K: Financial and Insurance Services

Bad loans hit small banks hard: Citi

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Original article by Cliona O’Dowd
The Australian – Page: 16 : 16-Jun-20

Citigroup analysts note that Australia’s smaller mortgage lenders have actively pursued increased market share in recent years. However, Citi warns that they are set to be hardest hit by a coronavirus-induced rise in loan losses later in 2020, as such losses tend to be highest during the first 3-4 years of a loan. Citi contends that small lenders will need to focus on capital demands rather than further growing their market share, which in turn is likely to prompt a swing back to large lenders.

CORPORATES
CITIGROUP PTY LTD

Investors need to mind the looming earnings gap

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Original article by Luke Housego
The Australian Financial Review – Page: 29 : 16-Jun-20

The coronavirus pandemic is set to weigh on the financial results of Australian-listed companies, with Morgan Stanley noting that the consensus forecast is for earnings to fall by 15.2 per cent in 2020. The average 12-month forward price-earnings ratios for the S&P/ASX 200 was 18.1 times before the recent sell-off, compared with a long-term average of around 14 times. Jason Steed of Morgan Stanley says a relatively small shift in earnings expectations when P/E ratios are high can prompt a sharp fall in share prices.

CORPORATES
MORGAN STANLEY AUSTRALIA LIMITED, STANDARD AND POOR’S ASX 200 INDEX

Fed to hold interest rates near zero at least till 2022

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Original article by Nick Timiraos
The Australian – Page: 17 : 12-Jun-20

The US Federal Reserve has left interest rates on hold after its latest two-day policy meeting, and chairman Jerome Powell has indicated that a rate rise will not be on the agenda for some time. Federal Reserve officials unanimously agreed that the cash rate is likely to remain at around zero in 2021, and the majority expect no change in monetary policy during 2022. Meanwhile, the central bank intends to continue purchasing Treasurys and mortgage securities at the current rate, while Powell says the US labour market is unlikely to rebound from the coronavirus quickly, despite recent data showing that the economy added 2.5 million jobs in May.

CORPORATES
UNITED STATES. FEDERAL RESERVE BOARD

CBA sued over junk credit card insurance

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Original article by Lachlan Moffet Gray
The Australian – Page: 17 : 11-Jun-20

Plaintiff law firm Slater & Gordon has launched a class action on behalf of Commonwealth Bank customers who were sold inappropriate credit protection policies. The Federal Court action will allege that the bank sold credit card and personal loan insurance products to about 200,000 people whose employment status meant they would be unlikely to claim against the policies. The insurance products, which came under scrutiny by the Hayne royal commission, were discontinued in March 2018.

CORPORATES
COMMONWEALTH BANK OF AUSTRALIA – ASX CBA, SLATER AND GORDON LIMITED – ASX SGH, FEDERAL COURT OF AUSTRALIA, AUSTRALIA. ROYAL COMMISSION INTO MISCONDUCT IN THE BANKING, SUPERANNUATION AND FINANCIAL SERVICES INDUSTRY

AUSTRAC, Westpac head to court

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Original article by James Frost
The Australian Financial Review – Page: 19 : 9-Jun-20

Westpac and AUSTRAC are having difficulty agreeing on an agreed statement of facts as the two parties prepare to heard for court. AUSTRAC has accepted Westpac’s admission that it broke the law 23 million times, but AUSTRAC has indicated it plans to pursue Westpac for a series of "unquantifiable" breaches. Justice James Allsop said on 30 March that Westpac and AUSTRAC should be ready to go to trial "sooner than later" in a case that may well cost Westpac more than $1 billion to settle.

CORPORATES
WESTPAC BANKING CORPORATION – ASX WBC, AUSTRALIA. ATTORNEY-GENERAL’S DEPT. AUSTRALIAN TRANSACTION REPORTS AND ANALYSIS CENTRE

Insurers face big loss from income policies

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Original article by Michael Roddan
The Australian Financial Review – Page: 23 : 5-Jun-20

The Australian individual disability insurance sector has lost a combined $5 billion over the past five years. Australian Prudential Regulation Authority executive member Geoff Summerhayes warned in late 2019 that individual disability insurance products may soon become unviable in Australia if the industry did not take suitable action. However, despite his warnings and the sector’s ongoing losses, individual disability insurance providers are continuing to sell unsustainable products during the COVID-19 shutdown.

CORPORATES
AUSTRALIAN PRUDENTIAL REGULATION AUTHORITY, CLEARVIEW WEALTH LIMITED – ASX CVW, NATIONAL AUSTRALIA BANK LIMITED – ASX NAB, WESTPAC BANKING CORPORATION – ASX WBC, AMP LIMITED – ASX AMP

What crisis? Bull market rages on as beaten-down banks lead value charge

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Original article by David Rogers
The Australian – Page: 13 & 19 : 5-Jun-20

The S&P/ASX 200 has gained more than 30 per cent since reaching a seven-year low of 4,402.5 points on 23 March. Morgan Stanley estimates that the benchmark index is currently trading on a record 12-month forward price-to-earnings ratio of about 19.55 times. While there has been strong support for some defensive growth stocks, value stocks continue to outperform; Chris Nicol of Morgan Stanley says there will be further upside for value stocks if there is a V-shaped economic recovery.

CORPORATES
STANDARD AND POOR’S ASX 200 INDEX, MORGAN STANLEY AUSTRALIA LIMITED

RBA tips fewer ATMs and an end to cheques

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Original article by Joyce Moullakis
The Australian – Page: 17 : 4-Jun-20

The Reserve Bank of Australia could introduce a ‘least-cost routing’ regime for credit card transactions unless merchants take the initiative themselves, according to assistant governor Michele Bullock. This is among the options that will be considered in the RBA’s review of the payments system. Bullock also notes that the coronavirus pandemic has seen a sharp downturn in ATM usage, which may prompt the nation’s ATM network to be scaled back. She adds that cheques could soon be phased out, given that this payment option has been in steady decline for the last two decades.

CORPORATES
RESERVE BANK OF AUSTRALIA

Surging dollar harming export earnings

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Original article by David Rogers
The Australian – Page: 20 : 4-Jun-20

The Australian dollar peaked at a five-month high of $US0.6983 in local trading on 3 June, having fallen to an 18-year low of $US0.551 earlier in 2020. The currency has averaged $US0.648 so far in the first half of the calendar year, compared with an average of around $US0.68 in the second half of 2019. The dollar’s recent rebound has boosted offshore interest in Australian equities, although it will weigh on the nation’s export earnings.

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Savings rates are drying up as banks race to the bottom on mortgages

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Original article by Matt Johnson
The New Daily – Page: Online : 3-Jun-20

Data from Canstar shows that Australian banks reduced the interest rates on a range of savings accounts and term deposits by up to 75 basis points in May. However, the interest rates on mortgage loans were reduced much less aggressively, averaging just 0.08 per cent for variable home loans and 0.36 per cent for fixed-rate loans. Steve Mickenbecker of Canstar attributes this to factors such as growing competition from non-bank mortgage lenders. However, he does not expect rates to fall much further.

CORPORATES
CANSTAR PTY LTD