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Managed fund co-operation group
- Thread starter mellifuous
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http://www.smh.com.au/business/banks-are-riding-high-and-its-costing-all-of-us-20091028-hl3y.html
October 29, 2009 .
NATIONAL Australia Bank's swelling profit margins and ballooning market share are the best proof yet that the financial crisis has been the golden goose for the big four banks.
While NAB's headline net profit was down 43 per cent for the year, its underlying cash earnings during the worst financial crisis in 100 years fell a little under 2 per cent to $3.9 billion.
Strip the results back further and its net interest margins (NIMs) were up 18 basis points to 2.25 per cent in the second half, which was well above consensus expectations and, according to Goldman Sachs JBWere, this alone represents 10 per cent upgrades to consensus earnings.
This can mainly be attributed to the success of its Australian banking operations, which were able to lift operating profit before bad debts by 3 per cent in the second half to raise its NIM 12 basis points and market share in key areas. For instance, business lending market share jumped from 19.3 per cent to 20.1 per cent, personal lending edged up from 15.6 per cent to 15.8 per cent, retail deposits climbed from 14.8 per cent to 15.1 per cent and its NIM grew 12 basis points in the second half.
This is significant given NIMs across the banking landscape have been steadily sliding over the past decade.
Rising NIMs will no doubt be a recurring theme over the next week as ANZ and Westpac report their full-year results.
If nothing else, the figures released by NAB yesterday and ANZ today should be a wake-up call to the Federal Government to do something fast to arrest the diminishing competition in Australian banking as the big four grab bigger slices of home loans, small-business loans, credit cards and deposits.
After all, the dwindling competition is largely due to the Government's actions during the global financial crisis to shore up our financial system, which included guaranteeing deposits and offering a two-tiered guarantee to bank debt.
While the Government's actions at the time were necessary to maintain stability, the longer they remain, the more profound will be their consequences on competition.
Bank of Queensland chief executive David Liddy put it well last week when he quantified the cost of the guarantee to the bottom-line profit of the bank: $10 million in lost profit as second-tier banks pay 80 basis points more than the big four to borrow the Commonwealth's AAA credit rating.
The upshot is NAB's results were down 2 per cent for the year but they could have been a lot worse without the guarantee.
Put another way, if NAB had better risk-taking strategies, NAB's results could have been a lot better. Besides taking into account poor results in its British and New Zealand businesses, its exposure to collateralised debt obligations and its big whack of bad and doubtful debts, it also took some trading risks.
For instance, on page 86 of the annual results, in a note on income it mentions that gains less losses on financial instruments at fair value on trading derivatives rose from $254 million in 2008 to $380 million in 2009. On the face of it, this looks great, but in March 2009 this was a gain of $677 million which somehow turned into a loss of $297 million in the latest half.
This is relatively small stuff but it highlights a point that is often missed: the guarantee carries with it risks and if the banks get it wrong, taxpayers ultimately pay the price.
They are already paying the price of lessened competition and this will only get worse.
The reason is simple: banks right now are on their best behaviour in terms of feeling short-term pressures to keep fees down. But long after the guarantee has gone, consumers will feel the long-term harm from the disappearance of competitors, particularly as interest rates continue to rise.
Recent figures show that the big four banks now hold 73.8 per cent of outstanding mortgages in Australia, up from 56.8 per cent two years ago. It's a similar story on the deposits front, despite the Government guarantee of all approved deposit-taking institutions' deposits at the height of the crisis. The big four hold 72.6 per cent of all retail deposits in Australia compared with 58.8 per cent before the crisis.
The Government recently tried to tackle this by directing the Treasury's financing arm to buy up to $8 billion in mortgage bonds from small home lenders to ensure they survive against their bigger competitors. But given the housing market is worth more than $200 billion, this is more about keeping them on life support than creating any genuine competition.
If the Government was serious about competition it would join Britain and Canada by backing a new AAA-rated mortgage bond, where the underlying asset is guaranteed rather than the institution issuing the bond.
Source: The Age
October 29, 2009 .
NATIONAL Australia Bank's swelling profit margins and ballooning market share are the best proof yet that the financial crisis has been the golden goose for the big four banks.
While NAB's headline net profit was down 43 per cent for the year, its underlying cash earnings during the worst financial crisis in 100 years fell a little under 2 per cent to $3.9 billion.
Strip the results back further and its net interest margins (NIMs) were up 18 basis points to 2.25 per cent in the second half, which was well above consensus expectations and, according to Goldman Sachs JBWere, this alone represents 10 per cent upgrades to consensus earnings.
This can mainly be attributed to the success of its Australian banking operations, which were able to lift operating profit before bad debts by 3 per cent in the second half to raise its NIM 12 basis points and market share in key areas. For instance, business lending market share jumped from 19.3 per cent to 20.1 per cent, personal lending edged up from 15.6 per cent to 15.8 per cent, retail deposits climbed from 14.8 per cent to 15.1 per cent and its NIM grew 12 basis points in the second half.
This is significant given NIMs across the banking landscape have been steadily sliding over the past decade.
Rising NIMs will no doubt be a recurring theme over the next week as ANZ and Westpac report their full-year results.
If nothing else, the figures released by NAB yesterday and ANZ today should be a wake-up call to the Federal Government to do something fast to arrest the diminishing competition in Australian banking as the big four grab bigger slices of home loans, small-business loans, credit cards and deposits.
After all, the dwindling competition is largely due to the Government's actions during the global financial crisis to shore up our financial system, which included guaranteeing deposits and offering a two-tiered guarantee to bank debt.
While the Government's actions at the time were necessary to maintain stability, the longer they remain, the more profound will be their consequences on competition.
Bank of Queensland chief executive David Liddy put it well last week when he quantified the cost of the guarantee to the bottom-line profit of the bank: $10 million in lost profit as second-tier banks pay 80 basis points more than the big four to borrow the Commonwealth's AAA credit rating.
The upshot is NAB's results were down 2 per cent for the year but they could have been a lot worse without the guarantee.
Put another way, if NAB had better risk-taking strategies, NAB's results could have been a lot better. Besides taking into account poor results in its British and New Zealand businesses, its exposure to collateralised debt obligations and its big whack of bad and doubtful debts, it also took some trading risks.
For instance, on page 86 of the annual results, in a note on income it mentions that gains less losses on financial instruments at fair value on trading derivatives rose from $254 million in 2008 to $380 million in 2009. On the face of it, this looks great, but in March 2009 this was a gain of $677 million which somehow turned into a loss of $297 million in the latest half.
This is relatively small stuff but it highlights a point that is often missed: the guarantee carries with it risks and if the banks get it wrong, taxpayers ultimately pay the price.
They are already paying the price of lessened competition and this will only get worse.
The reason is simple: banks right now are on their best behaviour in terms of feeling short-term pressures to keep fees down. But long after the guarantee has gone, consumers will feel the long-term harm from the disappearance of competitors, particularly as interest rates continue to rise.
Recent figures show that the big four banks now hold 73.8 per cent of outstanding mortgages in Australia, up from 56.8 per cent two years ago. It's a similar story on the deposits front, despite the Government guarantee of all approved deposit-taking institutions' deposits at the height of the crisis. The big four hold 72.6 per cent of all retail deposits in Australia compared with 58.8 per cent before the crisis.
The Government recently tried to tackle this by directing the Treasury's financing arm to buy up to $8 billion in mortgage bonds from small home lenders to ensure they survive against their bigger competitors. But given the housing market is worth more than $200 billion, this is more about keeping them on life support than creating any genuine competition.
If the Government was serious about competition it would join Britain and Canada by backing a new AAA-rated mortgage bond, where the underlying asset is guaranteed rather than the institution issuing the bond.
Source: The Age
doctorj
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Not sure how this is related to the rest of this thread.
Journalistic sensationalism. No substance.
Doesn't this make perfect sense? Your net interest margin is essentially the spread the banks charge to cover operating expenses, some profit for the shareholders and to reflect the risk of the loan portfolio. In fact, the journalist himself notes this change further along in the article.
Good economy = people more easily able to pay loans or refinance = fewer bad loans in the portfolio = lower NIM.
Journalistic sensationalism. No substance.
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THE RELATED PARTIES
http://news.iguana2.com/bspectator/ASX/TMX/460638
page 55 Grande Pacific limited holds 15.09% 17,690,815shares
From 2008 City Pacific Limited mid report
"... Grande Pacific Limited, a fully owned subsidiary of City Pacific, has $40,632,320 of development loans from City Pacific First Mortgage Fund. The loans are variable, interest only facilities (current rate 13.00%), have terms of 12 months, maturing in October 2008, December 2008 and January 2009 and are secured by 1st registered mortgages over property. As at the date of this report, the loans have not been repaid or extended, however the lender has not taken any action in relation to the loans and discussions have commenced in relation to extension of the facilities. ..."
{all emphasis mine}
Now, one would think that 'the lender' is a very generous entity - but, when you think that City Pacific was the manager of the lender, its easy to see why.
Take a look at the loans' progression here - http://wwwmoneymagik.com/grande.php
B/T'S RAISING THE BUCKS
Ah! 'Pacific Beach', where B/T 'raised' $80m (for a loss of about $135m).
http://www.theage.com.au/business/new-broom-blames-old-one-20091025-herc.html
"... The group raised $80m through the sale of a Gold Coast beachfront property ..."
and the profits were all directed to City - the risk directed to the FMF.
Mellifuous this is exactly what was going on with MFS/OCV directors with our Premium Income Fund(S)!!!! Related party transactions were common practise and in some instances the loan never got repaid, it just got bigger, went on for years and was unsecured!!! I see disturbing evidence of similaraties occurring in other funds. Without intervention to protect investors of this being EVER ALLOWED TO REOCCUR, potential investors must be adequately informed that these types of investment product are not strictly regulated and extremely risky!!!! Having an 'experienced team of investment professionals who research, analyse, construct and manage the portfolio', does not mean you will NOT be robbed!!! Seamisty
doctorj
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There were two guarantees issued, quite different in nature. First was the deposit guarantee - this was to protect against the risk there would be a run on deposits causing banks to fail. This had nothing to do with the underlying risks presented by the banks. Even the safest, best run bank will fail if there is a run on their deposits.
The second was via an insurance of their bonds. First thing to know is that bond insurance is quite common (for example, Warren Buffet owns a large bond insurance business). The second is that the banks paid for this insurance and the fee was risked based (refer: http://www.rba.gov.au/PublicationsA...bilityReview/Mar2009/Html/list_of_tables.html)
It could of, but if there was a risk based premium set for the insurance, then you'd be paying a whole lot of premium. No such thing as a free lunch... For example Ukraine CDS spreads peaked at something 3000 basis points.
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No one will argue with you about that, especially seeing what can be done by managed mortgage fund managers.
It's very different to a bank lending to a home 'owner' with risk and value spread across a broad number of such loans.
I don't believe it's an issue that we should take seriously at this time.
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Actually, the posting to which you reply was meant for the FMF thread .. my mistake..
It seems that there is some relevance to the matter of raised by Mr. Smith and responded to by DoctorJ, and that is the issue of government guarantees for mortgages.
Oh.. I just realised that it would be problematic for home loans too.. At the time I hadn't given it much thought.
Nevertheless, related party loans and what managers have been shown to do in the past would make it a lot more expensive proposition than first thought with respect to our types of funds.
I think most of the managed funds have gone down because of related party activity and manager self interest.
Perhaps the idea of a government guarantee is a pipe dream for those who support it, especially (but not limited to) the mortgage based managed funds.
I'm 'encouraged' to read articles like the following. ASIC seem to be making some noise and getting results, so hopefully it will set a precedent to act on other similar situations. Seamisty
ASIC wins $5.9m Westpoint claim against Professional Investment Services Print CITY BEAT: Michael Bennet | October 30, 2009
Article from: The Australian
THE corporate watchdog has won its second battle in its war against parties related to failed Westpoint Group, after the Federal Court today approved a compensation claim that will see a group of investors get back 62.5 per cent of their investment.
The Australian Securities & Investments Commission has filed 19 civil actions totalling more than $500 million in relation to Westpoint’s failure, including a claim against auditor KPMG, after the property empire collapsed in January 2006 owing investors $390 million.
ASIC is also pursuing former chief financial controller Graeme Rundle in relation to a 2004 bid to secure a $71 million credit facility to fund a building project in Sydney which could see the Perth-based executive imprisoned if convicted.
In a win today for investors, The Federal Court approved a $5.9 million compensation claim for a group of investors that were advised by Brisbane-based Professional Investment Services (PIS) to invest in Westpoint.
ASIC said the payout would be distributed equally to investors based upon the total capital they had invested on December 14 at the earliest if no appeal is filed.
The win follows the first successful action of ASIC's 19 in relation to the Westpoint failure against Masu Financial Management in November last year.
ASIC is currently suing Perth-based Brighton Hall Securities – which is in liquidation – for damages of about $14 million in a similar case which is to return to Perth’s Federal Court on November 16
ASIC wins $5.9m Westpoint claim against Professional Investment Services Print CITY BEAT: Michael Bennet | October 30, 2009
Article from: The Australian
THE corporate watchdog has won its second battle in its war against parties related to failed Westpoint Group, after the Federal Court today approved a compensation claim that will see a group of investors get back 62.5 per cent of their investment.
The Australian Securities & Investments Commission has filed 19 civil actions totalling more than $500 million in relation to Westpoint’s failure, including a claim against auditor KPMG, after the property empire collapsed in January 2006 owing investors $390 million.
ASIC is also pursuing former chief financial controller Graeme Rundle in relation to a 2004 bid to secure a $71 million credit facility to fund a building project in Sydney which could see the Perth-based executive imprisoned if convicted.
In a win today for investors, The Federal Court approved a $5.9 million compensation claim for a group of investors that were advised by Brisbane-based Professional Investment Services (PIS) to invest in Westpoint.
ASIC said the payout would be distributed equally to investors based upon the total capital they had invested on December 14 at the earliest if no appeal is filed.
The win follows the first successful action of ASIC's 19 in relation to the Westpoint failure against Masu Financial Management in November last year.
ASIC is currently suing Perth-based Brighton Hall Securities – which is in liquidation – for damages of about $14 million in a similar case which is to return to Perth’s Federal Court on November 16
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Yes, it's fair to give credit where credit is due - good onya ASIC ..
But, don't rest on your laurels... go get um Fido.
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I'm starting to do a bit of work on the letter.
It's located in .pdf format at http://www.moneymagik.com/managed_fund_co-operation_group.pdf
If you'd like to comment, then please contact me at:-
allan161@msn.com
I'd particularly like input from MSF members.
Criticism, suggestions, alterations, additions, and corrections are welcome.
Thanks.
It's located in .pdf format at http://www.moneymagik.com/managed_fund_co-operation_group.pdf
If you'd like to comment, then please contact me at:-
allan161@msn.com
I'd particularly like input from MSF members.
Criticism, suggestions, alterations, additions, and corrections are welcome.
Thanks.
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This thread is a good deed, Mellifuous. Thanks for that.
Re suggestions/submissions to the letter, I think we should submit an entirely new proposal to the Government.
We know of a "defined benefits" schemes paying pensions and strictly protected by whatever governing legislations of the relevant government.
While most of those schemes have long been closed to new PS members,
I dare to think that the structure of this discipline could be transposed to privately funded (pooled members) entity created expressly for retirement benefits.
There would be a set of criteria to be met for entering the membership. The decision making would be with the affiliation of Government and independent bodies. The risks of "selecting the wrong product" would be eliminated by there being only 1 specific product.
As the operation would be legislated, the risks of malpractice would not exist.
At present, not one recipient of existing government pensions had to turn to ASIC for any relief. There is no reason why such certainty could not be built into a parallel private structure.
Of course, the benefits would not be CPI indexed and would be in accordance with the returns from "safe" investments underpinned by the government guarantees. Just as most of our banks are safeguarded today.
Once "Retirement Only" class of such a scheme is set up, it will attract many who only want returns a point or so higher than bank term deposits.
The "annuity" and "allocated pensions' regimes would also have elements of risk reduced or eliminated altogether as the sources of the payments would be under same protective umbrella.
Perhaps it is all a wishful thinking. But in the very least; perhaps it could be discussed.
Regards, simgrund
PS. Timer on this thread is not [daylight saving] adjusted
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wow.. Simgrund, that's all over my head.
You're welcome to add a letter and seek support here.
If others wish to discuss the issues you raise then I have no concerns.
None of the issues you raise apply to me (as I understand them).
Thanks.
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Hi Mellifuous,
You have unearthed some really spectacular and relevant information on CP and I would like to read your letter but cannot get the link to work?
Check it out yourself....probably my old computer.
Keep up the good work.
lightlystrung
You have unearthed some really spectacular and relevant information on CP and I would like to read your letter but cannot get the link to work?
Check it out yourself....probably my old computer.
Keep up the good work.
lightlystrung
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RE: http://www.moneymagik.com/managed_fund_co-operation_group.pdf
No,no, Mellifuos,
This is very good work. It needs to find the right office where the "dots" and "i's" could be finalized and presented.
Lets keep it going. My suggestion of creating a new class of "retirement only" scheme [#54] was meant to compliment your suggestions for improvements to existing regimes.
I hope I clarified this.
Best wishes, simgrund
The proposals set forth in this letter MUST go to the relevant authoritories. In the light of the developments over the last few days with ASIC taking action re MFSPIF investors, seems that the authoritories are finally taking an active interest. This makes for a very positive timeframe for unitholders to band together to effect change, so that we have more transparency, so that we have more disclosure, so that we can contact eachother, so that we can be fully informed ..... It would be most effective if as many people as possible add their names to this letter which will be forwarded to Mr.B.Ripoll and all members of the committee re Parliamentary Inquiry, to government ministers and to the media.
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Good morning simgrund
Well, mail me your suggested paragraphs and additions to:
mellifuous@dodo.com.au
and we'll see what we can do.
Thanks.
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