RBNZ acts, RBA where are you?!

Sharp criticism from Stephen Koukoulas at Business Spectator:

There have not been many instances in the past decade or so where economic policy changes in New Zealand have presented a template or lead for Australia. After all, New Zealand is only just recovering from a recession that Australia never experienced, it’s per capita GDP is more than 40 per cent lower than in Australia and it has net government debt at 36 per cent of GDP compared with Australia’s 12 per cent.Confronted by an uncomfortable house price surge at a time when the economy is only just gaining a foothold after the recession and when the New Zealand dollar is significantly overvalued, the Reserve Bank of New Zealand has a dilemma. It clearly is reluctant to hike interest rates as this would obviously risk choking off growth and reflating the Kiwi dollar, but it needs to stifle housing demand as the house price surge is threatening to become a troublesome bubble.(here)

Times changing for big Aussie banks...

Some details about CBA and ANZ shifting their strategies to meet new challenges - CBA stripping back its balance sheet to meet stricter capital requirements (although question if a recent private wealth scandal had anything to do with it) and ANZ looking to expand beyond Asia.

But changing is hard to do and to what extent will problems in the core outweigh any escape attempts at the periphery? Mutterings of increasing mortgage insurance costs don't bode well.

Interestingly though there seems to be a divergence between those with a domestic focus at the moment (CBA and Westpac) and those focussing overseas (ANZ and NAB).  It was noted previously that CBA and Westpac have larger domestic lending books and as this article indicates they are busier than ANZ and NAB due to integration of their Australian subsidiary groups (BankWest, Bank of Melbourne, St George, Bank of SA).

In the event of Ozzie contagion could it be that ANZ and NAB survive better due to less local exposure? Could be worth a study of long/short strategies!

Follow the Yellow Brick Road...

Serial innovator Mark Bouris is back launching a new venture, a Macquarie-backed mortgage lender to rival the banks called Yellow Brick Road:

...Although the two companies' share of the $1.1 trillion mortgage market is tiny, Mr Bouris argued YBR, which he chairs, could grab a meaningful share of the flow of new home loans within a year....Mr Bouris said that to force banks to change their mortgage pricing strategies, YBR needed to settle about $350 million worth of new loans a month - roughly 5 per cent of the value of loans sold through bank branches....

...Helped by lower funding costs and an aggressive rollout of its branches, YBR would be able to hit this level within a year, he said....(here).

This blog condones more competition in the Ozzie banking sector so welcomes Mark's foray.  Let's hope the market doesn't tank before then!

More evidence of bank gouging...

...The country's big four lenders now generate about 88 basis points of net profit on each new mortgage they sell--the highest rate since UBS began keeping records in 2004, analyst Jonathan Mott said Monday. As recently as a year ago, the nation's lenders were losing money on new mortgages....

...."Writing a new wholesale funded home loan has never been more profitable," he said in a note to clients. "If the conditions in debt and deposit markets continue to improve the banks will be in a position to pass through out-of-cycle rate cuts. If the banks do not follow suit, then the risk of 'political interference' in the sector is large."... (here)

Profitable certainly, but not without risks.  If Britain's banking sector's recent history is anything to go buy, gouging and profiteering will not protect from the coming downturn...

Very low numbers...

A bit more on the low Australian property numbers, an SMH article making the point they coincided with the ending of a government subsidy scheme.  Like the Warren Bufffet favourite of a naked swimmer exposed by the receding tide (in this case receding government subsidies) what is key is that the ending of the first home buyer's grant is not part of the whole story.  

The accompanying recording of Dr Andrew Wilson of Australian Property Monitors is interesting, you get a sense of fear and uncertainty.  Likewise from Sydney estate agent Shannan Whitney:

...Yesterday the BresicWhitney principal Shannan Whitney was surprised at the extent of the first-home buyer collapse. "Those numbers are quite dramatic," he said (here).

Oz banks - on the edge of the precipe

Or as the Financial Times' Lex Column put it - Australian lenders could, with a downturn in the economy - suffer what it termed an "Oz-pop".  Noting the sector's current strengths, banks unlike property developers have not written down the value of their  loan portfolios collateralised by residential properties (for which Australia is one of the most overvalued markets globally according to the Economist).

....The markets of the world are littered with the victims of housing bubbles – those that bet against them too soon as well as those that did not see them coming. Australia is no different. Developers are writing down land values but the big banks, which rely heavily on homeowners for profits, are still investor darlings...

....[Commonwealth Bank] has the sort of stodgy balance sheet regulators everywhere now praise as the model [vast majority home loans and local]. But if the Aussie housing market stumbles, so will its big lenders and market headway from here looks uncertain at best. Stockland and Mirvac, two large developers, have knocked a combined A$600m off the value of their properties in the past fortnight....(here).

Oz property is bust...

Some distance away from the squabble about rate cuts being passed on by the banks, a fairly significant assessment from the New York Times of the much broader picture, namely that the property market overall is slowing, and in quite a big way - not a panic yet, but few signs of optimism.

....Data released Monday by the Australian Bureau of Statistics showed that the number of home loans taken out in December had dropped 1.5 percent, the third straight month in which that number fell, and a five-month low....Annual growth in housing credit slowed to an all-time low of 4.5 percent at the end of 2012, a long way from the double-digit pace common in the previous two decades. Indeed, growth peaked at no less than 22 percent in 2004. ....“Most economic indicators remain far weaker than they normally are this far into an interest rate easing cycle, suggesting monetary conditions are still too tight,” Mr. Oliver said.....(here).

The failure to pass on rate cuts is an issue of the banks, but note that it reflects on the banks' own capital weakness.

....Lower variable rates would have a much bigger effect on housing demand, and there are signs that intense competition is driving banks to offer better deals....But the banks are reluctant to ease any further on their own, because much of their funding comes from deposits, rather than markets, and rates on those accounts remain relatively high.....competition for that money is fierce, making it costly. Rates on bonus saver accounts, with higher interest rates, have increased by 2.5 percentage points relative to the cash rate since 2009...

Australian mortgage stress - the high AUD bites?

Interesting take on mortgage delinquencies - not only are they continuing but indicating impacts of the high Australian dollar are noticeable, with stress in areas reliant on tourism (and sensitive to the exchange rate) - with mentions of the Sunshine Coast are we seeing a repeat of Florida-style stress in the US subprime crisis?

....RBA's easing of interest rates over the last few months have helped ease the number of mortgage delinquencies across Australia, but many postcodes remain on the repayment blacklist....According to a list released by credit ratings agency Fitch Ratings, overall mortgage delinquencies across Australia decreased to 1.2 per cent in September 2012, down from 1.6 per cent at end of March 2012 (here).

...Australia’s tourist and coastal areas had some of the highest levels of mortgage delinquencies, while city centers had the lowest rates, Fitch Ratings said.... A cash rate matching a half-century low helped boost home prices by 1.8 percent in January from a year earlier, after a 0.4 percent decline in 2012, according to the RP Data-Rismark home value index. The central bank yesterday held the benchmark interest rate at 3 percent, while signaling it has room to cut further, as the local currency remains elevated....“Coastal regions that rely on tourism are less affected by monetary policy and more by the high Australian dollar,” James Zanesi, Sydney-based associate director at Fitch, said in the e- mailed statement (here).