K: Financial and Insurance Services

Dividend cuts loom despite $23bn profits

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Original article by Michael Bennet
The Australian – Page: 17 & 21 : 24-Oct-16

National Australia Bank is tipped to post a 2015-16 cash profit of $A6.55bn on 27 October 2016. The ANZ Bank and Westpac are expected to post full-year profits of $A6.18bn and $A7.8bn respectively in coming weeks, while the Commonwealth Bank has booked a cash profit of $A9.45bn for the year to 30 June. Bank dividends are likely to come under pressure, while Jonathan Mott of UBS expects the banks to post negative growth in earnings per share for the first time since the global financial crisis.

CORPORATES
NATIONAL AUSTRALIA BANK LIMITED – ASX NAB, WESTPAC BANKING CORPORATION – ASX WBC, AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED – ASX ANZ, COMMONWEALTH BANK OF AUSTRALIA – ASX CBA, UBS HOLDINGS PTY LTD, CITIGROUP PTY LTD, CLSA AUSTRALIA PTY LTD, GOLDMAN SACHS AND PARTNERS AUSTRALIA PTY LTD, MACQUARIE GROUP LIMITED – ASX MQG, RESERVE BANK OF AUSTRALIA, CLYDESDALE BANK PLC, STANDARD AND POOR’S ASX 200 BANKS INDEX, DEUTSCHE BANK AG

Fewer home loans a good thing: APRA

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Original article by Joanna Mather
The Australian Financial Review – Page: 23 : 21-Oct-16

Australian Prudential Regulation Authority chairman Wayne Byres has told a Senate estimates committee that lending standards in the housing finance sector have improved over the last year. He added that APRA’s move to impose stricter lending standards on the industry has also resulted in slower growth in lending to property investors and to marginal borrowers. Treasury secretary John Fraser previously expressed concern about the cost of housing in Australia when he fronted the committee.

CORPORATES
AUSTRALIAN PRUDENTIAL REGULATION AUTHORITY, AUSTRALIA. DEPT OF THE TREASURY

How banks and resources could move in sync

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Original article by David Rogers
The Australian – Page: 31 : 21-Oct-16

The S&P/ASX 200 Materials Index has significantly outperformed the S&P/ASX 200 Banks Index in 2016, with a gain of 29 per cent compared with the latter’s eight per cent fall. Deutsche Bank notes that with the exception of the last four years, the two sectors have both regularly outperformed the broader sharemarket over the last 25 years. In addition, they have often outperformed in tandem. Tim Baker of Deutsche argues that the divergence of the two indices over the last few years suggests that they could be set for a new period of joint outperformance.

CORPORATES
STANDARD AND POOR’S ASX 200 MATERIALS INDEX, STANDARD AND POOR’S ASX 200 BANKS INDEX, DEUTSCHE BANK AG

Mortgage price war ‘will hurt dividend’

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Original article by Michael Bennet
The Australian – Page: 23 : 20-Oct-16

Scott Manning of JP Morgan says stricter capital requirements and a rise in the customer churn rate contributed to a decline in the four major banks’ return on equity from mortgages between 2010 and 2015. He adds that the return from banks’ non-mortgage products fell to the same level as their cost of capital during this period. Manning warns that banks’ dividends will be vulnerable if the return on equity from mortgages falls any further, and he argues that banks should be offering tailored mortgage interest rates that reflect each borrower’s risk profile.

CORPORATES
JP MORGAN AUSTRALIA LIMITED, COMMONWEALTH BANK OF AUSTRALIA – ASX CBA, WESTPAC BANKING CORPORATION – ASX WBC, NATIONAL AUSTRALIA BANK LIMITED – ASX NAB, AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED – ASX ANZ, DIGITAL FINANCE ANALYTICS, BANK OF QUEENSLAND LIMITED – ASX BOQ

Trump win would trigger volatility: fund managers

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Original article by Jessica Sier
The Australian Financial Review – Page: 27 : 20-Oct-16

A survey of global fund managers shows that 53 per cent expect financial market volatility to increase if Republican Party candidate Donald Trump wins the US presidential election. The Bank of America Merrill Lynch survey also found that 55 per cent of respondents think equities and bonds are overvalued, while 44 per cent anticipate that treasury yields will be the biggest influence on share prices during the next six months.

CORPORATES
BANK OF AMERICA CORPORATION, MERRILL LYNCH AND COMPANY INCORPORATED, REPUBLICAN PARTY (UNITED STATES)

Small-cap party could end in tears when the next crash comes

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Original article by Philip Baker
The Australian Financial Review – Page: 26 : 20-Oct-16

The Dow Jones Industrial Average has gained almost 944 per cent since the Black Monday sharemarket crash of October 1987, while the S&P 500 has risen by 854 per cent. In contrast, Australia’s All Ordinaries Index has increased by nearly 245 per cent. However, analysis by Richard Coppleson of Bell Potter suggests that when dividends are taken into account the All Ordinaries Accumulation Index has only slightly underperformed the S&P 500. Meanwhile, Coppleson warns that the current rally in small-cap stocks is unsustainable and a major fallout is inevitable.

CORPORATES
DOW JONES INDUSTRIAL AVERAGE INDEX, STANDARD AND POOR’S 500 INDEX, STANDARD AND POOR’S ASX ALL ORDINARIES INDEX, BELL POTTER SECURITIES LIMITED, RESERVE BANK OF AUSTRALIA

$A heading to heights of US90c

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Original article by Aaron Patrick
The Australian Financial Review – Page: 27 : 19-Oct-16

Jason Thomas of The Carlyle Group is bullish about the outlook for the Australian dollar. The director of research forecasts that the US dollar will fall by 8-15 per cent over the next five years, as US interest rates are unlikely to rise as quickly as anticipated. Thomas says this in turn will boost the value of the Australian dollar, which could rise to around $US0.85 over the next five years. He adds that the currency could potentially test the $US0.90 level.

CORPORATES
THE CARLYLE GROUP, UNITED STATES. FEDERAL RESERVE BOARD, RESERVE BANK OF AUSTRALIA, FEDERAL RESERVE BANK OF CHICAGO, STANDARD AND POOR’S 500 INDEX

Funds shun ASX in favour of cash, property

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Original article by Vanessa Desloires
The Australian Financial Review – Page: 27 : 19-Oct-16

Tim Baker of Deutsche Bank forecasts that Australian superannuation funds will receive some $A65bn worth of mandatory contributions in 2016-17. Discretionary contributions are expected to be around $A15bn, compared with the annual average of $A20bn. Meanwhile, Baker notes that super funds are scaling back their equity holdings and increasing their exposure to investment options such as cash, infrastructure assets and commercial property.

CORPORATES
DEUTSCHE BANK AG, AUSTRALIAN UNITY INVESTMENTS, UNISUPER LIMITED, AUSGRID PTY LTD, PORT OF MELBOURNE

AFIC warns on bank dividends

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Original article by Simon Evans
The Australian Financial Review – Page: 13 & 25 : 18-Oct-16

Australian Foundation Investment Company MD Ross Barker expects the S&P/ASX 200 to be trading at around its current level in 12 months’ time. However, he expects the 50 largest stocks to outperform small- and medium-capitalisation stocks over the next year. Barker does not anticipate any further easing of monetary policy and says there is potential for a rise in the cash rate before the end of 2017. He adds that the major banks may not be able to sustain their dividend payouts, while large miners could potentially increase their dividends in the next few years.

CORPORATES
AUSTRALIAN FOUNDATION INVESTMENT COMPANY LIMITED – ASX AFI, STANDARD AND POOR’S ASX 200 INDEX, COMMONWEALTH BANK OF AUSTRALIA – ASX CBA, WESTPAC BANKING CORPORATION – ASX WBC, NATIONAL AUSTRALIA BANK LIMITED – ASX NAB, AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED – ASX ANZ, BHP BILLITON LIMITED – ASX BHP, RIO TINTO LIMITED – ASX RIO, TRANSURBAN GROUP LIMITED – ASX TCL, SYDNEY AIRPORT – ASX SYD, RESERVE BANK OF AUSTRALIA, WOOLWORTHS LIMITED – ASX WOW

Red flags to watch for in M&A season

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Original article by Vanessa Desloires
The Australian Financial Review – Page: 16 : 18-Oct-16

Data from Mergermarket shows that the value of mergers and acquisitions fell by 20 per cent globally in the first nine months of 2016, to $US2.2trn ($A2.9trn). M&A activity in Australia is rising as the end of the calendar year approaches. Anthony Aboud of Perpetual has identified a number of factors which may indicate that a company is making acquisitions for the wrong reasons. These include pursuing deals solely in the interests of diversification, paying too much for goodwill and making acquisitions that are motivated by financial incentives.

CORPORATES
PERPETUAL LIMITED – ASX PPT, MERGERMARKET LIMITED, CIMIC GROUP LIMITED – ASX CIM, UGL LIMITED – ASX UGL, JB HI-FI LIMITED – ASX JBH, THE GOOD GUYS, FANTASTIC HOLDINGS LIMITED – ASX FAN, STEINHOFF INTERNATIONAL HOLDINGS LIMITED, FREEDOM FURNITURE, SNOOZE SLEEP WELL PTY LTD, THE GOLDMAN SACHS GROUP INCORPORATED, SLATER AND GORDON LIMITED – ASX SGH, QUINDELL PLC, PERPETUAL’S SHARE-PLUS LONG SHORT FUND