billion dollar aid package the US Treasury extended it last month, in the framework of its 700 billion dollar bailout plan for stricken financial institutions.
Besides considering selling the company to another bank, Citigroup executives are also looking into selling parts of the company, including the Smith Barney retail brokerage, the global credit-card division and transaction-services unit, Citigroup's most lucrative and fast-growing businesses, the newspaper said.
They are also exploring the possibility of merging with a rival. Some analysts have pointed to Morgan Stanley and Goldman Sachs Group Inc. as potential suitors, market analysts told the daily.
Citigroup also want to make it more difficult for investors to place bets that the company's share price will fall, a strategy known as "short selling," and have been lobbying the Securities and Exchange Commission to reinstate a ban on the trading strategy imposed at the start of the stock market crash.
Citigroup on Monday announced it was slashing a near-record 50,000 jobs worldwide in further belt tightening to cope with the global financial crisis and heavy losses. At its peak last year, the company employed 375,000 people.
It was the second largest job-cut announcement on record, according to global outplacement consultancy Challenger, Gray & Christmas, tying with 50,000 job cuts by retailer Sears, Roebuck & Co. in 1993 behind the all-time largest the same year: 60,000 by IBM.
Monday, November 24, 2008
Citigroup says credit card loan losses will rise in the recession
Citigroup says losses in its credit card portfolio could rise between $US1 billion and $US2 billion each quarter from now through the first half of next year.
Citi's credit card losses could double over the next nine months.
Shares of Citigroup, which plans to slash 50,000 jobs worldwide, had declined 9.5 per cent to $US8.05 with just under an hour of trading remaining on Wall Street.
Citigroup also revealed its plans to change its accounting for a large portion of its risky, written-down assets. It will move about $US80 billion of the assets from its trading portfolio to either its held for investment, held to maturity or available for sale categories on its balance sheet.
Citigroup said that the company's capital position was strong and it was moving ahead with restructuring plans, which include an additional 50,000 job cuts.
Citi reported last month a $US2.8 billion net loss in its third quarter; its losses over the last four quarters totalled more than $US20 billion.
Citi's credit card losses could double over the next nine months.
Shares of Citigroup, which plans to slash 50,000 jobs worldwide, had declined 9.5 per cent to $US8.05 with just under an hour of trading remaining on Wall Street.
Citigroup also revealed its plans to change its accounting for a large portion of its risky, written-down assets. It will move about $US80 billion of the assets from its trading portfolio to either its held for investment, held to maturity or available for sale categories on its balance sheet.
Citigroup said that the company's capital position was strong and it was moving ahead with restructuring plans, which include an additional 50,000 job cuts.
Citi reported last month a $US2.8 billion net loss in its third quarter; its losses over the last four quarters totalled more than $US20 billion.
Big homes become hard to sell and finance
The new stimulas that flooding the Australian property market is not flowing up to the top of the market.
Melbourne house values are down about 2 per cent across the board over the past few months, but recent rate cuts and additional first-home buyer support, will make that sector more buoyant than other parts of the residential property market, valuer WBP says.
For example, Narre Warren, a typical first and second-home owner's suburb in Melbourne, has a very strong market in properties priced below $320,000, while the market from $320,000 to $500,000 is weaker.
WBP also says recent valuations in the blue-ribbon suburbs of Camberwell and Balwyn suggest the market has fallen between 10 and 15 per cent for properties priced at more than $1million, while those below $500,000 are less affected.The prestige sector, after being immune to 12 consecutive rate rises, is not faring well amid cuts to executive bonuses, a volatile share market, corporate profit downgrades and the increasing pressure of margin loans.Knight Frank Research, in its annual review of the prestige residential market released this month, says all these factors will affect prices.
The prestige sector generally held up well over the 2007-8 financial year. But even though it feels like ancient history now, sales volumes started falling in the first two quarters of 2008 in most capital cities, as the hit to family wealth started to befelt.In Melbourne, there were 44 sales of more than $5 million each, totalling $294 million for the 2007-8 financial year.
But 60 per cent of these were in 2007, with a 34 per cent fall in the value of sales in the first two quarters of 2008. The suburbs of Brighton and Toorak recorded the highest volumes in this price bracket, with nine sales of more than $5 million in each suburb.
In the entry-level prestige sector, the value of properties sold for the year was $2.17 billion, but that was down nearly 32 per cent in the first part of 2008. Knight Frank makes the distinction between entry-level prestige property, between $2 and $5 million, and top-end prestige property above $5 million.
In Sydney, it says, there are two distinct prestige markets. The first is mainly owner-occupied -- suburbs such as Woollahra, Vaucluse and Point Piper in the east, and Mosman, Manly, Neutral Bay, Cremorne and Hunters Hill in the north.The second is the beach areas of the upper north shore and around Palm Beach and Avalon.
A large proportion of these are second homes or luxury weekend retreats for those in Sydney's financial services industry.Prices for prestige residential property in Sydney actually rose 4 per cent over 2007-08 year, as measured by the Knight Frank Prime International Residential Index. But again, all the growth was in 2007, with a slowdown in the first half of 2008. Knight Frank expects the very top of the market -- the $10million-plus bracket -- will remain stable, and says trophy properties, which are usually waterfront or have harbour views, will always be in demand.
Areas with a high proportion of second or holiday homes, and entry-level prestige properties will be in for a tough time.More second homes are likely to hit the market, and entry-level prestige properties values will fall, as has already happened in suburbs more dependent on the financial sector for purchasers.
Melbourne house values are down about 2 per cent across the board over the past few months, but recent rate cuts and additional first-home buyer support, will make that sector more buoyant than other parts of the residential property market, valuer WBP says.
For example, Narre Warren, a typical first and second-home owner's suburb in Melbourne, has a very strong market in properties priced below $320,000, while the market from $320,000 to $500,000 is weaker.
WBP also says recent valuations in the blue-ribbon suburbs of Camberwell and Balwyn suggest the market has fallen between 10 and 15 per cent for properties priced at more than $1million, while those below $500,000 are less affected.The prestige sector, after being immune to 12 consecutive rate rises, is not faring well amid cuts to executive bonuses, a volatile share market, corporate profit downgrades and the increasing pressure of margin loans.Knight Frank Research, in its annual review of the prestige residential market released this month, says all these factors will affect prices.
The prestige sector generally held up well over the 2007-8 financial year. But even though it feels like ancient history now, sales volumes started falling in the first two quarters of 2008 in most capital cities, as the hit to family wealth started to befelt.In Melbourne, there were 44 sales of more than $5 million each, totalling $294 million for the 2007-8 financial year.
But 60 per cent of these were in 2007, with a 34 per cent fall in the value of sales in the first two quarters of 2008. The suburbs of Brighton and Toorak recorded the highest volumes in this price bracket, with nine sales of more than $5 million in each suburb.
In the entry-level prestige sector, the value of properties sold for the year was $2.17 billion, but that was down nearly 32 per cent in the first part of 2008. Knight Frank makes the distinction between entry-level prestige property, between $2 and $5 million, and top-end prestige property above $5 million.
In Sydney, it says, there are two distinct prestige markets. The first is mainly owner-occupied -- suburbs such as Woollahra, Vaucluse and Point Piper in the east, and Mosman, Manly, Neutral Bay, Cremorne and Hunters Hill in the north.The second is the beach areas of the upper north shore and around Palm Beach and Avalon.
A large proportion of these are second homes or luxury weekend retreats for those in Sydney's financial services industry.Prices for prestige residential property in Sydney actually rose 4 per cent over 2007-08 year, as measured by the Knight Frank Prime International Residential Index. But again, all the growth was in 2007, with a slowdown in the first half of 2008. Knight Frank expects the very top of the market -- the $10million-plus bracket -- will remain stable, and says trophy properties, which are usually waterfront or have harbour views, will always be in demand.
Areas with a high proportion of second or holiday homes, and entry-level prestige properties will be in for a tough time.More second homes are likely to hit the market, and entry-level prestige properties values will fall, as has already happened in suburbs more dependent on the financial sector for purchasers.
Reserve Bank of Australia to cut mortgage rates again in time for Christmas
The Reserve Bank of Australia's board will be cutting mortgage interest rates deep again for Xmas
Governor Glenn Stevens said board should consider up to a 75 basis point to a 1.0 percent rate reduction.
The board decided to cut rates by 75 basis points, taking official rates to 5.25 per cent, in light of the continuing poor conditions in financial markets, the significant deterioration in the global outlook and the likelihood of inflation falling.
"Given the changing balance of risks, there was an advantage in moving the setting of monetary policy quickly to a neutral setting," the RBA said in its board minutes.
Economists said they expected the RBA to move to an “expansionary setting” next month as it tried to shield the economy from the global financial crisis which has already dragged several countries into recession.
Commsec economist Savanth Sebastian, who expects a 50 basis point cut next month, said: “The move to a neutral monetary policy setting has been achieved quickly. However the case for further substantial rate cuts remains.
“The global economy continues to weaken and a stimulatory monetary policy setting will be required to combat the weakness in retail spending and housing.”
Westpac chief economist Bill Evans said the RBA’s desire to move quickly to a neutral cash rate suggested a cut of at least 75 basis points in December.
“Whereas neutral may have been around 5.5 per cent in previous cycles, we assess that it is now around 4.5 per cent, given the incomplete pass-through of RBA rates to household and business borrowing rates,” said Mr Evans.
“A decision to push rates to neutral or below as quickly as possible seems prudent in the current circumstances.”
Financial markets price a near-certain bet of a further 100 basis point cut at the RBA’s December 3 meeting. A cut of that magnitude would reduce official rates to 4.25 per cent, the lowest level since the aftermath of the September 2001 terrorist attacks.
ANZ economist Riki Polygenis, who expects a 50 basis point cut next month, said: “The use of the word neutral in reference to taking the cash rate to 5.25 per cent is the largest clue contained in the minutes regarding the outlook for monetary policy.
“On the RBA's latest forecasts, there is a clear case for monetary policy to move to an expansionary setting.”
The minutes revealed board members believed recent reductions in borrowing costs, the weakening Australian dollar and the federal Government's $10.4 billion stimulus package were insufficient to shield the economy from the global financial crisis.
“The marked deterioration in global financial conditions over the past couple of months ... was likely to have a significant effect on business and consumer sentiment,” the minutes said.
“This would probably lead to a significant curtailment of planned investment spending and caution on the part of households.
“Members agreed that a further sizeable reduction in official rates ... would enable a further meaningful reduction in rates paid by borrowers and could assist confidence among consumers and businesses.”
While inflation remained above the central bank's target range of 2-3 per cent, the sharper than expected slowdown in domestic and global growth along with lower commodity prices would see inflation to start to fall soon.
As such, the board members decided a “further size-able reduction ... would strike the right balance between the need to return inflation to the target and the need to reduce the risk of an unduly sharp weakening of demand”.
The RBA has become increasingly bearish about the outlook for Australia.In its November monetary policy statement last week, the central bank cuts its forecast for growth in fiscal 2009 to1.5 per cent from an August forecast of 2.0 per cent.
The projections undercut the IMF’s forecast for 1.8 per cent growth and the federal Government’s prediction of 2.0 per cent growth.
The domestic economy has been slowing along with the rest of the world, with several major economies now in recession.
The euro-zone, Japan and Britain have officially entered recession and many economists already believe the United States has slid into recession.
A meeting of the Group of 20 industrialised and developing countries in Washington at the weekend, which was attended by Prime Minister Kevin Rudd, pledged to work together to restore economic growth.
Leaders vowed to improve supervision of financial markets and reform the IMF and World Bank.
They also urged governments to inject more money into their economies and lower interest rates to stimulate growth.
Governor Glenn Stevens said board should consider up to a 75 basis point to a 1.0 percent rate reduction.
The board decided to cut rates by 75 basis points, taking official rates to 5.25 per cent, in light of the continuing poor conditions in financial markets, the significant deterioration in the global outlook and the likelihood of inflation falling.
"Given the changing balance of risks, there was an advantage in moving the setting of monetary policy quickly to a neutral setting," the RBA said in its board minutes.
Economists said they expected the RBA to move to an “expansionary setting” next month as it tried to shield the economy from the global financial crisis which has already dragged several countries into recession.
Commsec economist Savanth Sebastian, who expects a 50 basis point cut next month, said: “The move to a neutral monetary policy setting has been achieved quickly. However the case for further substantial rate cuts remains.
“The global economy continues to weaken and a stimulatory monetary policy setting will be required to combat the weakness in retail spending and housing.”
Westpac chief economist Bill Evans said the RBA’s desire to move quickly to a neutral cash rate suggested a cut of at least 75 basis points in December.
“Whereas neutral may have been around 5.5 per cent in previous cycles, we assess that it is now around 4.5 per cent, given the incomplete pass-through of RBA rates to household and business borrowing rates,” said Mr Evans.
“A decision to push rates to neutral or below as quickly as possible seems prudent in the current circumstances.”
Financial markets price a near-certain bet of a further 100 basis point cut at the RBA’s December 3 meeting. A cut of that magnitude would reduce official rates to 4.25 per cent, the lowest level since the aftermath of the September 2001 terrorist attacks.
ANZ economist Riki Polygenis, who expects a 50 basis point cut next month, said: “The use of the word neutral in reference to taking the cash rate to 5.25 per cent is the largest clue contained in the minutes regarding the outlook for monetary policy.
“On the RBA's latest forecasts, there is a clear case for monetary policy to move to an expansionary setting.”
The minutes revealed board members believed recent reductions in borrowing costs, the weakening Australian dollar and the federal Government's $10.4 billion stimulus package were insufficient to shield the economy from the global financial crisis.
“The marked deterioration in global financial conditions over the past couple of months ... was likely to have a significant effect on business and consumer sentiment,” the minutes said.
“This would probably lead to a significant curtailment of planned investment spending and caution on the part of households.
“Members agreed that a further sizeable reduction in official rates ... would enable a further meaningful reduction in rates paid by borrowers and could assist confidence among consumers and businesses.”
While inflation remained above the central bank's target range of 2-3 per cent, the sharper than expected slowdown in domestic and global growth along with lower commodity prices would see inflation to start to fall soon.
As such, the board members decided a “further size-able reduction ... would strike the right balance between the need to return inflation to the target and the need to reduce the risk of an unduly sharp weakening of demand”.
The RBA has become increasingly bearish about the outlook for Australia.In its November monetary policy statement last week, the central bank cuts its forecast for growth in fiscal 2009 to1.5 per cent from an August forecast of 2.0 per cent.
The projections undercut the IMF’s forecast for 1.8 per cent growth and the federal Government’s prediction of 2.0 per cent growth.
The domestic economy has been slowing along with the rest of the world, with several major economies now in recession.
The euro-zone, Japan and Britain have officially entered recession and many economists already believe the United States has slid into recession.
A meeting of the Group of 20 industrialised and developing countries in Washington at the weekend, which was attended by Prime Minister Kevin Rudd, pledged to work together to restore economic growth.
Leaders vowed to improve supervision of financial markets and reform the IMF and World Bank.
They also urged governments to inject more money into their economies and lower interest rates to stimulate growth.
Citigroup heads south as it warns consumer loan losses rise
Citigroup stocks took a bath in the wake of its warning that losses in its consumer loan portfolio could rise between $US1 billion and $US2 billion each quarter from now through the first half of next year, according to chief executive Vikram Pandit's speech notes released on the banking giant's website.The notes reveal "buried" details about company's expectation that consumer credit losses will be substantially higher, said Bernstein Research analyst John McDonald, who alerted his clients to the disclosure.
Citi's consumer credit losses in its third quarter were $US4.6 billion ($7.1 billion), meaning the guidance in the speech notes suggests the bank's quarterly losses on the portfolio could reach $US10.6 billion by the second quarter of next year.
Shares of Citigroup, which plans to slash 50,000 jobs worldwide, had declined 9.5 per cent to $US8.05 with just under an hour of trading remaining on Wall Street.
A Citi spokeswoman declined to comment on Mr McDonald's report, and referred other questions to the 13 pages of speech notes released on the company's website.
Mr McDonald cut his price target on Citi shares to $US11 from $US20 based on the higher credit losses outlined in the speech notes. He also widened his fourth-quarter loss expectation to US61c a share from US41c and cut his 2009 earnings forecast to US22c a share from US63c.
Citigroup also revealed in Mr Pandit's notes its plans to change its accounting for a large portion of its risky, written-down assets. It will move about $US80 billion of the assets from its trading portfolio to either its held for investment, held to maturity or available for sale categories on its balance sheet.
Mr Pandit said $US80 billion in assets had been marked down appropriately and that the realised losses on the loans would be greater than the level they'd been marked down to already, according to the notes.
He said the purpose of the accounting change "reduces the earnings volatility that these assets could pose," and that it allows Citi to benefit from a return on equity from any upside to the assets.
Bernstein's Mr McDonald said the $US80 billion comprised most of Citi's $US88 billion in risky collatoralised debt obligations, leveraged loans, mortgage securities and auction rate securities.
Once the assets are moved out of Citi's trading portfolio, any future write-downs would no longer follow through Citi's income statement unless it sells them, or recognises an "other than temporary impairment charge" against them, he said.
However, Mr McDonald estimated that Citi would still have to write-down $US3.5 billion on the assets in its fourth quarter when it makes the accounting change.
Mr Pandit delivered a speech based on the notes and a slideshow, which was released on the company's website.
Mr Pandit told those at the employee-only meeting on Monday that the company's capital position was strong and it was moving ahead with restructuring plans, which include an additional 50,000 job cuts.
Citi reported last month a $US2.8 billion net loss in its third quarter; its losses over the last four quarters totalled more than $US20 billion.
Citi's consumer credit losses in its third quarter were $US4.6 billion ($7.1 billion), meaning the guidance in the speech notes suggests the bank's quarterly losses on the portfolio could reach $US10.6 billion by the second quarter of next year.
Shares of Citigroup, which plans to slash 50,000 jobs worldwide, had declined 9.5 per cent to $US8.05 with just under an hour of trading remaining on Wall Street.
A Citi spokeswoman declined to comment on Mr McDonald's report, and referred other questions to the 13 pages of speech notes released on the company's website.
Mr McDonald cut his price target on Citi shares to $US11 from $US20 based on the higher credit losses outlined in the speech notes. He also widened his fourth-quarter loss expectation to US61c a share from US41c and cut his 2009 earnings forecast to US22c a share from US63c.
Citigroup also revealed in Mr Pandit's notes its plans to change its accounting for a large portion of its risky, written-down assets. It will move about $US80 billion of the assets from its trading portfolio to either its held for investment, held to maturity or available for sale categories on its balance sheet.
Mr Pandit said $US80 billion in assets had been marked down appropriately and that the realised losses on the loans would be greater than the level they'd been marked down to already, according to the notes.
He said the purpose of the accounting change "reduces the earnings volatility that these assets could pose," and that it allows Citi to benefit from a return on equity from any upside to the assets.
Bernstein's Mr McDonald said the $US80 billion comprised most of Citi's $US88 billion in risky collatoralised debt obligations, leveraged loans, mortgage securities and auction rate securities.
Once the assets are moved out of Citi's trading portfolio, any future write-downs would no longer follow through Citi's income statement unless it sells them, or recognises an "other than temporary impairment charge" against them, he said.
However, Mr McDonald estimated that Citi would still have to write-down $US3.5 billion on the assets in its fourth quarter when it makes the accounting change.
Mr Pandit delivered a speech based on the notes and a slideshow, which was released on the company's website.
Mr Pandit told those at the employee-only meeting on Monday that the company's capital position was strong and it was moving ahead with restructuring plans, which include an additional 50,000 job cuts.
Citi reported last month a $US2.8 billion net loss in its third quarter; its losses over the last four quarters totalled more than $US20 billion.
Thursday, November 13, 2008
Will house prices rise in line with the First Home Owners Grant rises.
Those of us who have lived through two, now three first home buyers incentive schemes know two things that most people don't. The first is that putting money into first home buyers pockets is like spraying petrol into a car engine. When the fire is burning you will get a massive acceleration, more maybe than the energy you put in. When you do the same to a sluggish or dead engine, you will flood the engine and kill the spark.
The first home buyers have spoken in their silence. The engine is dead, and its flooded.
It needs to be stripped down and over-hauled. Its sick and doesn't do the job it was intended to do.
Adding supply side demand [by giving incentives and cash to potential first home buyers to an inefficient/ housing market] may drive the market on, but it will not address the core issues.
The core issues are that banks put their self interest before their customers and won't pass on rate rises, and must be dragged kicking and screaming to do so, and that the new home market is geared to second and third home markets, and in doing so has become inefficient in building new home stock.
The result is that the average age of a first home buyer is nearly forty in Australia, [over forty in the US], and the home builders of Australia and America focus on where the money is, the second, third and fourth home buyer.
These people want to get it right, mostly for a couple and a dog, and take their time to design and decide, two reasons why we are building bigger and bigger homes for less and less people.
I have worked in the new home building industry in the 1980's, the 1990's and the 2000's up to right now.
The last month I was AV Jennings in the mid 1988's I sold 7 homes [I averaged 4 homes a month.] The average was 3 sales a month in the 1980's
The average for the 1990's was 2 sales a month for the industry.
By 2000, the average was 1.5 home sales a month per new home sales.
By 2008 this was 1.25 home sales a month per month and falling fast. Many builders have display homes where they can't get home sales consultants to work or they have decided not to open because of their "graveyard status". Many builders have display homes they can't sell.
The sales training given these days is better than in the 1980's and the sales people are more professional, and the urgent need for accommodation for families is dire. So why aren't homes being built?
There are many reasons, but the big one is that first home buyers want a home three times the size they need and twice the size they can afford, and State and local Governments are addicted to money they take in the form of fees and Stamp duty from land developers, home builders and their suppliers, and home buyers generally and new home buyers in particular.
This makes the homes that first home buyers are looking at, at least $100,000 more than they would be, and paying off a mortgage that is $100,000 bigger than it should be may get the banks rubbing their hands, but is making first home buyers reluctant to get into debt that deep for a dream that can become a nightmare in an unclear future.
We need to stop allowing Local councils and state governments dependent on bleeding new development and building projects.
So back to the original question.
Will the house prices rise by the size of the grant increase?
I don't think so. Not this time. In the 1970's it did because The new home builders have become niche suppliers to second, third and fourth home buyers, not first home buyers. The incentives are still too small and don't compensate buyers for the GST, let alone the ripoffs mentioned.
Land supply to Developers needs to be controlled by the Government, as developers and builders have not been meeting the markets needs for years, and land developers use deceptive marketing tactics that manipulate the markets and make land prices artificially high, under the guise of market forces. They buy raw land then hold it. They should be taxed out of doing this. They deliberately hold land from sale to give the appearance of scarcity, when land is in fact abundant. They tell customers that they only have three lots available when they have 15 or 50 available. The run sham auctions. They put sold signs on lots that are not sold.
If Governments acquired and banked residential land and created a competitive development industry first home buyers could see a new home price halved.
The truth is a block of dirt to build a home on should not have to cost $300,000 in the middle of nowhere, but it does on the Gold Coast, and in many areas of Australia.
It time for a breakout of the trend that has gripped Australian residential building and it time for a new deal for the smarter first home buyers that want that new deal.
First home buyers no longer want to get across the line, because they are smart enough to know that they are then the proud owners of a 30 year mortgage. That the mortgage is bigger than it should be should be concern for everyone.
Rick Adlam is the founder of the Australian Mortgage Exchange and Mr Mortgage
The first home buyers have spoken in their silence. The engine is dead, and its flooded.
It needs to be stripped down and over-hauled. Its sick and doesn't do the job it was intended to do.
Adding supply side demand [by giving incentives and cash to potential first home buyers to an inefficient/ housing market] may drive the market on, but it will not address the core issues.
The core issues are that banks put their self interest before their customers and won't pass on rate rises, and must be dragged kicking and screaming to do so, and that the new home market is geared to second and third home markets, and in doing so has become inefficient in building new home stock.
The result is that the average age of a first home buyer is nearly forty in Australia, [over forty in the US], and the home builders of Australia and America focus on where the money is, the second, third and fourth home buyer.
These people want to get it right, mostly for a couple and a dog, and take their time to design and decide, two reasons why we are building bigger and bigger homes for less and less people.
I have worked in the new home building industry in the 1980's, the 1990's and the 2000's up to right now.
The last month I was AV Jennings in the mid 1988's I sold 7 homes [I averaged 4 homes a month.] The average was 3 sales a month in the 1980's
The average for the 1990's was 2 sales a month for the industry.
By 2000, the average was 1.5 home sales a month per new home sales.
By 2008 this was 1.25 home sales a month per month and falling fast. Many builders have display homes where they can't get home sales consultants to work or they have decided not to open because of their "graveyard status". Many builders have display homes they can't sell.
The sales training given these days is better than in the 1980's and the sales people are more professional, and the urgent need for accommodation for families is dire. So why aren't homes being built?
There are many reasons, but the big one is that first home buyers want a home three times the size they need and twice the size they can afford, and State and local Governments are addicted to money they take in the form of fees and Stamp duty from land developers, home builders and their suppliers, and home buyers generally and new home buyers in particular.
This makes the homes that first home buyers are looking at, at least $100,000 more than they would be, and paying off a mortgage that is $100,000 bigger than it should be may get the banks rubbing their hands, but is making first home buyers reluctant to get into debt that deep for a dream that can become a nightmare in an unclear future.
We need to stop allowing Local councils and state governments dependent on bleeding new development and building projects.
So back to the original question.
Will the house prices rise by the size of the grant increase?
I don't think so. Not this time. In the 1970's it did because The new home builders have become niche suppliers to second, third and fourth home buyers, not first home buyers. The incentives are still too small and don't compensate buyers for the GST, let alone the ripoffs mentioned.
Land supply to Developers needs to be controlled by the Government, as developers and builders have not been meeting the markets needs for years, and land developers use deceptive marketing tactics that manipulate the markets and make land prices artificially high, under the guise of market forces. They buy raw land then hold it. They should be taxed out of doing this. They deliberately hold land from sale to give the appearance of scarcity, when land is in fact abundant. They tell customers that they only have three lots available when they have 15 or 50 available. The run sham auctions. They put sold signs on lots that are not sold.
If Governments acquired and banked residential land and created a competitive development industry first home buyers could see a new home price halved.
The truth is a block of dirt to build a home on should not have to cost $300,000 in the middle of nowhere, but it does on the Gold Coast, and in many areas of Australia.
It time for a breakout of the trend that has gripped Australian residential building and it time for a new deal for the smarter first home buyers that want that new deal.
First home buyers no longer want to get across the line, because they are smart enough to know that they are then the proud owners of a 30 year mortgage. That the mortgage is bigger than it should be should be concern for everyone.
Rick Adlam is the founder of the Australian Mortgage Exchange and Mr Mortgage
Friday, November 07, 2008
Rick Adlam has uploaded his personal web page
Rick Adlam has uploaded his personal web page so that friends and past acquainences can find hime easily.
If you want to findout more about rick adlam but were afraid to ask, please visit http://rickadlam.mrmortgage.com.au/ now.
There are a lot of Rick Adlam's in the world and I just wanted to get to no 1 in Google, Says Rick Adlam.
If you want to findout more about rick adlam but were afraid to ask, please visit http://rickadlam.mrmortgage.com.au/ now.
There are a lot of Rick Adlam's in the world and I just wanted to get to no 1 in Google, Says Rick Adlam.
Monday, October 13, 2008
Bank lending will end the credit crisis
The head of the International Monetary Fund (IMF) says he hopes the actions taken by governments will be powerful enough to persuade banks to start lending again, and that he IMF is ready to lend to any country that needs help.
Speaking at the G20 meeting in Washington, Dominique Strauss-Kahn says this would bring an end to the credit crunch.
But he has warned that the global financial system is near to meltdown, saying the IMF has been calling for co-ordinated action on the crisis for some time.
Mr Strauss-Kahn says the crisis is not limited to advanced economies and the IMF is ready to lend to any country that needs help.
"The fund has asked for weeks, if not for months, for more co-ordination in action, arguing that in such a crisis that it was impossible to look for domestic solution," he said.
"Action taken in some countries without coordination with other countries can hurt more than it helps."
The G20 group of leading economies has agreed to coordinate efforts to respond to financial turmoil in world markets.
The group says it will use all means available to ensure the stability of the global financial system.
In a joint statement the group emphasised the need for nations to communicate to ensure that benefits to one country do not destabilise other economies.
Speaking at the G20 meeting in Washington, Dominique Strauss-Kahn says this would bring an end to the credit crunch.
But he has warned that the global financial system is near to meltdown, saying the IMF has been calling for co-ordinated action on the crisis for some time.
Mr Strauss-Kahn says the crisis is not limited to advanced economies and the IMF is ready to lend to any country that needs help.
"The fund has asked for weeks, if not for months, for more co-ordination in action, arguing that in such a crisis that it was impossible to look for domestic solution," he said.
"Action taken in some countries without coordination with other countries can hurt more than it helps."
The G20 group of leading economies has agreed to coordinate efforts to respond to financial turmoil in world markets.
The group says it will use all means available to ensure the stability of the global financial system.
In a joint statement the group emphasised the need for nations to communicate to ensure that benefits to one country do not destabilise other economies.
Australia Guarantees all bank deposits and shores up non bank mortgage lending
Australia's Prime Minister Kevin Rudd has announced three measures to help to build confidence in the Australian Finance market.
Firstly he says that the Government will guarantee all deposits, regardless of ammount, in all Australian banks, building societies, credit unions and in the Australian subsidiaries of foreign banks. This move will prevent any run on bank funds from nervous deposit holders.
It will also stand behind the money that Australian banks borrow from foreign institutions. This should help build confidsence in other banks dealing with Australian banks, a major concern in the US and Europe right now.
Thirdly, he annouced that the Government would add another $4 billion into the secondary mortgage market to ensure the non bank market can compete effectively with banks for new mortgage loans.
Mr Rudd said,"Australia is better placed than almost any other country in the world to deal with this crisis.
"We have the best bank regulators in the world our banks balance sheets are strong and healthy."
Opposition Leader Malcolm Turnbull has welcomed the Government's move to guarantee deposits and the banks' overseas borrowings.
Australia's mortgage industry is well placed to move forward.
Firstly he says that the Government will guarantee all deposits, regardless of ammount, in all Australian banks, building societies, credit unions and in the Australian subsidiaries of foreign banks. This move will prevent any run on bank funds from nervous deposit holders.
It will also stand behind the money that Australian banks borrow from foreign institutions. This should help build confidsence in other banks dealing with Australian banks, a major concern in the US and Europe right now.
Thirdly, he annouced that the Government would add another $4 billion into the secondary mortgage market to ensure the non bank market can compete effectively with banks for new mortgage loans.
Mr Rudd said,"Australia is better placed than almost any other country in the world to deal with this crisis.
"We have the best bank regulators in the world our banks balance sheets are strong and healthy."
Opposition Leader Malcolm Turnbull has welcomed the Government's move to guarantee deposits and the banks' overseas borrowings.
Australia's mortgage industry is well placed to move forward.
Saturday, October 11, 2008
Global wave of rate cuts could not save the stockmarkets
The dramatic Australian official interest rate cut this week by the RBA was followed by smaller cuts by central bank around teh World, but has had little effect in confidence in the world's stock markets as shares have repeatedly fallen all week to make this week the worst for 21 years on Australian Markets.
Mr Mortgage said that the interest rate reductions would not solve the banks liquidity problems or the trust between banks that they will be repaid on funds advanced.
With so many failing institutions in the US and Europe the problem will take to work through.
Mr Mortgage said that the interest rate reductions would not solve the banks liquidity problems or the trust between banks that they will be repaid on funds advanced.
With so many failing institutions in the US and Europe the problem will take to work through.
Housing market slow down will hopefully reverse
The housing market in Australia continues to slow and the 1% cash rate cut, which has effectively given a 0.8% mortgage interest rate reduction has helped homeowners, but is not expected to assist new home sales till the financial turmoil has subsided.
The Housing Industry Association (HIA) survey found new home sales fell 1.3 per cent in August, following a 7.2 per cent decline the previous month. September figures are expected to come in slighly better.
Sales of detached houses fell 2.4 per cent in August, the seventh monthly fall in a row.
Multi-unit sales rose by 5.8 per cent in the month, which was only the second increase in calendar 2008 so far.
HIA chief economist Harley Dale said tight conditions in the rental market will continue because not enough houses are being built.
Mr Dale also said a lack of available housing and high interest rates are hindering first home buyers trying to enter the property market.
"A shortfall of 45,000 dwellings this year alone is showing up in significant financial distress for lower income renters," he said.
"Further interest rate deductions have a vital role to play in complimenting supply boosting policies.
In August, Western Australia weathers the largest fall in homes sales, down 5.6 per cent after after dropping 24.5 per cent in the month before.
Queensland recorded a 4.7 per cent fall in new home sales while South Australia dipped 4.3 per cent lower.
New home sales in NSW rose one per cent while Victoria posted a modest 0.3 per cent gain.
The survey was compiled from a sample of Australia's 100 largest residential builders.
Hopefully we will see a lifting of orders for new homes after Christmas but traditionally sales do fall off before christmas.
The Housing Industry Association (HIA) survey found new home sales fell 1.3 per cent in August, following a 7.2 per cent decline the previous month. September figures are expected to come in slighly better.
Sales of detached houses fell 2.4 per cent in August, the seventh monthly fall in a row.
Multi-unit sales rose by 5.8 per cent in the month, which was only the second increase in calendar 2008 so far.
HIA chief economist Harley Dale said tight conditions in the rental market will continue because not enough houses are being built.
Mr Dale also said a lack of available housing and high interest rates are hindering first home buyers trying to enter the property market.
"A shortfall of 45,000 dwellings this year alone is showing up in significant financial distress for lower income renters," he said.
"Further interest rate deductions have a vital role to play in complimenting supply boosting policies.
In August, Western Australia weathers the largest fall in homes sales, down 5.6 per cent after after dropping 24.5 per cent in the month before.
Queensland recorded a 4.7 per cent fall in new home sales while South Australia dipped 4.3 per cent lower.
New home sales in NSW rose one per cent while Victoria posted a modest 0.3 per cent gain.
The survey was compiled from a sample of Australia's 100 largest residential builders.
Hopefully we will see a lifting of orders for new homes after Christmas but traditionally sales do fall off before christmas.
Stop spending on plastic
Credit card borrowers have been told to cut spending through the Christmas period.
Use the rate cuts windfall to pay down your credit card debt.
Because of Global funding cost rises you cannot expect the banks to pass on all the rate cuts coming over coming months, though the Government and opposition will be putting a lot of pressure on them to comply to this expectation.
In the Christmas holiday season borrowers should be thinking about reducing their credit card debt, as we don't know how the financial markets will affect the rest of our economy.
Credit card debt generally rises due to increased spending, but we have seen that most cardholders have started to reduce their balances.
Use the rate cuts windfall to pay down your credit card debt.
Because of Global funding cost rises you cannot expect the banks to pass on all the rate cuts coming over coming months, though the Government and opposition will be putting a lot of pressure on them to comply to this expectation.
In the Christmas holiday season borrowers should be thinking about reducing their credit card debt, as we don't know how the financial markets will affect the rest of our economy.
Credit card debt generally rises due to increased spending, but we have seen that most cardholders have started to reduce their balances.
Aussie banks safe as houses
Australian Prime Minister Kevin Rudd reassured Australians and said that Australia's retail banks were among the safest in the world.
The Opposition Liberal party has warned of the danger of bank runs in Australia which could destroy smaller banks and credit unions.
Mr Rudd said that the World Economic Forum had yesterday released a report rating Australia's banks the fourth most sound in the world in a ranking of 134 nations.
While the road ahead was rocky, Mr Rudd said the nation's economic fundamentals remained solid. "We have a strong budget surplus as a buffer for the future, and to be used to meet the challenges of the future," he said.
Mr Rudd has suggested his Government might move to protect up to $20,000, but Mr Turnbull said guarantees had to be provided for $100,000.
Opposition Leader Malcolm Turnbull said the Government must back bank deposits to assure individuals and small businesses that at least the first $100,000 of their savings was safe. Australia and New Zealand are the only OECD countries without a direct government-backed guarantee on bank deposits.
Mr Turnbull said the crisis had already sparked a shift towards the Big Four banks at the expense of smaller players.
"There is a real risk at present that depositors will shift their savings from smaller institutions such as regional banks and credit unions to the Big Four banks," he said. "This has the potential to considerably strengthen the big institutions' competitive position at the expense of their smaller rivals."
Mr Swan said that Australia's well regulated, well capitalised banking system would provide a bulwark from the fallout.
The silver lining from all of this is the increasing certainty that interest rates could fall by as much as 2 per cent more [to a cash rate of 4%pa] by mid next year.
This will be the sort of solution that mortgage payers want to see happen.
Thursday, October 09, 2008
Another credit card day another million dollars for your bank
Every day that your credit card interest rate remains high, it gifts every the major bank almost $900,000. No wonder you can't pay your bills or your card card down!
Australia's four big banks have failed to deliver any relief on the nation's credit card holders despite the RBA discounting official cash rates by a full 1 per cent.
Fears of global recession yesterday wiped $56 billion from the value of local shares and sent the dollar plunging to a five-year low.
The Australian stockmarket dived 5 per cent. Bank stacks were hit hard.
In a move that had been anticpated by Mr Mortgage on Tuesday, lobal central banks took the necessary step last night of co-ordinating a series of interest rate cuts in a bid to stop further stockmarket plunges.
But as world markets melt down analysis commissioned by The Courier-Mail shows that each day the interest rate on credits cards remains unchanged, Australian banks pocket an extra $886,500.
If the rates remain frozen for a whole month, banks will score a windfall profit of almost $27 million, according to finance research house Cannex.
A leading consumer advocate yesterday angrily hit out at the banks, accusing them of hurting ordinary Australians doing it tough.
"Not passing on any interest rate cut to credit card holders is just punishing people who are already struggling," said Nicole Rich, of the Consumer Action Law Centre.
Almost every Australian adult has at least one credit card and the nation's collective card debt, attracting interest, has blown out to $32.4 billion.
As the global economic firestorm gathers pace and hits the Australian economy, many households will find it harder to pay off ballooning credit card debts.
Many popular Australian credit cards have interest rates as high as 20 per cent and Cannex calculates the average credit card interest rate is 16.8 per cent.
On Tuesday, all big four banks moved swiftly to cut home lending rates by 0.8 per cent when the Reserve slashed the cash rate to 6 per cent, but it is a different story when it comes to credit.
The Courier-Mail contacted the Commonwealth, the ANZ, National Bank and Westpac, who all conceded credit card interest rates remained unchanged but insisted they were "under review".
A spokeswoman for the Australian Bankers Association refused to comment on credit card rates, saying it was a matter for individual banks.
Sharemarket battered
In another day of high drama, there were further signs the Australian economy could be tanking.
The Australian sharemarket dived yesterday with the All Ordinaries shedding a hefty 228 points.
Consumer sentiment fell to near 17-year lows and the number of owner-occupied housing loans fell for the seventh straight month.
Craig James, of Commonwealth Securities, said the new data justified the Reserve Bank's decision to go for a 1 per cent cash rate cut on Tuesday.
The four major banks have all opted to pass on 80 per cent of the cut – 0.8 per cent – on home loan rates.
But Opposition Leader Malcolm Turnbull tried to claim credit, saying if it was not for the Opposition then the banks would not have passed on such a large amount.
"I have stood up for borrowers and I think borrowers have got a better deal as a result," he said.
Treasurer Wayne Swan hit back, accusing Mr Turnbull of letting his arrogance get out of control.
"I know Mr Turnbull thinks that the whole world revolves around his ego, but there are some events in the world which are much bigger than Mr Turnbull's ego," Mr Swan said.
Meanwhile, economic researcher, David Richardson, of The Australia Institute, estimated Australia's big banks could boost their annual profits by $1.4 billion by not passing on the full 1 per cent rate cut on home loans.
But the Commonwealth Bank has vowed to reduce its mortgage rates by more than 1 per cent when markets return to normal.
The Commonwealth yesterday also announced a takeover of BankWest in a deal worth more than $2 billion.
Queensland Premier Anna Bligh said although the Prime Minister had insisted banks absorb some of the cut, the full savings should be passed on as a "matter of principle".
"I understand the Prime Minister has been saying he believes that this interest rate cut should be passed on as fully as possible," she said.
Australia's four big banks have failed to deliver any relief on the nation's credit card holders despite the RBA discounting official cash rates by a full 1 per cent.
Fears of global recession yesterday wiped $56 billion from the value of local shares and sent the dollar plunging to a five-year low.
The Australian stockmarket dived 5 per cent. Bank stacks were hit hard.
In a move that had been anticpated by Mr Mortgage on Tuesday, lobal central banks took the necessary step last night of co-ordinating a series of interest rate cuts in a bid to stop further stockmarket plunges.
But as world markets melt down analysis commissioned by The Courier-Mail shows that each day the interest rate on credits cards remains unchanged, Australian banks pocket an extra $886,500.
If the rates remain frozen for a whole month, banks will score a windfall profit of almost $27 million, according to finance research house Cannex.
A leading consumer advocate yesterday angrily hit out at the banks, accusing them of hurting ordinary Australians doing it tough.
"Not passing on any interest rate cut to credit card holders is just punishing people who are already struggling," said Nicole Rich, of the Consumer Action Law Centre.
Almost every Australian adult has at least one credit card and the nation's collective card debt, attracting interest, has blown out to $32.4 billion.
As the global economic firestorm gathers pace and hits the Australian economy, many households will find it harder to pay off ballooning credit card debts.
Many popular Australian credit cards have interest rates as high as 20 per cent and Cannex calculates the average credit card interest rate is 16.8 per cent.
On Tuesday, all big four banks moved swiftly to cut home lending rates by 0.8 per cent when the Reserve slashed the cash rate to 6 per cent, but it is a different story when it comes to credit.
The Courier-Mail contacted the Commonwealth, the ANZ, National Bank and Westpac, who all conceded credit card interest rates remained unchanged but insisted they were "under review".
A spokeswoman for the Australian Bankers Association refused to comment on credit card rates, saying it was a matter for individual banks.
Sharemarket battered
In another day of high drama, there were further signs the Australian economy could be tanking.
The Australian sharemarket dived yesterday with the All Ordinaries shedding a hefty 228 points.
Consumer sentiment fell to near 17-year lows and the number of owner-occupied housing loans fell for the seventh straight month.
Craig James, of Commonwealth Securities, said the new data justified the Reserve Bank's decision to go for a 1 per cent cash rate cut on Tuesday.
The four major banks have all opted to pass on 80 per cent of the cut – 0.8 per cent – on home loan rates.
But Opposition Leader Malcolm Turnbull tried to claim credit, saying if it was not for the Opposition then the banks would not have passed on such a large amount.
"I have stood up for borrowers and I think borrowers have got a better deal as a result," he said.
Treasurer Wayne Swan hit back, accusing Mr Turnbull of letting his arrogance get out of control.
"I know Mr Turnbull thinks that the whole world revolves around his ego, but there are some events in the world which are much bigger than Mr Turnbull's ego," Mr Swan said.
Meanwhile, economic researcher, David Richardson, of The Australia Institute, estimated Australia's big banks could boost their annual profits by $1.4 billion by not passing on the full 1 per cent rate cut on home loans.
But the Commonwealth Bank has vowed to reduce its mortgage rates by more than 1 per cent when markets return to normal.
The Commonwealth yesterday also announced a takeover of BankWest in a deal worth more than $2 billion.
Queensland Premier Anna Bligh said although the Prime Minister had insisted banks absorb some of the cut, the full savings should be passed on as a "matter of principle".
"I understand the Prime Minister has been saying he believes that this interest rate cut should be passed on as fully as possible," she said.
Wednesday, October 08, 2008
PM supports banks not passing on the full rate cut
Kevin Rudd supports tha banks not passing on the full cash rate reduction of 1% by the RBA yesterday.
According to Mr Mortgage there was an expectation by the RBA that the banks would not be in a position to pass on the full reduction, and that in his opinion was the reason for the anticipated 0.5% reduction being doubled to a 1.0% rate cut. So the mortgage belt should as a whole be well pleased with the outcome.
Where this will be enough to kickstart home buyers into making offers on homes in the near term remains to be seen.
I suspect that further cuts will be required to give new home buyers the confidence to move forward in this he feels.
Mr Rudd says he supports the banks' decisions this time, he has also urged them to pass on further cuts if conditions improve.
"As financial markets stabilise we expect the banks also to pass through the rest of the interest rates over time."
However, Mr Rudd conceded that his defence of the banks' position not to pass on the full cut to borrowers may be unpopular.
"My job, and sometimes it's going to be very unpopular, is to argue in defence of the stability of the Australian banking system," he said.
"That means making sure we get these decisions right."
Mr Rudd said "despite worsening global conditions there are strong grounds for Australia to remain optimistic about its economy but there must be a balance between a strong banking system and relief for borrowers."
According to Mr Mortgage there was an expectation by the RBA that the banks would not be in a position to pass on the full reduction, and that in his opinion was the reason for the anticipated 0.5% reduction being doubled to a 1.0% rate cut. So the mortgage belt should as a whole be well pleased with the outcome.
Where this will be enough to kickstart home buyers into making offers on homes in the near term remains to be seen.
I suspect that further cuts will be required to give new home buyers the confidence to move forward in this he feels.
Mr Rudd says he supports the banks' decisions this time, he has also urged them to pass on further cuts if conditions improve.
"As financial markets stabilise we expect the banks also to pass through the rest of the interest rates over time."
However, Mr Rudd conceded that his defence of the banks' position not to pass on the full cut to borrowers may be unpopular.
"My job, and sometimes it's going to be very unpopular, is to argue in defence of the stability of the Australian banking system," he said.
"That means making sure we get these decisions right."
Mr Rudd said "despite worsening global conditions there are strong grounds for Australia to remain optimistic about its economy but there must be a balance between a strong banking system and relief for borrowers."
Commonwealth Bank to buy Bankwest with Suncorp next
The Commonwealth Bank (CBA) says it will buy Australia's largest wholesale bank, BankWest from cash strapped parent British Bank HBOS for AU $2 billion.
This is just a few months after BankWest announced plans to roll out 100's of bank branches in NSW and QLD to consolidate its position in these markets. At the time it was noted that they would not be able to find suitable retail space in a then bouyant retail sector.
The Commonwealth Bank will pay more than $2 billion for BankWest and its wealth management business, St Andrews Australia.
The Commonwealth Bank says it will raise the $2 billion by selling shares to institutional investors to fund the deal.
The CBA also says it has held high level discussions with Queensland's Suncorp which wants to sell its banking business.
The purchase of BankWest will allow the CBA to expand its presence in the lucrative Western Australian market, which is being driven the the region's resource boom.
There are fears that the takeover will result in job losses.
BankWest has an extensive network of branches in WA and last year launched a program to open 160 branches nationwide.
It also has call centres and other administrative operations based in Western Australia.
According to Mr Mortgage the CBA will have to deal with relatively small losses as a result of the US financial crisis, including a $100 million loss as a result of its exposure to collapsed US investment bank, Lehman Brothers.
This is just a few months after BankWest announced plans to roll out 100's of bank branches in NSW and QLD to consolidate its position in these markets. At the time it was noted that they would not be able to find suitable retail space in a then bouyant retail sector.
The Commonwealth Bank will pay more than $2 billion for BankWest and its wealth management business, St Andrews Australia.
The Commonwealth Bank says it will raise the $2 billion by selling shares to institutional investors to fund the deal.
The CBA also says it has held high level discussions with Queensland's Suncorp which wants to sell its banking business.
The purchase of BankWest will allow the CBA to expand its presence in the lucrative Western Australian market, which is being driven the the region's resource boom.
There are fears that the takeover will result in job losses.
BankWest has an extensive network of branches in WA and last year launched a program to open 160 branches nationwide.
It also has call centres and other administrative operations based in Western Australia.
According to Mr Mortgage the CBA will have to deal with relatively small losses as a result of the US financial crisis, including a $100 million loss as a result of its exposure to collapsed US investment bank, Lehman Brothers.
As the credit card turns 50 how will you celerate?
Although Diners Club was launched in the late 1940's, it was used for dining purposes, and so American Express introduced the World's first credit in October 1958, and if you are not celebrating, then perhaps you like them too much. That was in the days when it really was a card. Plastic was a long way off.
In its first year alone Amex signed up 500,000 customers worldwide, including Elvis Presley and US president Dwight D. Eisenhower.
Since then it has changed the way people buy and view money and has meant that saving is a thing of the past. Overall why go through the pain of saving money when you can have things now?
With the current financial crisis don't expect easy credit. Mr Mortgage suggests that you pay down your credit card and switch to a debit card. Yes I know that that is even more pain than saving, but If you have a job and an income its time to give debt the flick.
In its first year alone Amex signed up 500,000 customers worldwide, including Elvis Presley and US president Dwight D. Eisenhower.
Since then it has changed the way people buy and view money and has meant that saving is a thing of the past. Overall why go through the pain of saving money when you can have things now?
With the current financial crisis don't expect easy credit. Mr Mortgage suggests that you pay down your credit card and switch to a debit card. Yes I know that that is even more pain than saving, but If you have a job and an income its time to give debt the flick.
Wells Fargo Bank goes bargaining hunting in the mortgage meltdown embers
The US finance sector may well have creatored [John McCain's words, not Mr Mortgage's], but that hasn't stopped Investment Guru and billionaire investor Warren Buffett raked over the smoldering ruins and buying in big into Goldman Sachs, nor a $US15 billion ($19.3 billion) takeover of struggling mortgage lending specialist Wachovia by Wells Fargo Bank [with Warren Buffett in the background]. Not so fast says Citigroup, we had a deal here.
And a New York judge agreed with them in principal, and has blocked the sale pending review of a pre-existing agreement giving Citigroup exclusive rights to negotiate a purchase of Wachovia's banking operations for $US2.2 billion. [What a deal!]
The Citigroup-Wachovia deal was brokered by the Federal Deposits Insurance Corporation, which had agreed to take on potentially hundreds of billions of dollars of future Wachovia loan losses to ensure it went ahead.
The deal was topped on Friday when Wells Fargo, whose biggest shareholder is Mr Buffett, countered with a seven times higher offer that required not a single dollar of support from beleaguered US taxpayers, who last week footed the bill as Congress signed off on a $US700 billion bailout of Wall Street finance and banking firms crippled by the credit crisis.
But the buy price is not the only consideration, as the FDIC supportedthe original Citigroup-Wachovia deal it brokered because under the terms of the Citigroup-Wachovia deal, the FDIC had agreed to take onboard all Wachovia loan losses above $US42 billion.
On Friday FDIC chairman Sheila Bair said she would review all proposals that were on the table and work with the primary regulators of all three banks.
Citigroup, which is reportedly seeking $US60 billion in damages, is counting on the courts upholding the agreement that forbade Wachovia from entering sale negotiations with other parties until after October 6.
The orders issued in the New York Supreme Court on Saturday by Justice Charles Ramos now extend that agreement until further court action between the parties, which are the third largest (Citigroup) and fourth largest (Wells Fargo) banks on Wall Street by stock market value.
In the end, Citigroup may be snookered by a provision in the Wall Street bailout legislation that raises questions about the enforceability of contracts relating to pending acquisitions in which the FDIC is involved.
If it fails, Citigroup will be left with no alternative but to make a better offer.
Wells Fargo had been in the hunt for some time, but a week ago dropped off, leaving Citigroup the only suitor and in a powerful position to squeeze federal authorities for support. But after consultations with its advisers JPMorgan Chase, and Wells Fargo secretly re-entered negotiations with Wachovia late last week and pulled off a stunning deal that caught Citigroup by surprise.
Let's see what happens next, but both Citigroup and Wells Fargo both know that Wachovia is a bargain, especially with the US tax offsets on offer from the bailout package.
And a New York judge agreed with them in principal, and has blocked the sale pending review of a pre-existing agreement giving Citigroup exclusive rights to negotiate a purchase of Wachovia's banking operations for $US2.2 billion. [What a deal!]
The Citigroup-Wachovia deal was brokered by the Federal Deposits Insurance Corporation, which had agreed to take on potentially hundreds of billions of dollars of future Wachovia loan losses to ensure it went ahead.
The deal was topped on Friday when Wells Fargo, whose biggest shareholder is Mr Buffett, countered with a seven times higher offer that required not a single dollar of support from beleaguered US taxpayers, who last week footed the bill as Congress signed off on a $US700 billion bailout of Wall Street finance and banking firms crippled by the credit crisis.
But the buy price is not the only consideration, as the FDIC supportedthe original Citigroup-Wachovia deal it brokered because under the terms of the Citigroup-Wachovia deal, the FDIC had agreed to take onboard all Wachovia loan losses above $US42 billion.
On Friday FDIC chairman Sheila Bair said she would review all proposals that were on the table and work with the primary regulators of all three banks.
Citigroup, which is reportedly seeking $US60 billion in damages, is counting on the courts upholding the agreement that forbade Wachovia from entering sale negotiations with other parties until after October 6.
The orders issued in the New York Supreme Court on Saturday by Justice Charles Ramos now extend that agreement until further court action between the parties, which are the third largest (Citigroup) and fourth largest (Wells Fargo) banks on Wall Street by stock market value.
In the end, Citigroup may be snookered by a provision in the Wall Street bailout legislation that raises questions about the enforceability of contracts relating to pending acquisitions in which the FDIC is involved.
If it fails, Citigroup will be left with no alternative but to make a better offer.
Wells Fargo had been in the hunt for some time, but a week ago dropped off, leaving Citigroup the only suitor and in a powerful position to squeeze federal authorities for support. But after consultations with its advisers JPMorgan Chase, and Wells Fargo secretly re-entered negotiations with Wachovia late last week and pulled off a stunning deal that caught Citigroup by surprise.
Let's see what happens next, but both Citigroup and Wells Fargo both know that Wachovia is a bargain, especially with the US tax offsets on offer from the bailout package.
Tuesday, October 07, 2008
Australian Banks are strong and profitable
Australian banks have suffered little over the recent Wall street financial crisis and are enjoying record profits. So according to Mr Mortgage any Bank in Australia has no excuse for increasing their margins as the Reserve Bank of Australia reduces the official rates as it is expected to do over the next few months.
The fact is that mortgage profit margins have been reduced by over 2% since 1997 when they felt the effects of competition from non mortgage lenders and the army of mortgage brokers that used these products.
It is the non-bank mortgage lenders who are having a tough time getting competitive funds right now, and the banks are seeing their opportunity to move their margins higher in the wake of this reduced competition.
Official figures show the profit margin for the major banks was 54.8 per cent in the March quarter, resulting in $1 profit for every $2 in interest and fee income they charged.
When rates were lifted recently the Commonwealth, the National Australia Bank [NAB], the ANZ and Westpac all lifted their mortgage rates by more than the Reserve Bank official cash rate.
Also the official figures released yesterday by the Australian Prudential Regulatory Authority show that the interest income of the four major banks from loans was rising by substantially more than the interest they were paying to depositors and the wholesale markets.
Rising interest rates and increased lending through larger loan sizes enabled the banks to raise their interest income in the quarter by $7.2 billion, compared with a year ago, to a record of $31.9 billion.
Interest costs were up by $6.3 billion in the same period, with net interest income moving ahead by 12.9 per cent to $8.3 billion.
So if your bank is charging you too much interest on your mortgage you should visit Mr Mortgage and get a mortgage quote
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