Commonwealth Bank of Australia Ltd first-half profit figures were better than expected, taking much of the suspense out of its results announcement this week.
Nevertheless, investors and analysts will be looking closely at the report on February 11 to see how much bad debts have increased because of the economic slowdown.
Mortgage lenders and home buyers want to know whether loan margins have suffered because of the higher funding costs, or grown because of the increased market power the Sydney-based bank has gained, as competitors went bust or got taken over.
The reality will be that relative to central bank interest rate movements, mortgage rates will be higher because the CBA and other major bank are unlikely to pass through any future interest rate cuts.
On February 2, Sydney-based CBA said first-half cash profit after tax was likely to be around $2 billion, 16 per cent lower than the year before, but more than 20 per cent higher than the consensus estimate.
CBA also said total operating income for the six months to December 31, 2008 would increase by 15 per cent to $8 billion, while operating costs had fallen about two per cent.
"It does look like the revenue is substantially higher than everyone expected, and the cost side looks pretty good too,'' Tyndall Investment Management portfolio manager Craig Young said.
Mr Young, who helps manage $4 billion in assets, including CBA shares, said the first thing to look for in CBA's result was how the bad debts were going.
"CBA is a little less provisioned than the other banks and it will be interesting to see if that's still an issue,'' he said.
The bank said on February 2 that impairment charges would rise to $1.6 billion, in line with market consensus.
"The loan losses are going to go up even more,'' Southern Cross Equities analyst TS Lim said. But Mr Lim said the problems with bad debts were likely to hit harder in the second half.
"Small businesses are going to get into strife,'' he said.
In December CBA increased its forecast for full-year impairment expense to gross loans and acceptances to 60 basis points, prompting Mr Lim to raise his estimate for the ratio to around 70 basis points.
The bank was criticised at the time for trying to alert prospective institutional investors to the updated impairment ratio without informing the market as a whole.
CBA said income growth was driven by a 20 per cent rise in banking income, as demand for deposits and lending remained strong.
The growth in banking income would be offset by the 12 per cent decline in funds management income, the bank said.
Tyndall's Mr Young said CBA had probably benefited from its increased market dominance, and that was likely to show through in improved margins.
The stronger market position "will come through in both the asset growth and margin,'' Mr Young said.
"It's very hard to see how much they're passing on to their business customers.''
CBA said statutory net profit after tax would rise about nine per cent to $2.5 billion, boosted by a post-tax gain of $550 million on the acquisition of BankWest, a key competitor the bank was able to take out of the market.
That may have offset higher wholesale funding costs, Mr Young said.
Sunday, February 08, 2009
NAB flags strong revenue growth, supports Rudd's economic stimulas package to break the cycle
National Australia Bank's new CEO delivered his debut quarterly trading update for NAB, flagging strong revenue growth, broadening bad debt issues, increasing economic uncertainty and the clear and present danger that rising funding costs would prevent NAB from passing on the full amount of any future rate cuts.
But Clyne's commentary show it would be a mistake for anyone to imagine our banks will remain immune from the economic realities, either here or internationally.
There are tough and testing times ahead and the wave of bad debts that will inevitably be generated by our almost certain recession will hit bank profits and eat into their statutory capital.
As that happens, we can expect the banks to move with defensive vigour to protect their capital bases by trimming dividends and raising new capital, though either vanilla or hybrid equity.
Each of the banks, either formally or anecdotally, is reinforcing the same business themes.
Their revenues and pre-provision earnings have been buoyed by government underwriting and the rush to quality inspired by uncertainty and volatility. Bad debts are on the rise, however, and if unemployment reaches anything like the 7 per cent widely predicted by their own economists, the need for more severe collective provisioning will intensify. There is confidence that, even if unemployment hits about 7 per cent, the mortgage books will remain largely sound. There is a general expectation that, over the coming six months there will be a worrying and costly deterioration of the business lending books.
It is clear, for example, that having almost instantly squeezed the life out of the vulnerable at the top end of the corporate food chain, the global financial crisis is beginning to migrate to the small and medium business sector.
As Clyne said yesterday, the single names that forced NAB's $521 million worth of specific provisions over the December quarter have been well known for the best part of 12 months.
"But we are starting to see more general stress and deterioration in the SME book," he said.
Small and medium businesses are the core generator of entrepreneurial wealth and employment in Australia.
The real danger of a meaningful, extended recession in that sector is that it becomes almost self-perpetuating. A small business closes, causing unemployment, which in turn forces more businesses to shut their doors. And so on. That is why NAB's collective provision increased nearly 30 per cent to $303 million over its first quarter and that is why the Rudd Government has acted so quickly in deciding to spend $42 billion of our national surplus.
The aim is to provide a circuit breaker to prevent recession.
The future is very uncertain and it is neither sensible nor realistic toThe NAB boss's briefing was a sober bookend to a week that opened with the Commonwealth Bank's Ralph Norris confirming the CBA would deliver earnings stronger than market consensus, which was then punctuated by Suncorp's rush to recapitalise in the wake of a weakening earnings outlook.
try to predict the future
But Clyne's commentary show it would be a mistake for anyone to imagine our banks will remain immune from the economic realities, either here or internationally.
There are tough and testing times ahead and the wave of bad debts that will inevitably be generated by our almost certain recession will hit bank profits and eat into their statutory capital.
As that happens, we can expect the banks to move with defensive vigour to protect their capital bases by trimming dividends and raising new capital, though either vanilla or hybrid equity.
Each of the banks, either formally or anecdotally, is reinforcing the same business themes.
Their revenues and pre-provision earnings have been buoyed by government underwriting and the rush to quality inspired by uncertainty and volatility. Bad debts are on the rise, however, and if unemployment reaches anything like the 7 per cent widely predicted by their own economists, the need for more severe collective provisioning will intensify. There is confidence that, even if unemployment hits about 7 per cent, the mortgage books will remain largely sound. There is a general expectation that, over the coming six months there will be a worrying and costly deterioration of the business lending books.
It is clear, for example, that having almost instantly squeezed the life out of the vulnerable at the top end of the corporate food chain, the global financial crisis is beginning to migrate to the small and medium business sector.
As Clyne said yesterday, the single names that forced NAB's $521 million worth of specific provisions over the December quarter have been well known for the best part of 12 months.
"But we are starting to see more general stress and deterioration in the SME book," he said.
Small and medium businesses are the core generator of entrepreneurial wealth and employment in Australia.
The real danger of a meaningful, extended recession in that sector is that it becomes almost self-perpetuating. A small business closes, causing unemployment, which in turn forces more businesses to shut their doors. And so on. That is why NAB's collective provision increased nearly 30 per cent to $303 million over its first quarter and that is why the Rudd Government has acted so quickly in deciding to spend $42 billion of our national surplus.
The aim is to provide a circuit breaker to prevent recession.
Saturday, February 07, 2009
Banks get cranky over Government rate reduction pass on demands
Australian banks are set for another showdown with the Rudd Government over future interest rate cuts, with NAB boss Cameron Clyne making clear this morning he was "relatively unlikely" to pass on the full amount of the next rate cut.
NAB economist Alan Oster is forecasting another 75 basis rate cut next month with another 50 basis points in the second half this year.
Clyne made clear his customers won't be getting that amount.
Other banks contacted this morning confided they agreed with Clyne, underlining the politics of the move earlier this week to pass on the full level of the 100 basis point cut on official interest rates.
The rate cut came on the day of the Government’s $42 billion handout and the day after CBA told the market it was growing income quickly thanks to better profit margins, so in the scheme of things it would not have looked good for the big banks to have played hard ball this week.
Next time it will be different.
Each bank has a different funding book depending on the level of deposits and the like, but NAB’s costs have gone up from 65 basis points over cash rates from July 2007 to January this year to 99 basis today and it is looking at that increasing to 99 basis points in the near future.
The reason being term funding costs are higher because while cash rates have fallen and the swap rate spread has also fallen, Government bond rates have not fallen as quickly, so as the banks replace short term paper with long term paper the funding costs increase.
That at least is how the big banks see the world.
NAB economist Alan Oster is forecasting another 75 basis rate cut next month with another 50 basis points in the second half this year.
Clyne made clear his customers won't be getting that amount.
Other banks contacted this morning confided they agreed with Clyne, underlining the politics of the move earlier this week to pass on the full level of the 100 basis point cut on official interest rates.
The rate cut came on the day of the Government’s $42 billion handout and the day after CBA told the market it was growing income quickly thanks to better profit margins, so in the scheme of things it would not have looked good for the big banks to have played hard ball this week.
Next time it will be different.
Each bank has a different funding book depending on the level of deposits and the like, but NAB’s costs have gone up from 65 basis points over cash rates from July 2007 to January this year to 99 basis today and it is looking at that increasing to 99 basis points in the near future.
The reason being term funding costs are higher because while cash rates have fallen and the swap rate spread has also fallen, Government bond rates have not fallen as quickly, so as the banks replace short term paper with long term paper the funding costs increase.
That at least is how the big banks see the world.
Reserve Bank of Australia flags end to mortgage rate cuts and forecasts slower growth
The Reserve Bank of Australia has flagged the likely end of big interest rate cuts, with some economists betting it may hold back on further reductions for several months.
And financial markets scaled back expectations today on the depth of future interest rate cuts after the RBA released its quarterly statement on monetary policy.
A Credit Suisse report said financial markets now priced a total of 50 basis points in further rate reductions over the next 12 months, down from 68 points yesterday.
Macquarie Bank interest rates strategist Rory Robertson said he expected the RBA to “sit on its hands” at the next two meetings while it assesses the impact of the past five rate cuts and the federal Government’s $42 billion stimulus package.
“After having delivered an appropriately aggressive response to the post-Lehman Brothers collapse in global growth prospects, the RBA now can make a respectable case to wait and watch for a while,” said Mr Robertson.
“It’s certainly possible that rates will go to 2 per cent, but it will take longer to get there than three months.”
The central bank earlier this week slashed rates by 100 basis points to a 45-year low of 3.25 per cent, taking total rate cuts to 400 points since September, when the collapse of Lehman Brothers froze global credit markets and smashed equity markets.
In its statement today, the RBA said significant fiscal and monetary stimulus was now pumping through the veins of the crisis-weary economy.
Investors interpreted the statement as signally a more cautious approach to future easings in monetary policy, sending three-year bond futures down 15 points to 96.69 by late afternoon.
Australia's Central Bank also sharply lowered its forecasts for economic growth in coming years, implying that the economy was still at risk of joining major countries in recession before starting to pick up in late 2009.
The RBA expects year-on-year growth of 0.25 per cent in 2008-09, before improving somewhat in 2009-10 with growth of 1.25 per cent. The economy grew by around 1.9 per cent in the third quarter of 2008 from a year earlier.
The non-farm economy will post zero year-on-year growth in the June quarter this year before recovering to expand by 1.25 per cent on year in the middle of 2010, the central bank forecast.
“While the international situation is likely to remain difficult for some time, the combination of expansionary monetary and fiscal policies now in place will help to cushion the Australian economy from the contractionary forces coming from abroad,” the RBA said.
Mr Robertson said: “The bank has moved so far, so fast that its head is spinning and it’s time to sit back and assess the situation.
“The point of moving more gradually from here would be to ensure that the policy rate is properly calibrated to Australia’s economic prospects, not to the bleaker outlooks for the US, UK, Japanese and Euro-zone economies.”
NAB Capital senior economist David de Garis said he expected the RBA to cut rates by 75 basis points in March and then wait until the September quarter to cut rates by another 50 basis points.
said Mr de Garis.
CommSec economist Savanth Sebastian said he expected the RBA to cut the cash rate by another 50-75 basis points over the next two months.
“More than likely the Reserve Bank will follow a similar pattern to that noted by the European Central Bank and keep rates on hold in March, assess all the incoming data before cutting rates once again in April,” said Mr Sebastian.
The RBA's growth forecast for the near term is slightly more pessimistic than the Rudd Government, which earlier this week forecast the economy would grow by 1.0 per cent in 2008-09, before slowing to 0.75 per cent in 2009-10.
The central bank forecast 2008-09 growth of just 0.75 per cent.
Late yesterday, Treasury Secretary Ken Henry, who is also a member of the RBA's policy making board, told a parliamentary committee that the Government's forecasts for economic growth were based on an assumption that rates will be cut further.
The impact of the intensified slowdown in the world economy in recent months and the economic stimulus being put in place would result in the downturn and recovery being more V-shaped, according to the RBA's latest forecasts.
Deeper troughs in growth will be followed by strong growth of 3.25 per cent on year by mid-2011. Previously the RBA had forecast the economy would be growing at 3.0 per cent by mid-2011.
Substantial stimulus has also flowed to the Australian economy in recent months as a result of a sharp decline in the Australian dollar.
The currency came close to parity with the US dollar in mid-2008, before plunging to just above US60 cents late last year and then recovering to around US65c currently. In trade weighted terms, the Australian dollar is 20 per cent below its level a year ago.
The RBA also revised its forecasts for inflation, predicting annual rises in the consumer price index would fall back to within the central bank's 2-to-3 per cent target band by mid-2009. Previously it had forecast the CPI would not be safely tucked within the band until mid-2011.
Despite expectations of an eventual growth recovery, the RBA expects the jobless rate will rise further. "With job vacancies and hiring intentions falling and short-term economic prospects subdued, more significant rises in unemployment are likely in the period ahead," the RBA said.
Some improvement in the house construction sector can be expected after a sharp downturn in 2008. Significantly lower interest rates and direct financial assistance for new home buyers by the government were now showing signs of adding to housing demand, it said.
Consumer confidence remained battered, but some recovery can be expected as the government spending measures and lower interest rates add "further to household incomes in the March and June quarters this year", the central bank said.
Also insulating Australia from the full heat of the global economic downturn was a strong financial sector, which has allowed a substantial amount of monetary policy easing to be passed through to consumers and more so than in many other countries, it said.
Still, the RBA is keeping close watch on business investment, warning investment intentions are being significantly wound back as some companies experience difficulty in obtaining credit.
Business confidence deteriorated sharply in October and November but this "has been partially reversed in December and January," the central bank said.
Against a backdrop of rising unemployment and weakening economic growth, the RBA would be under pressure to continue cutting interest rates for at least the next year or two, said Mr Robertson.
And financial markets scaled back expectations today on the depth of future interest rate cuts after the RBA released its quarterly statement on monetary policy.
A Credit Suisse report said financial markets now priced a total of 50 basis points in further rate reductions over the next 12 months, down from 68 points yesterday.
Macquarie Bank interest rates strategist Rory Robertson said he expected the RBA to “sit on its hands” at the next two meetings while it assesses the impact of the past five rate cuts and the federal Government’s $42 billion stimulus package.
“After having delivered an appropriately aggressive response to the post-Lehman Brothers collapse in global growth prospects, the RBA now can make a respectable case to wait and watch for a while,” said Mr Robertson.
“It’s certainly possible that rates will go to 2 per cent, but it will take longer to get there than three months.”
The central bank earlier this week slashed rates by 100 basis points to a 45-year low of 3.25 per cent, taking total rate cuts to 400 points since September, when the collapse of Lehman Brothers froze global credit markets and smashed equity markets.
In its statement today, the RBA said significant fiscal and monetary stimulus was now pumping through the veins of the crisis-weary economy.
Investors interpreted the statement as signally a more cautious approach to future easings in monetary policy, sending three-year bond futures down 15 points to 96.69 by late afternoon.
Australia's Central Bank also sharply lowered its forecasts for economic growth in coming years, implying that the economy was still at risk of joining major countries in recession before starting to pick up in late 2009.
The RBA expects year-on-year growth of 0.25 per cent in 2008-09, before improving somewhat in 2009-10 with growth of 1.25 per cent. The economy grew by around 1.9 per cent in the third quarter of 2008 from a year earlier.
The non-farm economy will post zero year-on-year growth in the June quarter this year before recovering to expand by 1.25 per cent on year in the middle of 2010, the central bank forecast.
“While the international situation is likely to remain difficult for some time, the combination of expansionary monetary and fiscal policies now in place will help to cushion the Australian economy from the contractionary forces coming from abroad,” the RBA said.
Mr Robertson said: “The bank has moved so far, so fast that its head is spinning and it’s time to sit back and assess the situation.
“The point of moving more gradually from here would be to ensure that the policy rate is properly calibrated to Australia’s economic prospects, not to the bleaker outlooks for the US, UK, Japanese and Euro-zone economies.”
NAB Capital senior economist David de Garis said he expected the RBA to cut rates by 75 basis points in March and then wait until the September quarter to cut rates by another 50 basis points.
There’s a time that central banks have to stand back and take a deep breath,
said Mr de Garis.
CommSec economist Savanth Sebastian said he expected the RBA to cut the cash rate by another 50-75 basis points over the next two months.
“More than likely the Reserve Bank will follow a similar pattern to that noted by the European Central Bank and keep rates on hold in March, assess all the incoming data before cutting rates once again in April,” said Mr Sebastian.
The RBA's growth forecast for the near term is slightly more pessimistic than the Rudd Government, which earlier this week forecast the economy would grow by 1.0 per cent in 2008-09, before slowing to 0.75 per cent in 2009-10.
The central bank forecast 2008-09 growth of just 0.75 per cent.
Late yesterday, Treasury Secretary Ken Henry, who is also a member of the RBA's policy making board, told a parliamentary committee that the Government's forecasts for economic growth were based on an assumption that rates will be cut further.
The impact of the intensified slowdown in the world economy in recent months and the economic stimulus being put in place would result in the downturn and recovery being more V-shaped, according to the RBA's latest forecasts.
Deeper troughs in growth will be followed by strong growth of 3.25 per cent on year by mid-2011. Previously the RBA had forecast the economy would be growing at 3.0 per cent by mid-2011.
Substantial stimulus has also flowed to the Australian economy in recent months as a result of a sharp decline in the Australian dollar.
The currency came close to parity with the US dollar in mid-2008, before plunging to just above US60 cents late last year and then recovering to around US65c currently. In trade weighted terms, the Australian dollar is 20 per cent below its level a year ago.
The RBA also revised its forecasts for inflation, predicting annual rises in the consumer price index would fall back to within the central bank's 2-to-3 per cent target band by mid-2009. Previously it had forecast the CPI would not be safely tucked within the band until mid-2011.
Despite expectations of an eventual growth recovery, the RBA expects the jobless rate will rise further. "With job vacancies and hiring intentions falling and short-term economic prospects subdued, more significant rises in unemployment are likely in the period ahead," the RBA said.
Some improvement in the house construction sector can be expected after a sharp downturn in 2008. Significantly lower interest rates and direct financial assistance for new home buyers by the government were now showing signs of adding to housing demand, it said.
Consumer confidence remained battered, but some recovery can be expected as the government spending measures and lower interest rates add "further to household incomes in the March and June quarters this year", the central bank said.
Also insulating Australia from the full heat of the global economic downturn was a strong financial sector, which has allowed a substantial amount of monetary policy easing to be passed through to consumers and more so than in many other countries, it said.
Still, the RBA is keeping close watch on business investment, warning investment intentions are being significantly wound back as some companies experience difficulty in obtaining credit.
Business confidence deteriorated sharply in October and November but this "has been partially reversed in December and January," the central bank said.
Against a backdrop of rising unemployment and weakening economic growth, the RBA would be under pressure to continue cutting interest rates for at least the next year or two, said Mr Robertson.
Barclays and Llyods bank on time to rush bonuses through
Banks that are dependent on UK taxpayer support are planning to rush out hundreds of millions of pounds in bonuses to senior bankers and traders before a threatened crackdown.
As ministers in Britain prepared to curb excessive remuneration, it emerged that Barclays and Lloyds Banking Group were poised to follow Royal Bank of Scotland by paying bonuses within weeks.
Lloyds, which has taken £17 billion ($38.1 billion) in rescue money from the Government, appears ready to give hundreds of millions of pounds to top executives and more junior staff.
Barclays, which has tapped the Bank of England for billions of pounds in loans and guarantees, is believed to be planning even larger payouts.
According to the terms of its purchase of the North American division of the collapsed Lehman Brothers, Barclays is due to pay $US2.5 billion ($3.8 billion) in bonuses to traders and dealmakers on Wall Street in the next few days.
Ministers reacted angrily to reports in The Times that RBS was preparing to give bonuses to thousands of senior bankers and traders. Banks applying for government insurance to underwrite toxic debt assets and free up cash for lending are likely to have to meet conditions preventing them paying excessive remuneration, officials said.
A White Paper to be published alongside the Budget in April will beef up supervision of banks by giving non-executive directors more powers to hold bank chiefs to account. However, senior bankers suggested that the clampdown would come too late to prevent bonuses being paid for 2008.
No final approval of bonuses has been made but UK Financial Investments, the Treasury body that owns the stakes in RBS and Lloyds, is prepared to see limited payouts as long as it is convinced that they are in the long-term interest of taxpayers.
Banks argue that bonuses will help to retain and attract good staff and so hasten the end of their need for government support. Many are obliged to pay them because of the wording of employment contracts.
Richard Pym, who earns £750,000 a year as executive chairman of the state-owned Bradford & Bingley, collects a £140,000 guaranteed bonus next month. The bonus, agreed upon before B&B’s collapse, has to be paid regardless of performance. Mr Pym will also collect a further bonus of £187,500 in respect of the first half of 2009.
Lloyds said that any director bonuses would be paid in shares at the end of 2009 and that staff bonuses would be lower than in previous years.
Barclays, which reports its annual results on Monday, is expected to pay large bonuses to the tens of thousands of employees in Barclays Capital. Last year, they were paid an average of £182,000 each.
Eight former Lehman high-flyers taken on by Barclays Capital in New York have reportedly been locked into contracts paying $US10-25 million a year.
Government officials said that all banks would in future have to adopt new incentive structures.
British Prime Minister Gordon Brown expected decisions to reflect the conditions of the economy and the performance of the banks. “There are no rewards for failure in what we are proposing,” he said.
Lord Mandelson, the Business Secretary, warned the RBS that it risked alienating ordinary people if it gave its traders and bosses “exorbitant” bonuses.
George Osborne, the Shadow Chancellor, said: “It would be an insult to struggling taxpayers if the Government allowed banks we part own to pay out big cash bonuses. To increase taxes on people earning £20,000 to pay the bonuses of someone earning £2 million is totally unacceptable.”
Any measures in Britain are likely to fall short of the plans by US President Barack Obama to enforce a $US500,000 cap on the pay of bank executives bailed out by US taxpayers.
In Britain, officials at No 10 Downing Street, the PM’s residence, said Mr Brown agreed with Mr Obama that a new approach to rewards was needed, although it was not thought possible to introduce an industry-wide pay ceiling without breaking contracts.
As ministers in Britain prepared to curb excessive remuneration, it emerged that Barclays and Lloyds Banking Group were poised to follow Royal Bank of Scotland by paying bonuses within weeks.
Lloyds, which has taken £17 billion ($38.1 billion) in rescue money from the Government, appears ready to give hundreds of millions of pounds to top executives and more junior staff.
Barclays, which has tapped the Bank of England for billions of pounds in loans and guarantees, is believed to be planning even larger payouts.
According to the terms of its purchase of the North American division of the collapsed Lehman Brothers, Barclays is due to pay $US2.5 billion ($3.8 billion) in bonuses to traders and dealmakers on Wall Street in the next few days.
Ministers reacted angrily to reports in The Times that RBS was preparing to give bonuses to thousands of senior bankers and traders. Banks applying for government insurance to underwrite toxic debt assets and free up cash for lending are likely to have to meet conditions preventing them paying excessive remuneration, officials said.
A White Paper to be published alongside the Budget in April will beef up supervision of banks by giving non-executive directors more powers to hold bank chiefs to account. However, senior bankers suggested that the clampdown would come too late to prevent bonuses being paid for 2008.
No final approval of bonuses has been made but UK Financial Investments, the Treasury body that owns the stakes in RBS and Lloyds, is prepared to see limited payouts as long as it is convinced that they are in the long-term interest of taxpayers.
Banks argue that bonuses will help to retain and attract good staff and so hasten the end of their need for government support. Many are obliged to pay them because of the wording of employment contracts.
Richard Pym, who earns £750,000 a year as executive chairman of the state-owned Bradford & Bingley, collects a £140,000 guaranteed bonus next month. The bonus, agreed upon before B&B’s collapse, has to be paid regardless of performance. Mr Pym will also collect a further bonus of £187,500 in respect of the first half of 2009.
Lloyds said that any director bonuses would be paid in shares at the end of 2009 and that staff bonuses would be lower than in previous years.
Barclays, which reports its annual results on Monday, is expected to pay large bonuses to the tens of thousands of employees in Barclays Capital. Last year, they were paid an average of £182,000 each.
Eight former Lehman high-flyers taken on by Barclays Capital in New York have reportedly been locked into contracts paying $US10-25 million a year.
Government officials said that all banks would in future have to adopt new incentive structures.
British Prime Minister Gordon Brown expected decisions to reflect the conditions of the economy and the performance of the banks. “There are no rewards for failure in what we are proposing,” he said.
Lord Mandelson, the Business Secretary, warned the RBS that it risked alienating ordinary people if it gave its traders and bosses “exorbitant” bonuses.
George Osborne, the Shadow Chancellor, said: “It would be an insult to struggling taxpayers if the Government allowed banks we part own to pay out big cash bonuses. To increase taxes on people earning £20,000 to pay the bonuses of someone earning £2 million is totally unacceptable.”
Any measures in Britain are likely to fall short of the plans by US President Barack Obama to enforce a $US500,000 cap on the pay of bank executives bailed out by US taxpayers.
In Britain, officials at No 10 Downing Street, the PM’s residence, said Mr Brown agreed with Mr Obama that a new approach to rewards was needed, although it was not thought possible to introduce an industry-wide pay ceiling without breaking contracts.
Thursday, February 05, 2009
Queensland banking and insurance giant Suncorp CEO quits
Banking, insurance and financial services big hitter Suncorp Metway was floored when chief executive John Mulcahy resigned, after the bank announced its interim after-tax profit to be between $250 million and $270 million after being hit with significantly higher bad debt charges.
Suncorp said its bad debt expenses for the half year to December 31, 2008, would rise to $355 million - "significantly above forecasts," it said - on specific provisions and write-offs.
Suncorp said its board would declare an interim dividend of 20 cents per share, fully franked, down from 52 cents per share for the previous corresponding period.
Interim profit before tax and items, including those related to the Promina acquisition, will be between $470 and $500 million, Suncorp said in a statement.
Mr Mulcahy has agreed to stay on while the company looks for a new chief executive.
Suncorp said its bad debt expenses for the half year to December 31, 2008, would rise to $355 million - "significantly above forecasts," it said - on specific provisions and write-offs.
Suncorp said its board would declare an interim dividend of 20 cents per share, fully franked, down from 52 cents per share for the previous corresponding period.
Interim profit before tax and items, including those related to the Promina acquisition, will be between $470 and $500 million, Suncorp said in a statement.
Mr Mulcahy has agreed to stay on while the company looks for a new chief executive.
Wednesday, February 04, 2009
Business loan finance retreats
Business finance is shrinking which is a big concern to the RBA.
Figures collated by the Reserve Bank of Australia show the amount of credit outstanding to businesses and consumers fell 0.3per cent in December to just over $1.9trillion - the first monthly fall since 1992 - slowing what was expected to be a steady rise to $2trillion. Outstanding debt has roughly doubled in the past six years.
Corporations are leading the retreat, with demand for finance for new projects investment drying up and lenders become more cautious about who they lend to. Outstanding loans to business shrank 1.1 per cent in December, reducing the annual growth rate to 8 per cent, down from 24per cent the year before. The Reserve Bank said some of the decrease "reflected a fall in foreign currency-denominated lending".
Other figures released yesterday by the banking watchdog, the Australian Prudential Regulation Authority, and analysed by CommSec showed banks with foreign parent companies such as HSBC, Barclays and ING reduced loans and advances to both Australian firms and households in December. All of the big Australian banks, excluding NAB, increased theirs.
Credit Crunch to get worse
The chief economist at Morgan Stanley, Gerard Minack, said the figures showed the credit crunch was beginning to be felt domestically. "More to the point, it will likely get significantly worse. Reduced credit flows is part of the reason I expect a severe recession in Australia.
In particular, tight credit points to a major fall in business investment over the next 18 months."
The credit figures are another sign of a slowing economy, which as expected convinced the Reserve Bank to opt for a one percentage point interest rate cut yesterday.
Figures collated by the Reserve Bank of Australia show the amount of credit outstanding to businesses and consumers fell 0.3per cent in December to just over $1.9trillion - the first monthly fall since 1992 - slowing what was expected to be a steady rise to $2trillion. Outstanding debt has roughly doubled in the past six years.
Corporations are leading the retreat, with demand for finance for new projects investment drying up and lenders become more cautious about who they lend to. Outstanding loans to business shrank 1.1 per cent in December, reducing the annual growth rate to 8 per cent, down from 24per cent the year before. The Reserve Bank said some of the decrease "reflected a fall in foreign currency-denominated lending".
Other figures released yesterday by the banking watchdog, the Australian Prudential Regulation Authority, and analysed by CommSec showed banks with foreign parent companies such as HSBC, Barclays and ING reduced loans and advances to both Australian firms and households in December. All of the big Australian banks, excluding NAB, increased theirs.
Credit Crunch to get worse
The chief economist at Morgan Stanley, Gerard Minack, said the figures showed the credit crunch was beginning to be felt domestically. "More to the point, it will likely get significantly worse. Reduced credit flows is part of the reason I expect a severe recession in Australia.
In particular, tight credit points to a major fall in business investment over the next 18 months."
The credit figures are another sign of a slowing economy, which as expected convinced the Reserve Bank to opt for a one percentage point interest rate cut yesterday.
Credit Card love affair wanes for Aussies
Australians are reducing their debts for the first time since the last recession, but questions are being raised about whether it is voluntary or enforced by lenders imposing stricter conditions.
Figures collected by the Reserve Bank show the amount of credit outstanding to businesses and consumers fell 0.3per cent in December to just over $1.9trillion - the first monthly fall since 1992 - slowing what was expected to be a steady rise to $2trillion. Outstanding debt has roughly doubled in the past six years.
Corporations are leading the retreat, with demand for finance for new projects drying up and lenders become more cautious about who they lend to. Outstanding loans to business shrank 1.1 per cent in December, reducing the annual growth rate to 8 per cent, down from 24per cent the year before. The Reserve Bank said some of the decrease "reflected a fall in foreign currency-denominated lending".
Meanwhile, housing debt - which accounts for nearly half of all outstanding debt, or nearly $1trillion - continued to grow, albeit at a slower pace than a year ago. The annual growth rate of 7.6per cent was the slowest recorded in more than 25 years.
It shows that while lower interest rates and the first-home-buyers' grant boost may be supporting demand, existing borrowers are seeking to repay debts at a faster rate.
A Commonwealth Bank economist said it was a bad sign for house prices. "This much lower volume of funds trickling into the housing market means that sales volumes will remain anaemic."
Figures collected by the Reserve Bank show the amount of credit outstanding to businesses and consumers fell 0.3per cent in December to just over $1.9trillion - the first monthly fall since 1992 - slowing what was expected to be a steady rise to $2trillion. Outstanding debt has roughly doubled in the past six years.
Corporations are leading the retreat, with demand for finance for new projects drying up and lenders become more cautious about who they lend to. Outstanding loans to business shrank 1.1 per cent in December, reducing the annual growth rate to 8 per cent, down from 24per cent the year before. The Reserve Bank said some of the decrease "reflected a fall in foreign currency-denominated lending".
Meanwhile, housing debt - which accounts for nearly half of all outstanding debt, or nearly $1trillion - continued to grow, albeit at a slower pace than a year ago. The annual growth rate of 7.6per cent was the slowest recorded in more than 25 years.
It shows that while lower interest rates and the first-home-buyers' grant boost may be supporting demand, existing borrowers are seeking to repay debts at a faster rate.
A Commonwealth Bank economist said it was a bad sign for house prices. "This much lower volume of funds trickling into the housing market means that sales volumes will remain anaemic."
Tuesday, February 03, 2009
Westpac bank passes on rate reduction to thier credit card customers
Australia's first bank was the first bank to pass on the Reserve Bank's 100 basis point interest rate cut to its mortgage customers.
But the real suprise was that Westpac wrer also the first bank to reduce the credit card interest by the full one per cent interest rate also when it announced it will also reduce its 55-day credit card rate by 100 basis points.
The nation's other big banks are yet to announce reductions in either home loan rates or credit card rates, or loans rates to small business, after the Reserve Bank's announcement at 2.30pm (AEDT).
But the real suprise was that Westpac wrer also the first bank to reduce the credit card interest by the full one per cent interest rate also when it announced it will also reduce its 55-day credit card rate by 100 basis points.
The nation's other big banks are yet to announce reductions in either home loan rates or credit card rates, or loans rates to small business, after the Reserve Bank's announcement at 2.30pm (AEDT).
Westpac is the first bank that passes on full interest rate cut
Westpac is the first bank that has passed on the Reserve Bank of Australia's 100 basis point interest rate cut to its customers.Westpac's new standard variable rate is 5.91 per cent, effective Monday February 9.
The bank says it will also reduce its 55-day credit card rate by 100 basis points.
The nation's other big banks are yet to announce reductions in home loan rates after the Reserve Bank of AUstralia's announcement at 2.30pm (AEDT).
The bank says it will also reduce its 55-day credit card rate by 100 basis points.
The nation's other big banks are yet to announce reductions in home loan rates after the Reserve Bank of AUstralia's announcement at 2.30pm (AEDT).
Monday, February 02, 2009
Credit is off the boil in credit cards to business investment
AUstralian consumers and businesses are reducing their debts for the first time since the last recession, but questions are being raised about whether it is voluntary or enforced by lenders imposing stricter conditions.
Figures collected by the Reserve Bank show the amount of credit outstanding to businesses and consumers fell 0.3per cent in December to just over $1.9trillion - the first monthly fall since 1992 - slowing what was expected to be a steady rise to $2trillion. Outstanding debt has roughly doubled in the past six years.
Corporations are leading the retreat, with demand for finance for new projects drying up and lenders become more cautious about who they lend to. Outstanding loans to business shrank 1.1 per cent in December, reducing the annual growth rate to 8 per cent, down from 24per cent the year before. The Reserve Bank said some of the decrease "reflected a fall in foreign currency-denominated lending".
Other figures released yesterday by the banking watchdog, the Australian Prudential Regulation Authority, and analysed by CommSec showed banks with foreign parent companies such as HSBC, Barclays and ING reduced loans and advances to Australian firms and households in December. All of the big Australian banks, excluding NAB, increased theirs.
The chief economist at Morgan Stanley, Gerard Minack, said the figures showed the credit crunch was beginning to be felt domestically. "More to the point, it will likely get significantly worse. Reduced credit flows is part of the reason I expect a severe recession in Australia.
In particular, tight credit points to a major fall in business investment over the next 18 months."
The credit figures are another sign of a slowing economy, which is expected to convince the Reserve to opt for a 1percentage point interest rate cut at its first meeting of the year next Tuesday.
Meanwhile, housing debt - which accounts for nearly half of all outstanding debt, or nearly $1trillion - continued to grow, albeit at a slower pace than a year ago. The annual growth rate of 7.6per cent was the slowest recorded in more than 25 years.
It shows that while lower interest rates and the first-home-buyers' grant boost may be supporting demand, existing borrowers are seeking to repay debts at a faster rate.
A Commonwealth Bank economist said it was a bad sign for house prices. "This much lower volume of funds trickling into the housing market means that sales volumes will remain anaemic."
Figures collected by the Reserve Bank show the amount of credit outstanding to businesses and consumers fell 0.3per cent in December to just over $1.9trillion - the first monthly fall since 1992 - slowing what was expected to be a steady rise to $2trillion. Outstanding debt has roughly doubled in the past six years.
Corporations are leading the retreat, with demand for finance for new projects drying up and lenders become more cautious about who they lend to. Outstanding loans to business shrank 1.1 per cent in December, reducing the annual growth rate to 8 per cent, down from 24per cent the year before. The Reserve Bank said some of the decrease "reflected a fall in foreign currency-denominated lending".
Other figures released yesterday by the banking watchdog, the Australian Prudential Regulation Authority, and analysed by CommSec showed banks with foreign parent companies such as HSBC, Barclays and ING reduced loans and advances to Australian firms and households in December. All of the big Australian banks, excluding NAB, increased theirs.
The chief economist at Morgan Stanley, Gerard Minack, said the figures showed the credit crunch was beginning to be felt domestically. "More to the point, it will likely get significantly worse. Reduced credit flows is part of the reason I expect a severe recession in Australia.
In particular, tight credit points to a major fall in business investment over the next 18 months."
The credit figures are another sign of a slowing economy, which is expected to convince the Reserve to opt for a 1percentage point interest rate cut at its first meeting of the year next Tuesday.
Meanwhile, housing debt - which accounts for nearly half of all outstanding debt, or nearly $1trillion - continued to grow, albeit at a slower pace than a year ago. The annual growth rate of 7.6per cent was the slowest recorded in more than 25 years.
It shows that while lower interest rates and the first-home-buyers' grant boost may be supporting demand, existing borrowers are seeking to repay debts at a faster rate.
A Commonwealth Bank economist said it was a bad sign for house prices. "This much lower volume of funds trickling into the housing market means that sales volumes will remain anaemic."
British mortgage rate cut awaits CIty Investors
Britain awaits yet another cut in interest rates to record low levels.
But it may not be enough to boost the London stock market as recession weighs on the economy, traders said.
The FTSE 100 index of leading shares closed on Friday at 4,149.64 points, up 2.39 per cent or 97.17 points from a week earlier.
The Bank of England (BoE) is widely expected to slash British borrowing costs by a further 50 basis points to an official cash rate of just 1 per cent at a meeting on Thursday.
Now at 1.5 per cent, interest rates are at the lowest level since the British central bank was formed in 1694.
This week, a statement from Barclays bank stressing it did not need a government bailout following speculation to the contrary sent its share price and those of its peers rocketing.
Some of the gains last week were lost as the weekend approached due to "poor earnings and bleak labour and housing market data from the US, heightening fears of a deeper global recession", said City Index market strategist Nick Serff.
"This ended a four-day surge for the major indexes, their best performance in two months," he said.
Another notable British corporate announcement this week came from Anglo-Dutch energy giant Royal Dutch Shell, which said it had made a net loss of $US2.81 billion ($A4.3 billion) in the final quarter of 2008 on plunging oil prices.
The loss compared with a net profit of $US8.47 billion ($A13 billion) during the fourth quarter of 2007, when crude prices were far higher, Europe's largest oil company said.
But it may not be enough to boost the London stock market as recession weighs on the economy, traders said.
The FTSE 100 index of leading shares closed on Friday at 4,149.64 points, up 2.39 per cent or 97.17 points from a week earlier.
The Bank of England (BoE) is widely expected to slash British borrowing costs by a further 50 basis points to an official cash rate of just 1 per cent at a meeting on Thursday.
Now at 1.5 per cent, interest rates are at the lowest level since the British central bank was formed in 1694.
This week, a statement from Barclays bank stressing it did not need a government bailout following speculation to the contrary sent its share price and those of its peers rocketing.
Some of the gains last week were lost as the weekend approached due to "poor earnings and bleak labour and housing market data from the US, heightening fears of a deeper global recession", said City Index market strategist Nick Serff.
"This ended a four-day surge for the major indexes, their best performance in two months," he said.
Another notable British corporate announcement this week came from Anglo-Dutch energy giant Royal Dutch Shell, which said it had made a net loss of $US2.81 billion ($A4.3 billion) in the final quarter of 2008 on plunging oil prices.
The loss compared with a net profit of $US8.47 billion ($A13 billion) during the fourth quarter of 2007, when crude prices were far higher, Europe's largest oil company said.
Micro Loans help the destitute out of poverty
Microcredit programs are quite often targeted at poor women.
They talk of enterprise rather than charity; of helping the world's poorest trade their way out of poverty.
And for the microcredit movement, 2008 has marked an important milestone.
More than 106 million of the world's poorest received small loans to kick start their entrepreneurial dreams last year.
The basic concept behind microcredit is pretty straightforward.
The world's poor and hungry receive loans for small projects, perhaps buying a cow to sell the milk or setting up a fruit stall.
Most of the credit is targeted at women and peer pressure is a powerful incentive to repay.
In Kenya, Ingrid Munro founded and manages the Jamii Bora microcredit trust.
Ms Munro says the trust started with 50 beggars and "most of those beggars are now well above the poverty line".
"Some climb very fast when they take their first loan," she said.
"They start with as little as $20, and when they take that first loan they can now start a very small business, selling a few vegetables, selling charcoal, something like that.
Success story
Ms Munro is something of a star in the microcredit movement. In 10 years, her organisation has organised loans worth 2.8 billion Kenyan shillings ($53 million).
She says more than 98 per cent of the loans have been repaid on time.
Ms Munro tells of one customer Claris D'Ambo, who was a beggar for 15 years.
Nine years after receiving her first $20 loan, Ms D'Ambo owns a string of businesses that include a hair dressing salon and a herbal medicine shop.
She employs eight people and, importantly, all of her children go to school.
"Claris is proud and she's not poor anymore and she's convincing so many others that you can get out of poverty," Ms Munro said.
Ms Munro's successful project in Kenya is part of a surge in microcredit.
Ten years ago, 8 million people received micro loans. By last year that was 106 million.
And 88 million of the loans went to women. An ambitious target of 175 million loans has now been set.
Support
The movement's founder, Muhumad Yunus, was recognised for efforts to create social and economic development with the 2006 Nobel Peace Prize.
Some of the world's largest public and private lenders have backed the microcredit model.
Still, there is some disquiet about the boom in microcredit.
Some argue the most destitute have more immediate considerations like food and shelter and may end up borrowing from less scrupulous lenders to meet their microcredit obligation.
But it is not an argument Ingrid Munro has much sympathy for.
"You see you can't just go out and tell a beggar here's $50, get yourself out of poverty," she said.
"You have to start by talking to them, explaining to them, and making them see how others have done it and we use very much the ones who have been successful as the mentors of others."
They talk of enterprise rather than charity; of helping the world's poorest trade their way out of poverty.
And for the microcredit movement, 2008 has marked an important milestone.
More than 106 million of the world's poorest received small loans to kick start their entrepreneurial dreams last year.
The basic concept behind microcredit is pretty straightforward.
The world's poor and hungry receive loans for small projects, perhaps buying a cow to sell the milk or setting up a fruit stall.
Most of the credit is targeted at women and peer pressure is a powerful incentive to repay.
In Kenya, Ingrid Munro founded and manages the Jamii Bora microcredit trust.
Ms Munro says the trust started with 50 beggars and "most of those beggars are now well above the poverty line".
"Some climb very fast when they take their first loan," she said.
"They start with as little as $20, and when they take that first loan they can now start a very small business, selling a few vegetables, selling charcoal, something like that.
Success story
Ms Munro is something of a star in the microcredit movement. In 10 years, her organisation has organised loans worth 2.8 billion Kenyan shillings ($53 million).
She says more than 98 per cent of the loans have been repaid on time.
Ms Munro tells of one customer Claris D'Ambo, who was a beggar for 15 years.
Nine years after receiving her first $20 loan, Ms D'Ambo owns a string of businesses that include a hair dressing salon and a herbal medicine shop.
She employs eight people and, importantly, all of her children go to school.
"Claris is proud and she's not poor anymore and she's convincing so many others that you can get out of poverty," Ms Munro said.
Ms Munro's successful project in Kenya is part of a surge in microcredit.
Ten years ago, 8 million people received micro loans. By last year that was 106 million.
And 88 million of the loans went to women. An ambitious target of 175 million loans has now been set.
Support
The movement's founder, Muhumad Yunus, was recognised for efforts to create social and economic development with the 2006 Nobel Peace Prize.
Some of the world's largest public and private lenders have backed the microcredit model.
Still, there is some disquiet about the boom in microcredit.
Some argue the most destitute have more immediate considerations like food and shelter and may end up borrowing from less scrupulous lenders to meet their microcredit obligation.
But it is not an argument Ingrid Munro has much sympathy for.
"You see you can't just go out and tell a beggar here's $50, get yourself out of poverty," she said.
"You have to start by talking to them, explaining to them, and making them see how others have done it and we use very much the ones who have been successful as the mentors of others."
Not happy bank! Australian banks earn $2 billion in fees and charges from their customers
The major Australian banks earned $2 billion more in fees and charges from their customers while hiking interest rates independently of the Reserve Bank.
New research published yesterday showed that in the year to June, the most recent figures available, banks accrued income from fees and commissions of $22.6 billion.
The result was well up on $20.48 billion they earned in the previous year and came as they were lifting, of their own accord, rates on mortgages, credit cards and personal loans.
The spate of rate hikes started in January when each major bank moved independently of the Reserve Bank, blaming the global financial crisis for increasing wholesale funding costs.
The round of rate hikes occurred on top of the Reserve Bank of Australia's two upward movements in official rates in February and March.
The figures published by the Australian Prudential Regulatory Authority did not show the impact of the 300 basis points in cuts ordered by the Reserve Bank in the past four months.
However, some of the banks have not passed on the full cuts to customers, with ANZ and Westpac keeping some of of the reduction from the 100-basis point cut by the RBA this month in their profit margins.
The level of account fees paid by Australian customers has reached a record high, with at least $1.4 billion spent in the June quarter on transaction and lending activity.
MWE Consulting analyst Mike Ebstein, an independent researcher, said the increase in fees came as customers placed more money with the major banks.
"The year end June total is up on the year end of June 2007," Mr Ebstein said.
"But the last quarter went against the annual trend and the 10.4 per cent growth in fees and commissions was well below the growth in assets and deposits."
Despite the increase in fees, Australians have turned into fiscal conservatives, choosing to hoard cash out of the volatile financial markets.
Before the recent interest rate cuts, banks were offering deposit rates above 8 per cent in a bid to reduce their reliance on volatile funding markets. However, as official rates have been cut, deposit rates have been slashed.
New research published yesterday showed that in the year to June, the most recent figures available, banks accrued income from fees and commissions of $22.6 billion.
The result was well up on $20.48 billion they earned in the previous year and came as they were lifting, of their own accord, rates on mortgages, credit cards and personal loans.
The spate of rate hikes started in January when each major bank moved independently of the Reserve Bank, blaming the global financial crisis for increasing wholesale funding costs.
The round of rate hikes occurred on top of the Reserve Bank of Australia's two upward movements in official rates in February and March.
The figures published by the Australian Prudential Regulatory Authority did not show the impact of the 300 basis points in cuts ordered by the Reserve Bank in the past four months.
However, some of the banks have not passed on the full cuts to customers, with ANZ and Westpac keeping some of of the reduction from the 100-basis point cut by the RBA this month in their profit margins.
The level of account fees paid by Australian customers has reached a record high, with at least $1.4 billion spent in the June quarter on transaction and lending activity.
MWE Consulting analyst Mike Ebstein, an independent researcher, said the increase in fees came as customers placed more money with the major banks.
"The year end June total is up on the year end of June 2007," Mr Ebstein said.
"But the last quarter went against the annual trend and the 10.4 per cent growth in fees and commissions was well below the growth in assets and deposits."
Despite the increase in fees, Australians have turned into fiscal conservatives, choosing to hoard cash out of the volatile financial markets.
Before the recent interest rate cuts, banks were offering deposit rates above 8 per cent in a bid to reduce their reliance on volatile funding markets. However, as official rates have been cut, deposit rates have been slashed.
Credit Card transaction fall as buyers tighten their belts
Australians are turning their backs on credit, gripped by the fear of losing their job as the economic outlook turns increasingly grim.
More economists now believe a recession is unavoidable, if the country hasn't already entered one for the first time since the early 1990s.
Technically, a recession is defined as two consecutive quarters of negative economic growth. Federal Treasurer Wayne Swan won't be drawn on whether Australia will suffer that fate. "I don't speculate about the outcome of the figures," Mr Swan said on Friday. "It's a global recession and we're not immune from the fallout ... It's got much, much worse than anybody could ever have imagined."
The world's largest bank, JP Morgan, has further downgraded its Australian growth forecast, and expects the economy to contract by 0.5 per cent in 2009, a marked change from its previous estimate for a modest 0.2 per cent expansion. "Deteriorating conditions offshore and the worsening credit crunch point to a deeper Australian recession than previously forecast," JP Morgan's chief economist in Australia, Stephen Walters, said. "Increased anxiety about job security will be a heavy burden for consumers in 2009."
New data released on Friday shows that demand for credit recorded its first monthly fall since the 1991-92 recession. Total credit fell 0.3 per cent in December, while the annual rate of 6.7 per cent was the slowest pace since 1994.
Economists had expected a 0.5 per cent increase in the month. "There should now be nothing in the way of the RBA (Reserve Bank of Australia) delivering a large interest rate cut next Tuesday and signalling a desire to do more of the same at future meetings," TD Securities senior strategist Joshua Williamson said.
Financial markets are pricing in the risk of the RBA cutting its official cash rate by a further 100 basis points when its board meets on Tuesday, it's first meeting this year. This would take the cash rate to 3.25 per cent, a 45-year low. The markets are fully pricing a 2.0 per cent cash rate by mid-year. A breakdown of the RBA's credit data was even more dire.
Personal credit - outside of home loans - sunk a further 1.1 per cent in December and now stands 5.2 per cent lower than a year earlier. This is despite the central bank's 300 basis points worth of easing in the last four months of 2008. Total housing credit grew by a mere 0.4 per cent to an annual rate of 7.6 per cent. "This was despite the increase in affordability from lower official interest rates and the increase in the First Home Owners Grant in the month," Mr Williamson said. The government doubled the grant to $14,000 until June this year for existing home purchases, and to $21,000 for newly built homes, as part of last year's $10.4 billion economic stimulus package.
Worse still, business credit also fell for the first time in almost five years, down 1.1 per cent in December to an annual rate of 8.0 per cent. "The fall in business credit does suggest that the impending slowdown in business investment is occurring earlier than we thought," ANZ senior economist Katie Dean said.
Business investment has been a major plank for the economy in recent years, particularly in the resources sector as profits from China's demand were sunk back into companies' infrastructure.
More economists now believe a recession is unavoidable, if the country hasn't already entered one for the first time since the early 1990s.
Technically, a recession is defined as two consecutive quarters of negative economic growth. Federal Treasurer Wayne Swan won't be drawn on whether Australia will suffer that fate. "I don't speculate about the outcome of the figures," Mr Swan said on Friday. "It's a global recession and we're not immune from the fallout ... It's got much, much worse than anybody could ever have imagined."
The world's largest bank, JP Morgan, has further downgraded its Australian growth forecast, and expects the economy to contract by 0.5 per cent in 2009, a marked change from its previous estimate for a modest 0.2 per cent expansion. "Deteriorating conditions offshore and the worsening credit crunch point to a deeper Australian recession than previously forecast," JP Morgan's chief economist in Australia, Stephen Walters, said. "Increased anxiety about job security will be a heavy burden for consumers in 2009."
New data released on Friday shows that demand for credit recorded its first monthly fall since the 1991-92 recession. Total credit fell 0.3 per cent in December, while the annual rate of 6.7 per cent was the slowest pace since 1994.
Economists had expected a 0.5 per cent increase in the month. "There should now be nothing in the way of the RBA (Reserve Bank of Australia) delivering a large interest rate cut next Tuesday and signalling a desire to do more of the same at future meetings," TD Securities senior strategist Joshua Williamson said.
Financial markets are pricing in the risk of the RBA cutting its official cash rate by a further 100 basis points when its board meets on Tuesday, it's first meeting this year. This would take the cash rate to 3.25 per cent, a 45-year low. The markets are fully pricing a 2.0 per cent cash rate by mid-year. A breakdown of the RBA's credit data was even more dire.
Personal credit - outside of home loans - sunk a further 1.1 per cent in December and now stands 5.2 per cent lower than a year earlier. This is despite the central bank's 300 basis points worth of easing in the last four months of 2008. Total housing credit grew by a mere 0.4 per cent to an annual rate of 7.6 per cent. "This was despite the increase in affordability from lower official interest rates and the increase in the First Home Owners Grant in the month," Mr Williamson said. The government doubled the grant to $14,000 until June this year for existing home purchases, and to $21,000 for newly built homes, as part of last year's $10.4 billion economic stimulus package.
Worse still, business credit also fell for the first time in almost five years, down 1.1 per cent in December to an annual rate of 8.0 per cent. "The fall in business credit does suggest that the impending slowdown in business investment is occurring earlier than we thought," ANZ senior economist Katie Dean said.
Business investment has been a major plank for the economy in recent years, particularly in the resources sector as profits from China's demand were sunk back into companies' infrastructure.
Subscribe to:
Posts (Atom)