Queensland bank, investment and insurance group Suncorp-Metway looks set to secure one of the largest takeovers in Australian corporate history with its $7.9 billion bid for general insurer Promina Group.
The board of Promina - which owns brands such as AAMI and Australia's Pensioners Insurance Agency - has said it is "favourably disposed" to the conditional offer.
The Brisbane, Queensland based bank, insurance and wealth management group has offered 0.2618 of its shares and $1.80 cash per Promina share, valuing Promina at $7.87 billion.
The news pushed Promina shares into new record territory, with the stock jumping almost 19 per cent to an intraday high of $7.70. The shares were up 66 cents at $7.14 at 1534 AEST.
Suncorp gained 90 cents or 4 per cent to $23.20 by that time.
If approved, it will be the largest takeover in the financial services sector since the Commonwealth Bank's $9.1 billion purchase of Colonial Ltd in 2000.
Outside of that sector, the size of the deal compares with BHP Billiton's $9.2 billion buyout of WMC Resources in 2005.
Both insurers remained tight-lipped about the deal today short of issuing statements confirming the bid, after market speculation about a possible takeover pushed Promina shares more than 6 per cent higher yesterday.
Suncorp has said the merger gives it an expanded national presence, improved geographic diversity and a significant boost to its presence in the wealth management and life insurance markets.
"The proposal is in line with its strategy to pursue value accretive acquisitions which meet its investment criteria, create value for shareholders and enhance earnings per share," Suncorp has said.
The offer brings a sense of confirmation to months of speculation about a round of consolidation among Australia's top four insurers.
However, Suncorp itself was considered one of the more likely takeover targets.
With Promina eager to move ahead with the merger, the companies are progressing with due diligence and negotiations for a formal merger agreement.
But approval from Australian and New Zealand regulators could still remain potential barriers to the acquisition.
CommSec analyst Carlos Castillo has said there are unlikely to be many rival bids emerging from the woodwork with competition constraints likely to keep most players at bay.
"This has been something that's been in the pipeline for quite a while," he said.
"It's (the market) obviously not factoring anyone else coming in and making a bigger offer and trumping Suncorp.
"I think that's pretty unlikely because Suncorp is the one that can extract the most synergies out of an acquisition of Promina.
"Any other potential bidders, if they want to pay more, then they're really going to be doing so for strategic reasons not because they feel they can get more value out of the acquisition than Suncorp."
The move will have ramifications for the broader financial sector with Insurance Australia Group (IAG) - Australia's second largest insurer by earned premium behind QBE - standing to benefit from the transaction.
"If this takeover goes ahead then it's hard to see anyone being able to buy IAG without further competition concerns being raised unless they're an offshore person who has no participation in the market at the moment," Mr Castillo said.
Deutsche Bank analyst James Coghill has said the disruption a merger is likely to cause Promina and Suncorp would improve IAG's attractiveness in the medium-term.
"In terms of alternative bids, we see limited scope given competition constraints for IAG, and lower synergy potential from QBE, Wesfarmers and Allianz," Mr Coghill said.
"Furthermore, both QBE and Allianz have the ability to acquire offshore at more attractive multiples."
Bank of Queensland managing director David Liddy has said the merger is good news for his bank.
"It's a positive from our point of view, we stick to the view that we are a bank and what we are trying to do is get more Bank of Queensland customers in Queensland," he said.
Mr Liddy has said the regional bank performed well after Suncorp's $1.26 billion acquisition of general insurance business GIO from AMP in 2001.
Source: AAP
Thursday, October 12, 2006
Reverse Mortgages. Are they a cause for concern for our aged?
vphSeveral consumer groups are calling for better protection for aged homeowners being sold reverse mortgages to fund their retirement.
Australia's ageing population are mostly asset rich but cash poor. And most have one asset that has doubled or trebled in value in the last few years, and that’s the family home.
Reverse mortgages have been available in the US for decades, and some banks tried to market them in Australia in the nineties with limited success.
Their time and need has now come, as the cash strapped baby boomers head to retirement with little superannuation or other assets to support them in retirement.
In 2004, about $250 million was lent through reverse mortgages. Last year, it was $650 million. According to Kieran Dell, executive director of the industry body Senior Australians Equity Release Association of Lenders (SEQUAL), that's just the beginning.
"It wouldn't surprise me if it exceeded a billion dollars in this calendar year," he says, adding that it could reach up to $5 billion in the next few years.
"You won't see the rump of those baby boomers hitting retirement and then spending their superannuation for another 10 years. So it's going from a small base but it is growing very fast."
But the Australian Consumers Association has called for regulation of the sector, concerned that pushy selling practices could put them in an unfair position.
Launched during the boom when house values were screaming up, many property markets are now falling while interest rates are rising.
"Reverse mortgages are an emotive issue," says Denis Orrock, the general manager of InfoChoice.
"Slogans such as 'nothing to pay till you die' hardly aid the industry's quest for recognition as a legitimate financial tool for senior citizens."
Horror stories from Britain of aged pensioners being evicted from their homes as their reverse mortgage debt exceeded the homes' value stalled the market here in the 1980s. Yet new demographics and lifestyle considerations are pushing more people to consider going back into debt.
Life expectancy is longer, lifestyle expectations are higher and Australia's ageing population needs more money to live on. There are a lot of retirees who own their own homes and many who are under-funded for retirement. People leaving the workforce now have an average of only $125,000 in super, so borrowing against the family home can look like an attractive option.
But in doing so, borrowers take on a major risk. In an environment of sluggish property growth and higher interest rates, the debt compounds rapidly and may leave once-secure home owners with little to call their own or pass on to their beneficiaries.
Depending on how the funds are accessed, Centrelink may assess the money under the income test and reduce the age pension.
Any mortgage broker can sell a reverse mortgage, whether or not they submit to an Australian Securities and Investments Commission-approved dispute resolution system such as the Banking and Financial Services Ombudsman. Sales are commission-based, which means the bigger the loan, the greater the broker fee. Commission figures are closely guarded, but those the ACA knows about average from 1.2 to 2.3 per cent. If there is a combination of an upfront commission and a trail fee, the inital fee may be 0.7 to 1 per cent and the ongoing trail 0.2 to 0.4 per cent.
"You don't want a situation where inappropriate advice is given by a broker or a planner because of the size of the commission they're earning," says Nick Coates, an ACA senior policy officer.
In the absence of regulation, best practice in the area is guided by a voluntary industry code developed by SEQUAL, which represents about 95 per cent of providers. It requires members to include a no-negative equity guarantee in their contracts. This is meant to ensure that no one will lose their home over a reverse mortgage.
Because it's a voluntary code, a proven breach doesn't carry the force of law. The penalty is expulsion from SEQUAL or, as Dell puts it "a public relations disaster".
But the equity guarantee is not iron-clad. It is conditional on a borrower meeting all the terms and conditions of the loan, which may include, for example, maintenance and regular home valuations at the borrower's cost.
"We still have concerns that there are ways in which the contracts can avoid a no-negative-equity guarantee if the customer was found to be in default," Coates says.
"If you hadn't done some simple administrative tasks like paid your council rates or reported on the state of your property each year you could technically be in default, which means they could reserve the right to say the [guarantee] doesn't apply.
"Most financial institutions when questioned about that say, we're reasonable and won't apply it. Sure, they may well be reasonable but it still provides a gap for those that aren't reasonable. There's no guarantee."
The products are complicated, and many borrowers have trouble understanding all their ramifications. Dianne Carmody, general manager, Banking and Financial Services Ombudsman, says it has received only a small handful of complaints relating to reverse mortgages from SEQUAL members but all related to borrowers misunderstanding the terms and conditions.
Paul Gillett, a solicitor with the Consumer Legal Service in Victoria, has had many calls from clients who don't understand the products. "They're a relatively new product and people are prone to misunderstanding their nature," he says. "The negative side is that providers may be taking advantage of people in this regard."
SEQUAL's code requires people to consult a lawyer, and strongly encourages them to seek licensed financial advice and to talk to their beneficiaries as well. The association argues that making financial advice mandatory could actually disadvantage certain people. Some consumer groups agree, concerned that unscrupulous planners may push higher loan amounts or products people don't need. In addition, the financial advice would be yet another cost borne by the borrower.
With reverse mortgages, it's a case of borrower beware. "The borrower needs to understand the structure of the loan, the impact it may have on future equity and the impact it will have on their estate,'" Orrock says. "They also need to ensure that they only draw down the amount they require and not be coerced into taking a large lump sum.
"The lenders should at all times provide the borrower with an accurate picture as to how the loan will perform under conservative conditions moderate property growth and a higher interest rate environment. This will ensure the borrower can understand the concept of capitalisation of interest.
"Finally, the borrower needs to seek independent legal and financial advice."
Impact on Centrelink benefitsThe first $40,000 is not counted as an asset for 90 days. If the money is placed into a bank account, it is subject to the deeming provisions of the income test. Where more than $40,000 is borrowed, the amount in excess is counted as an asset with the $40,000 being counted after 90 days. If the whole amount is immediately spent, the rule will not apply unless the funds are spent on assets or an income stream. Where the loan is drawn down on a regular basis there is no effect on the income. Some reverse mortgage providers offer regular payments by holding the proceeds of the loan in an offset account. The balance of the account is classed as an asset and subject to the deeming provisions but the interest charged on the loan may be reduced.
Source: The Institute of Chartered Accountants in Australia
Australia's ageing population are mostly asset rich but cash poor. And most have one asset that has doubled or trebled in value in the last few years, and that’s the family home.
Reverse mortgages have been available in the US for decades, and some banks tried to market them in Australia in the nineties with limited success.
Their time and need has now come, as the cash strapped baby boomers head to retirement with little superannuation or other assets to support them in retirement.
In 2004, about $250 million was lent through reverse mortgages. Last year, it was $650 million. According to Kieran Dell, executive director of the industry body Senior Australians Equity Release Association of Lenders (SEQUAL), that's just the beginning.
"It wouldn't surprise me if it exceeded a billion dollars in this calendar year," he says, adding that it could reach up to $5 billion in the next few years.
"You won't see the rump of those baby boomers hitting retirement and then spending their superannuation for another 10 years. So it's going from a small base but it is growing very fast."
But the Australian Consumers Association has called for regulation of the sector, concerned that pushy selling practices could put them in an unfair position.
Launched during the boom when house values were screaming up, many property markets are now falling while interest rates are rising.
"Reverse mortgages are an emotive issue," says Denis Orrock, the general manager of InfoChoice.
"Slogans such as 'nothing to pay till you die' hardly aid the industry's quest for recognition as a legitimate financial tool for senior citizens."
Horror stories from Britain of aged pensioners being evicted from their homes as their reverse mortgage debt exceeded the homes' value stalled the market here in the 1980s. Yet new demographics and lifestyle considerations are pushing more people to consider going back into debt.
Life expectancy is longer, lifestyle expectations are higher and Australia's ageing population needs more money to live on. There are a lot of retirees who own their own homes and many who are under-funded for retirement. People leaving the workforce now have an average of only $125,000 in super, so borrowing against the family home can look like an attractive option.
But in doing so, borrowers take on a major risk. In an environment of sluggish property growth and higher interest rates, the debt compounds rapidly and may leave once-secure home owners with little to call their own or pass on to their beneficiaries.
Depending on how the funds are accessed, Centrelink may assess the money under the income test and reduce the age pension.
Any mortgage broker can sell a reverse mortgage, whether or not they submit to an Australian Securities and Investments Commission-approved dispute resolution system such as the Banking and Financial Services Ombudsman. Sales are commission-based, which means the bigger the loan, the greater the broker fee. Commission figures are closely guarded, but those the ACA knows about average from 1.2 to 2.3 per cent. If there is a combination of an upfront commission and a trail fee, the inital fee may be 0.7 to 1 per cent and the ongoing trail 0.2 to 0.4 per cent.
"You don't want a situation where inappropriate advice is given by a broker or a planner because of the size of the commission they're earning," says Nick Coates, an ACA senior policy officer.
In the absence of regulation, best practice in the area is guided by a voluntary industry code developed by SEQUAL, which represents about 95 per cent of providers. It requires members to include a no-negative equity guarantee in their contracts. This is meant to ensure that no one will lose their home over a reverse mortgage.
Because it's a voluntary code, a proven breach doesn't carry the force of law. The penalty is expulsion from SEQUAL or, as Dell puts it "a public relations disaster".
But the equity guarantee is not iron-clad. It is conditional on a borrower meeting all the terms and conditions of the loan, which may include, for example, maintenance and regular home valuations at the borrower's cost.
"We still have concerns that there are ways in which the contracts can avoid a no-negative-equity guarantee if the customer was found to be in default," Coates says.
"If you hadn't done some simple administrative tasks like paid your council rates or reported on the state of your property each year you could technically be in default, which means they could reserve the right to say the [guarantee] doesn't apply.
"Most financial institutions when questioned about that say, we're reasonable and won't apply it. Sure, they may well be reasonable but it still provides a gap for those that aren't reasonable. There's no guarantee."
The products are complicated, and many borrowers have trouble understanding all their ramifications. Dianne Carmody, general manager, Banking and Financial Services Ombudsman, says it has received only a small handful of complaints relating to reverse mortgages from SEQUAL members but all related to borrowers misunderstanding the terms and conditions.
Paul Gillett, a solicitor with the Consumer Legal Service in Victoria, has had many calls from clients who don't understand the products. "They're a relatively new product and people are prone to misunderstanding their nature," he says. "The negative side is that providers may be taking advantage of people in this regard."
SEQUAL's code requires people to consult a lawyer, and strongly encourages them to seek licensed financial advice and to talk to their beneficiaries as well. The association argues that making financial advice mandatory could actually disadvantage certain people. Some consumer groups agree, concerned that unscrupulous planners may push higher loan amounts or products people don't need. In addition, the financial advice would be yet another cost borne by the borrower.
With reverse mortgages, it's a case of borrower beware. "The borrower needs to understand the structure of the loan, the impact it may have on future equity and the impact it will have on their estate,'" Orrock says. "They also need to ensure that they only draw down the amount they require and not be coerced into taking a large lump sum.
"The lenders should at all times provide the borrower with an accurate picture as to how the loan will perform under conservative conditions moderate property growth and a higher interest rate environment. This will ensure the borrower can understand the concept of capitalisation of interest.
"Finally, the borrower needs to seek independent legal and financial advice."
Impact on Centrelink benefitsThe first $40,000 is not counted as an asset for 90 days. If the money is placed into a bank account, it is subject to the deeming provisions of the income test. Where more than $40,000 is borrowed, the amount in excess is counted as an asset with the $40,000 being counted after 90 days. If the whole amount is immediately spent, the rule will not apply unless the funds are spent on assets or an income stream. Where the loan is drawn down on a regular basis there is no effect on the income. Some reverse mortgage providers offer regular payments by holding the proceeds of the loan in an offset account. The balance of the account is classed as an asset and subject to the deeming provisions but the interest charged on the loan may be reduced.
Source: The Institute of Chartered Accountants in Australia
Wednesday, October 11, 2006
Mortgage Homeowners in arrears growing
Homeowners who bought during the property boom are almost twice as likely to fall behind in their mortgage repayments.
A six-monthly review by the Reserve Bank of Australia found there had been a "modest'' increase in the number of home loans three month in arrears. The greatest increase was seen in New South Wales where prices were highest and have fallen back, followed by South Australia, Victoria and Queensland.
Some of the blame was directed towards the big banks which were accused of relaxing lending criteria.
This however can be disputed on the grounds that the boom peaked three years ago, when lending was strictly that it is said to be today. The other variable is that many of the non conforming lenders have less strict guidelines than the banks, offering loans to borrowers with bad credit.
In fact the six-monthly review found new loans to buy property sourced three to four years ago - the top of the housing boom - had a higher rate of arrears than new loans in other times. Almost 30 per cent of Australians are paying off their home. "Borrowers that took out a loan in 2003 and 2004 are more likely to have bought at around the peak of the market,'' the RBA said. ``And with the higher level of interest rates, have had less opportunity to build up repayment buffers.'' The RBA said the introduction of "low-doc loans'' -- mortgages where the homeowner or home buyer has to provide little information -- had raised the risk of running into the red. "The higher arrears rate is hardly surprising given the general lowering of credit standards that has occurred since the mid 1990s,'' the report said.
The average loan is now $230,652 and the minimum repayment now consumes about 27.7 per cent of a household's income. That figure is lower than in 1989, when rates were 17 per cent, when 30.4 per cent of income had to be spent.
But Commsec chief economist Craig James said that while arrears rate had increased, it was still at an historic low. "The RBA acknowledges that household finances have been stretched by recent developments -- code words for higher interest rates and petrol prices,'' Mr James said. "The bank believes that balance sheets are in good shape, especially given that people have generally adopted a more cautious approach to their finances.''
Source: Herald Sun
A six-monthly review by the Reserve Bank of Australia found there had been a "modest'' increase in the number of home loans three month in arrears. The greatest increase was seen in New South Wales where prices were highest and have fallen back, followed by South Australia, Victoria and Queensland.
Some of the blame was directed towards the big banks which were accused of relaxing lending criteria.
This however can be disputed on the grounds that the boom peaked three years ago, when lending was strictly that it is said to be today. The other variable is that many of the non conforming lenders have less strict guidelines than the banks, offering loans to borrowers with bad credit.
In fact the six-monthly review found new loans to buy property sourced three to four years ago - the top of the housing boom - had a higher rate of arrears than new loans in other times. Almost 30 per cent of Australians are paying off their home. "Borrowers that took out a loan in 2003 and 2004 are more likely to have bought at around the peak of the market,'' the RBA said. ``And with the higher level of interest rates, have had less opportunity to build up repayment buffers.'' The RBA said the introduction of "low-doc loans'' -- mortgages where the homeowner or home buyer has to provide little information -- had raised the risk of running into the red. "The higher arrears rate is hardly surprising given the general lowering of credit standards that has occurred since the mid 1990s,'' the report said.
The average loan is now $230,652 and the minimum repayment now consumes about 27.7 per cent of a household's income. That figure is lower than in 1989, when rates were 17 per cent, when 30.4 per cent of income had to be spent.
But Commsec chief economist Craig James said that while arrears rate had increased, it was still at an historic low. "The RBA acknowledges that household finances have been stretched by recent developments -- code words for higher interest rates and petrol prices,'' Mr James said. "The bank believes that balance sheets are in good shape, especially given that people have generally adopted a more cautious approach to their finances.''
Source: Herald Sun
Is the National Australia Bank about to sell its credit card unit?
The National Australia Bank won’t comment on speculation it may sell its $3 billion credit card business, prompting analysts to ponder the merits of such a move.
But Geoff Driver, general manager of Australian Foundation Investment Company, said a "review" did not necessarily imply a sale.
He said it would be impossible to judge the merits of any prospective sale without seeing the detail of the propositions.
On the basis that a major bank like the NAB could not operate without offering credit cards, for growing its customer bases and up-selling and cross selling many feel that they would be really thinking about some distribution arrangement.
If a sale were to proceed an overseas player in the Australian banking sector would be the potential buyer, with Citibank, HSBC and GE as possible contenders.
NAB comes last in the big four Australian banks as an issuer of credit cards in Australia, and the credit card offers are ranked poorly compared with the Commonwealth bank and Westpac offerings.
Interestingly, Citigroup have set a goal to take NAB's place as the nation's fourth-largest issuer of credit cards. Competition for market share has driven card interest rates down, trimming the margin that made cards profitable.
Some cards are now available with interest rates as low as 8.99 per cent, well down on the rates of 16 to 18 per cent applying on almost all cards only a few years ago.
But Geoff Driver, general manager of Australian Foundation Investment Company, said a "review" did not necessarily imply a sale.
He said it would be impossible to judge the merits of any prospective sale without seeing the detail of the propositions.
On the basis that a major bank like the NAB could not operate without offering credit cards, for growing its customer bases and up-selling and cross selling many feel that they would be really thinking about some distribution arrangement.
If a sale were to proceed an overseas player in the Australian banking sector would be the potential buyer, with Citibank, HSBC and GE as possible contenders.
NAB comes last in the big four Australian banks as an issuer of credit cards in Australia, and the credit card offers are ranked poorly compared with the Commonwealth bank and Westpac offerings.
Interestingly, Citigroup have set a goal to take NAB's place as the nation's fourth-largest issuer of credit cards. Competition for market share has driven card interest rates down, trimming the margin that made cards profitable.
Some cards are now available with interest rates as low as 8.99 per cent, well down on the rates of 16 to 18 per cent applying on almost all cards only a few years ago.
National Australia Bank says home loan interest rates on hold until 2007
The National Australia Bank (NAB) says its latest analysis of the business climate consolidates the view that official mortgage home loan interest rates will remain on hold for the rest of the year.
For September, the bank's measure of business conditions indicates that they have recovered just a little after two months of decline.
A pick-up in the retail sector has been offset by weaker construction sector especially new homes, land development and building apartments and home units.
Some improvement in Victoria, including home building, has been balanced by softer conditions in New South Wales and Queensland.
Business confidence has remained unchanged after falling sharply in recent months.
So on balance the NAB feels that the official cash rate as set by the Reserve Bank of Australia will remain steady until at least the early part of 2007. This is good news for small business and homeowners with mortgages to repay as well as prospective home buyers.
For September, the bank's measure of business conditions indicates that they have recovered just a little after two months of decline.
A pick-up in the retail sector has been offset by weaker construction sector especially new homes, land development and building apartments and home units.
Some improvement in Victoria, including home building, has been balanced by softer conditions in New South Wales and Queensland.
Business confidence has remained unchanged after falling sharply in recent months.
So on balance the NAB feels that the official cash rate as set by the Reserve Bank of Australia will remain steady until at least the early part of 2007. This is good news for small business and homeowners with mortgages to repay as well as prospective home buyers.
Sunday, September 03, 2006
Victim nabs suspected thief of his credit card
A little bit of his own detective work and some luck helped a sharp-eyed victim of credit card fraud catch the man police say charged up a giant TV and several appliances on his stolen credit card.
As Joel Guimares, 25, drove by the Dunkin’ Donuts on Route 9 in Framingham yesterday on the way to work, he recognized the man he watched on a Target store security video recording using Joel's credit card to buy a flat-screen TV, convection oven, coffeemaker and other items.
“I was following the guy, and I was calling the police at the same time,” said Guimares, who lives in Framingham. “He ended up driving by the police headquarters, and they got him there.”
The suspect, Donald Larsen, 34, a manager at a Whole Foods Market, was charged with larceny of property worth more than $250 and credit card misuse.
Guimares got a call Monday from his credit card company about the possible misuse of his credit card. He had lost his wallet at the same Dunkin’ Donuts where he spotted the suspect.
The credit card company told him someone had spent about $2,000 at the Target on Route 30. Guimares said he went there and asked to see the security video recording.
He watched, but did not recognize the man buying the television.
But yesterday, while driving to his job at the Framingham Saab dealership, he recognized the face he saw.
Larsen drove away, Guimares followed and called the police with the license plate number, and Larsen was arrested.
As Joel Guimares, 25, drove by the Dunkin’ Donuts on Route 9 in Framingham yesterday on the way to work, he recognized the man he watched on a Target store security video recording using Joel's credit card to buy a flat-screen TV, convection oven, coffeemaker and other items.
“I was following the guy, and I was calling the police at the same time,” said Guimares, who lives in Framingham. “He ended up driving by the police headquarters, and they got him there.”
The suspect, Donald Larsen, 34, a manager at a Whole Foods Market, was charged with larceny of property worth more than $250 and credit card misuse.
Guimares got a call Monday from his credit card company about the possible misuse of his credit card. He had lost his wallet at the same Dunkin’ Donuts where he spotted the suspect.
The credit card company told him someone had spent about $2,000 at the Target on Route 30. Guimares said he went there and asked to see the security video recording.
He watched, but did not recognize the man buying the television.
But yesterday, while driving to his job at the Framingham Saab dealership, he recognized the face he saw.
Larsen drove away, Guimares followed and called the police with the license plate number, and Larsen was arrested.
Hands off the RBA [Reserve Bank of Australia]
Lower mortgage home loan interest rates are important to homeowners and home buyers and all the industries that rely on them, but is the Howard Government trying to manipulate the Reserve Bank of Australia's decisions on interest rates for politic advantage?
The fine balance of economic power between our elected government, which controls fiscal policy, and the appointed Reserve Bank, which controls interest rates, has never been an easy one and it is certainly not likely to get any easier as economic conditions get more difficult.
But separating politics from mortgage home loan interest rates is one of the best things that has ever happened to the Australian economy.
As the past 15 consecutive years of economic growth provides good testament to, Reserve Bank independence has served us very well and far better than if the Federal Treasurer still had his hands "on all of the levers" as Paul Keating once boasted.
Rather than setting interest rates with votes in mind, the RBA has a simple measure of its success, to encourage a high rate of economic growth without endangering its 2 per cent to 3 per cent inflation target.
By contrast, politics is all about securing power.
When governments had control of interest rates, they were set with votes in mind and the economy second. If there was a line-ball decision to be made, votes won and the economy lost out.
However, it is very clear from the recent comments of the retiring Reserve Bank governor that the road that an independent central bank has to follow is sometimes a rocky one.
Politicians find it hard not to take credit for what the bank does right and to complain bitterly when it does things that they see as impairing their popularity.
Indeed, just a few weeks ago the Treasurer started talking about what "we" look at when "we" set interest rates, implying that he had something to do with it. He does not. Similarly, the RBA governor's recent comments make clear his distress at the Prime Minister's interest rate claims during the last election.
Going into a period of greater economic uncertainty, these pressures are only going to increase.
Already the bank has made it clear the economic stimulus provided by Canberra's tax cuts was a factor in forcing its hand to increase interest rates, in order to offset the inflationary pressures resulting from the tax cuts.
This puts the Government in a challenging position as it is now on notice that further vote buying tax cuts could result in vote shedding interest rate increases.
The last thing our economy needs is for open warfare, or indeed angst behind closed doors, to develop between the RBA and the Government.
One of Peter Costello's best decisions was to formalise the agreement between the Government and the RBA on the conduct of monetary policy.
It is in all our interests that this agreement be honoured in both its letter and intent.
Source: Courier Mail. Tim Hughes is a director of Value Capital Management.
The fine balance of economic power between our elected government, which controls fiscal policy, and the appointed Reserve Bank, which controls interest rates, has never been an easy one and it is certainly not likely to get any easier as economic conditions get more difficult.
But separating politics from mortgage home loan interest rates is one of the best things that has ever happened to the Australian economy.
As the past 15 consecutive years of economic growth provides good testament to, Reserve Bank independence has served us very well and far better than if the Federal Treasurer still had his hands "on all of the levers" as Paul Keating once boasted.
Rather than setting interest rates with votes in mind, the RBA has a simple measure of its success, to encourage a high rate of economic growth without endangering its 2 per cent to 3 per cent inflation target.
By contrast, politics is all about securing power.
When governments had control of interest rates, they were set with votes in mind and the economy second. If there was a line-ball decision to be made, votes won and the economy lost out.
However, it is very clear from the recent comments of the retiring Reserve Bank governor that the road that an independent central bank has to follow is sometimes a rocky one.
Politicians find it hard not to take credit for what the bank does right and to complain bitterly when it does things that they see as impairing their popularity.
Indeed, just a few weeks ago the Treasurer started talking about what "we" look at when "we" set interest rates, implying that he had something to do with it. He does not. Similarly, the RBA governor's recent comments make clear his distress at the Prime Minister's interest rate claims during the last election.
Going into a period of greater economic uncertainty, these pressures are only going to increase.
Already the bank has made it clear the economic stimulus provided by Canberra's tax cuts was a factor in forcing its hand to increase interest rates, in order to offset the inflationary pressures resulting from the tax cuts.
This puts the Government in a challenging position as it is now on notice that further vote buying tax cuts could result in vote shedding interest rate increases.
The last thing our economy needs is for open warfare, or indeed angst behind closed doors, to develop between the RBA and the Government.
One of Peter Costello's best decisions was to formalise the agreement between the Government and the RBA on the conduct of monetary policy.
It is in all our interests that this agreement be honoured in both its letter and intent.
Source: Courier Mail. Tim Hughes is a director of Value Capital Management.
More Homeowners are changing over to fixed interest rate mortgage loans
The number of home-buyers locking in their mortgages to a fixed interest rate, rather than the variable rate, to avoid the possinblity of a still higher interest rate burden has nearly doubled during the past year.
Australians borrowed a total of $20.53 billion during June in a sign of a rebound in the national property market. The surge was led by people buying investment properties to take advantage of the tax breaks on offer last year.
The property finance results showed people borrowed 2 per cent more during June compared with the month before.
Nearly 64,000 houses were bought despite the Reserve Bank of Australia raising rates just one month earlier.
The number of new mortgages taken out and fixed for two years has started to climb, according to the Australian Bureau of Statistics' figures.
During June, 10,963 loans were fixed, which accounted for 16.7 per cent of all the mortgages.
The result was up from just 10.3 per cent last year, showing home-buyers were concerned about the future movements of interest rates.
Economists said yesterday the 2 per cent rise in borrowing levels was further justification for the RBA's August rate rise.
The double blow of two rate increases is expected to cool the national appetite to borrow money.
TD Securities chief economist Stephen Koukoulas said there was room for growth in the housing market over the next few months. "Housing finance commitments are continuing to power ahead," he said. "The level of interest rates were no constraint to stronger levels of activity."
Mr Koukoulas said the level of investment in housing should move even higher later this year.
But one downside in the finance figures was a sustained fall in the number of first home buyers.
Of all of the purchases, 17 per cent were first-time buyers - the lowest for a year. CommSec economist Craig James said the size of mortgages was forcing those who rent to stay put.
The average home loan is now $227,800 in Australia.
The value has fallen over the past six months and is growing at the slowest rate in nearly five years.
"First home buyers are heading for the exit doors, with the exodus likely to continue in coming months," Mr James said.
"First home buyers are caught between a rock and a hard place. Mortgages are more expensive, causing buyers to retreat to the sidelines."
Economists said the growth in borrowings would not overly concern the RBA because it would have factored it into the decision to raise rates. The next rate movement is still expected to be in November.
Souce: Newscorp
Australians borrowed a total of $20.53 billion during June in a sign of a rebound in the national property market. The surge was led by people buying investment properties to take advantage of the tax breaks on offer last year.
The property finance results showed people borrowed 2 per cent more during June compared with the month before.
Nearly 64,000 houses were bought despite the Reserve Bank of Australia raising rates just one month earlier.
The number of new mortgages taken out and fixed for two years has started to climb, according to the Australian Bureau of Statistics' figures.
During June, 10,963 loans were fixed, which accounted for 16.7 per cent of all the mortgages.
The result was up from just 10.3 per cent last year, showing home-buyers were concerned about the future movements of interest rates.
Economists said yesterday the 2 per cent rise in borrowing levels was further justification for the RBA's August rate rise.
The double blow of two rate increases is expected to cool the national appetite to borrow money.
TD Securities chief economist Stephen Koukoulas said there was room for growth in the housing market over the next few months. "Housing finance commitments are continuing to power ahead," he said. "The level of interest rates were no constraint to stronger levels of activity."
Mr Koukoulas said the level of investment in housing should move even higher later this year.
But one downside in the finance figures was a sustained fall in the number of first home buyers.
Of all of the purchases, 17 per cent were first-time buyers - the lowest for a year. CommSec economist Craig James said the size of mortgages was forcing those who rent to stay put.
The average home loan is now $227,800 in Australia.
The value has fallen over the past six months and is growing at the slowest rate in nearly five years.
"First home buyers are heading for the exit doors, with the exodus likely to continue in coming months," Mr James said.
"First home buyers are caught between a rock and a hard place. Mortgages are more expensive, causing buyers to retreat to the sidelines."
Economists said the growth in borrowings would not overly concern the RBA because it would have factored it into the decision to raise rates. The next rate movement is still expected to be in November.
Souce: Newscorp
Mortgage Manager and Financial Services Giant adds fees to build bottom line
By increasing fee incomes, the James Packer-backed Mortgage Manager, Mortgage funder, and Funds Manager and is gaining traction as a mainstream financial services group.
Challenger Fiancial Services yesterday announced an increase of 28 per cent in statutory net profit, after tax and before significant items, to $153 million.
Funds management fees, a steady, predictable income stream, grew from $218 million, or 67 per cent of Challenger's net income, to $315 million.
"Fees now account for roughly 70 per cent of net income," said Michael Tilley, managing director of Challenger, trumpeting what he sees as one of the more significant achievements of his tenure.
Challenger now categorises its business into mortgage management, funds management, asset management and financial planning. It was formerly categorised under annuities, wealth management and mortgages.
Since he took over as CEO of Challenger in August 2004, Mr Tilley has made a concerted effort to break with the past.
The funds management group has diversified the portfolio, backing its annuities into more fixed income and infrastructure.
At the same time, it embraced Macquarie's specialist funds model, selling a listed and unlisted infrastructure fund. Yesterday, Challenger took another step in that direction when Mr Tilley said it was sounding out the market about the launch of a listed property trust, capitalised at over $500 million.
Challenger will take a stake of up to 40 per cent in the new fund, but the underlying purpose is to further rebalance the portfolio backing the company's annuity book. More than half is still invested in property, while Challenger has 21 per cent in infrastructure and the remainder mostly in fixed interest.
The target is to move to a mix where property, infrastructure and fixed interest take 30 per cent each, and equities take 10 per cent.
Funds management was another bright spot for Challenger. Chris Cuffe, who built Colonial First State's money management machine, spearheaded the growth of Challenger's funds management group until he quit in February to join not-for-profit microfinance group Opportunity Australia. Mr Cuffe said at the time he was leaving the group in good shape.
"We broke through the break-even point (with funds management)," Mr Tilley said yesterday. "In 2005, for more than half the year, we were losing money."
But after acquiring HSBC's local asset management operation and increasing assets organically, the funds management group gained sufficient assets to generate a profit.
Funds management earnings before interest and tax switched from a $10 million loss last year to a $24 million gain.
Challenger Fiancial Services yesterday announced an increase of 28 per cent in statutory net profit, after tax and before significant items, to $153 million.
Funds management fees, a steady, predictable income stream, grew from $218 million, or 67 per cent of Challenger's net income, to $315 million.
"Fees now account for roughly 70 per cent of net income," said Michael Tilley, managing director of Challenger, trumpeting what he sees as one of the more significant achievements of his tenure.
Challenger now categorises its business into mortgage management, funds management, asset management and financial planning. It was formerly categorised under annuities, wealth management and mortgages.
Since he took over as CEO of Challenger in August 2004, Mr Tilley has made a concerted effort to break with the past.
The funds management group has diversified the portfolio, backing its annuities into more fixed income and infrastructure.
At the same time, it embraced Macquarie's specialist funds model, selling a listed and unlisted infrastructure fund. Yesterday, Challenger took another step in that direction when Mr Tilley said it was sounding out the market about the launch of a listed property trust, capitalised at over $500 million.
Challenger will take a stake of up to 40 per cent in the new fund, but the underlying purpose is to further rebalance the portfolio backing the company's annuity book. More than half is still invested in property, while Challenger has 21 per cent in infrastructure and the remainder mostly in fixed interest.
The target is to move to a mix where property, infrastructure and fixed interest take 30 per cent each, and equities take 10 per cent.
Funds management was another bright spot for Challenger. Chris Cuffe, who built Colonial First State's money management machine, spearheaded the growth of Challenger's funds management group until he quit in February to join not-for-profit microfinance group Opportunity Australia. Mr Cuffe said at the time he was leaving the group in good shape.
"We broke through the break-even point (with funds management)," Mr Tilley said yesterday. "In 2005, for more than half the year, we were losing money."
But after acquiring HSBC's local asset management operation and increasing assets organically, the funds management group gained sufficient assets to generate a profit.
Funds management earnings before interest and tax switched from a $10 million loss last year to a $24 million gain.
Friday, July 28, 2006
Credit card fraud. What to do if you believe that you are a victim.
If you suspect at any time that you are he victim of credit card fraud, you need to take immediate action.
It's vital to call your card issuer immediately - all banks will have 24-hour emergency phone lines for this purpose - and explain what's happened and why you feel you have been defrauded.
Also inform the police as this could speed up refunds for any unauthorised use.
If someone else makes a purchase with your card before you inform your bank, the most you will be liable to pay is a token fee. The bank will wear the cost.
However, most banks may waive this fee.
On the otherhand, if you have acted negligently - for example, you've stored details of your PIN in the wallet holding your card - your bank may not refund the money.
It's vital to call your card issuer immediately - all banks will have 24-hour emergency phone lines for this purpose - and explain what's happened and why you feel you have been defrauded.
Also inform the police as this could speed up refunds for any unauthorised use.
If someone else makes a purchase with your card before you inform your bank, the most you will be liable to pay is a token fee. The bank will wear the cost.
However, most banks may waive this fee.
On the otherhand, if you have acted negligently - for example, you've stored details of your PIN in the wallet holding your card - your bank may not refund the money.
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