BusinessNow: Live coverage of financial markets and companies, plus analysis and opinion
The local market swung into the black as the RBA left rates on hold and the banking inquiry kicked off.
- Banking inquiry gets underway
- Bradken shares soar
- Aussie dollar poised to jump
- Building approvals stronger than expected
- Henderson shares jump
- CLSA bearish Aussie banks
- Stocks dip into the red
Welcome to the BusinessNow blog for October 4. Today the bank inquiry got underway, building approvals figures beat expectations and the RBA kept rates on hold.
8.11pm: The irony in Canberra’s inquiry
Richard Gluyas
As Canberra’s chosen sacrificial lamb for the banking industry, the worst Ian Narev had to endure in his parliamentary grilling on Tuesday was a bit of harmless name-calling by Matt Thistlethwaite.
At one stage, the Labor Party MP reached deep into his soul and branded Commonwealth Bank’s treatment of some CommInsure and financial planning customers as “sneaky and unethical”.
A few more focus groups might have steeled Labor to vilify CBA’s behaviour as “outrageous”, even “appalling”.
Instead, Narev, who started nervously, emerged completely unscathed from a three-hour inquisition that was supposed to set a new benchmark for industry accountability. Read more.
7.30pm:Google readies new gadgets
Google may be getting serious about selling its own hardware gadgets.
Overnight, the search giant will ramp up its consumer electronics strategy with expected announcements of new gadgets including new smartphones and an internet-connected personal-assistant for the home similar to Amazon’s Echo speaker.
All are intended to showcase Google’s software and online services. A new virtual reality headset and other devices, such as a home router, could also be on tap, according to analysts and industry blogs. Google has declined to confirm any specifics, although it previously described some of these products back in May. Read more.
6.46pm: De Beers rough diamond sales slip
Anglo American PLC said on Tuesday its majority-owned De Beers Group reported lower diamond sales that were slightly ahead of expectations given a typical lull in seasonal demand patterns and a shorter-than-usual selling period between the most recent cycle and the previous one.
De Beers, one of the world’s largest rough diamond producers and Anglo American’s second-largest earnings driver last year, reported provisional diamond sales of $US485 million for the eighth sales cycle ending on October 3, down 24 per cent from $US639 million generated in the previous sales cycle. The latter figure was revised up from a provisional $US630 million announced early last month.
“Demand for De Beers’ rough diamonds in Cycle 8 continued to reflect the improved midstream trading environment compared with 2015,” said Bruce Cleaver, chief executive of De Beers Group. Dow Jones.
6.26pm:Sterling slumps to lowest since 1985
London’s FTSE 100 index led European markets higher early on Tuesday as the British pound slumped to a more than three-decade low against the dollar.
Sterling fell to as low as $US1.2771 early morning after UK Prime Minister Theresa May on Sunday set a March date to begin the process of leaving the European Union and suggested she would prioritise controlling immigration over maintaining full access to the country’s largest trading partner. A weaker pound tends to benefit shares of exporters in the FTSE 100, which was up 0.7 per cent in the early minutes of trading.
Shares of Deutsche Bank AG were up 0.5 per cent as Germany’s DAX reopened from a holiday, helping support markets elsewhere in Europe. The Stoxx Europe 600 inched up 0.3 per cent, while the banking sector added 1 per cent. Dow Jones.
5.46pm:CBA needs to improve: Narev
Commonwealth Bank boss Ian Narev would be the first to admit his bank could improve in some areas.
But he has told a parliamentary committee the bank was doing better at listening to customers and was committed to efficient redress.
“I’m not saying 10 years ago, five years ago, even two years we were doing as well as we need to and I think today there’s still work to do,” Mr Narev told the House of Representatives economic committee on Tuesday.
Mr Narev said he had met with customers with experiences of being let down by the bank.
“I’ve said before how sorry I am for the pain that we’ve caused them. I say so again today.”
AAP
5.28pm: Quickflix sale sealed
Subscription video-on-demand provider Quickflix has found a new buyer, with US-based Karma Media Holdings set to take full control of the business that went into administration in April for $1.3 million.
The sale comes after Quickflix’s creditors approved a deed of company arrangement proposed by Karma Media. The arrangement will see Karma Media take control of the Quickflix business and its assets in exchange for payment of $1.3 million into a deed fund.
Deloitte’s Jason Tracy, who was appointed joint voluntary administrator in May, said the agreement offers the best outcome for Quickflix’s creditors, its staff and customers. Read more.
4.25pm:Stocks swing into the black
The local sharemarket staged a turnaround in afternoon trade, swinging to a positive close despite three of the big four banks ending the day in the red.
At the close, the benchmark S&P/ASX 200 index ticked up 5.5 points, or 0.1 per cent, to 5,484, while the broader All Ordinaries index tacked on 5.1 points, or 0.09 per cent, to 5,569.9. The prospect of rising US interest rates and the reduced chance of rate cuts in Australia continued to dampen interest in defensive and high-yield sectors, while resources stocks again outperformed. Read more.
4.20pm:CBA defends small business loan rates
Commonwealth Bank has defended the interest rates it charges for small business loans, despite them being comparatively higher than they were during the 2008-2009 global financial crisis.
They admitted the bank got the pricing of such loans wrong during the GFC and were not pricing for risk appropriately.
“When the global banking system went through the experience of the global financial crisis, what we all looked at was the fact that appropriately pricing for risk has ceased to occur,” CBA boss Ian Narev told the House of Representative economics committee in Canberra on Tuesday.
AAP
4.14pm:Iron ore headed for $US40: DB
Iron ore prices have burned most analysts this year in outstripping expectations, but there’s still plenty willing to pot the commodity, writes Daniel Palmer.
In its latest commodities quarterly review, Deutsche Bank said Brazilian giant Vale’s recent suggestion it will ramp up supplies more slowly than originally expected may assist the market, but on its own should not prevent a fall back towards $US40 a tonne.
The key Australian export most recently traded at $US55.10 a tonne, broadly in line with Budget forecasts.
“The key question is whether the other three large iron ore producers (BHP Billiton, Rio Tinto and Fortescue) will respond to Vale’s messaging in managing their own supply,” the investment bank said.
3.27pm:CBA shares slip as Narev gets grilled
Commonwealth Bank shares have slipped 0.3 per cent since CEO Ian Narev took his seat in front of the Parliamentary Inquiry today at 2pm AEST.
That’s an 18-cent decline, from $73.24 to $73.06 in less than an hour and a half, slightly worse than the ASX 200 in that time, which has tiptoed 0.1 per cent lower to 5468 points.
3.20pm:Super industry hits back at banks
The big four banks have been luring people away from industry super funds and into poorer performing super products, an industry super advocacy group claims.
Industry Super Australia says there has been a significant increase in people signing up to bank-owned super funds as the major banks ramp up their over-the-counter superannuation sales advice.
Industry Super’s chief executive David Whiteley says the banks’ super products typically delivered lower investment returns than industry super funds. “There’s a real risk now of people walking into a bank and ending up as a member of a super fund that is worse than the fund they were already a member of,” he said on Tuesday.
3.07pm:Rio Tinto rejects iron ore tax compromise
Rio Tinto has shot down a proposed compromise over the new iron ore tax that threatens to rip $7.2 billion from it and fellow mining giant BHP Billiton, Paul Garvey writes.
Western Australian premier Colin Barnett this morning flagged that the government was in talks with Rio Tinto and BHP Billiton about a proposal that would involve scrapping an obscure 25c per tonne production rental in exchange for an upfront payment, believed to be more than $1 billion.
But Rio Tinto confirmed that it had said no to the offer, with the miner understood to be concerned about the precedent such an upfront payment could have on its operations around the world.
Read more
2.47pm:Stocks edge toward neutral ground
The ASX 200 is edging closer to neutral ground, while the Australian dollar has slipped as the RBA kept rates on hold and Ian Narev endures a grilling at the banking inquiry.
At 2:35pm AEST the S&P/ASX 200 is 0.1 per cent weaker for the day, marking a 0.5 per cent intraday recovery, to 5473.6 points.
CBA shares are trading in line with three of the big four banks – CBA, NAB and Westpac are all 0.3 per cent weaker for the day, while ANZ is up 0.3 per cent.
The Australian dollar, meanwhile, is buying US76.68 cents, compared with its highest point today at US76.91c.
2.36pm:Narev’s pay packet tops the lot
If you’re wondering why Ian Narev sounds so polished and on his game, perhaps his pay packet indicates he should be.
Ian Narev was paid $8.768 million for the 2016 financial year, more than any of the other big four bank CEOs.
Westpac’s Brian Hartzer was paid $5.74 million, NAB’s Andrew Thorburn received $5.5 million and ANZ’s Shayne Elliott has yet to be in the role a full year.
As for Mr Narev reinforcing the importance of shareholder returns, CBA’s share price has fallen 14.2 per cent in the year to date to late trade at $73.22, further than the other big four banks and much worse than the 3.3 per cent rise recorded by the ASX 200.
Westpac shares have dropped 10.3 per cent in that period, ANZ shares are flat and NAB stock is down 7.4 per cent.
2.32pm:RBA leaves interest rates on hold
The RBA has left the official cash rate unchanged at 1.5 per cent, as widely expected by economists and traders.
2.30pm:Narev’s rationale for cutting deposit rates
Coleman wants to know why the CBA “loudly trumpeted” its boost for term deposits as a justification for failing to pass on rates, but has since cut those deposit rates, writes Jared Owen.
Narev says customers were very aggressively taking up the higher rates, more so than initially expected.
“We never intended and we were very clear about this at the start, for those repriced deposits to continue indefinitely.”
2.27pm:CBA must hand over CommInsure docs
The Commonwealth Bank will be forced to hand over documents relating to its CommInsure operations, it was informed today.
The parliamentary banking committee informed chief executive Ian Narev early during his evidence that it will be seeking documents relating to the CommInsure controversies.
2.18pm:Narev ‘sorry’ for pain caused to customers
Narev is expressing contrition over the bank having failed its customers, writes Jared Owen.
“I have personally met with customers whom we have let down. I’ve done so in order to understand their experiences first hand. I’ve said before how sorry I am for the pain that we’ve caused them. I say so again today,” he says.
2.15pm:Narev defends holding back rate cut
Narev is on the front foot over the bank’s refusal to pass on full rate cuts, saying the CBA was “striving to be fair while staying strong”, writes Jared Owen.
“It is correct that our returns on equity are higher than many banks in other developed markets but in most of those markets, banks have failed, nearly failed or struggled severely,” he says.
“Understandably, each of these groups (borrowers and depositors) would’ve wanted more benefit, but our job is to achieve a balance.”
2.09pm:Banking inquiry gets underway
The banking hearing is under way, with the Commonwealth Bank chief Ian Narev beginning by saying strength and fairness should be the pillars of the banking system, writes John Lyons.
Narev is an experienced and accomplished media performer, but this will be a big test.
Follow our live coverage of the inquiry.
1.20pm:Ex-Bradken CEO says takeover ‘very cheap’
Japan’s Hitachi Construction Machinery’s $976.1 million takeover of Bradken will be a “very cheap” buy that will likely disappoint many of the company’s shareholders, former Bradken chief executive Brian Hodges says.
Speaking to The Australian today, less than 24 hours after the Hitachi takeover offer was announced, Mr Hodges said it was likely that other trade buyers would be carefully weighing up their own counteroffers for the business.
“The market has bottomed and trade buyers understand the market has bottomed,” Mr Hodges said.
Paul Garvey
More to come
12.25pm:NAB likely to cut dividend: Citi
Citi has retained its ‘buy’ rating on NAB, as well as its $31.50-a-share target, saying that while it expects the Aussie bank to cut its dividend in its FY16 results due on October 27th, it believes this is already anticipated by the sharemarket, similar to the market’s view of ANZ before it cut its dividend in May.
“NAB’s board should take some comfort from the post-cut share price (out-) performance of ANZ,” Citi analyst Craig Williams says.
He notes that on a cash earnings basis, 80 per cent of the FY16 life insurance earnings will be reclassified to “discontinued earnings” outside of cash earnings, after the sale of Nippon Life, pushing the dividend payout ratio further above the target range.
Mr Williams estimates it increases the 2H16 dividend payout to about 83 per cent vs 80 per cent in the first half.
On a statutory earnings basis, the impact is more severe, with the crystallisation of a $1.2bn loss on the sale pushing the second-half dividend payout up to about 90 per cent.
“Investors are looking for a definitive plan back to the target range,” he says.
“With the first glimpse of the re-sized earnings base in the FY16 results, the current 99c-a-share dividend per half is too large to manage looking forward.
Investors are expected to continue to challenge management for a plan back to the target range.” NAB shares were last down 0.4 per cent at $27.96.
12.15pm:Bradken shares soar on takeover bid
Bradken shares have surged more than 30 per cent after the mining consumables group drew a $976.1 million takeover bid by Japan’s Hitachi Construction Machinery.
Bradken’s board late yesterday recommended shareholders accept Hitachi’s $3.25 per share cash offer, which would crystallise the firm’s strong share price recovery this year.
The offer, if successful, would finally cap a tumultuous two years of M&A machinations at Bradken that drew offers from a host of groups.
Bradken shares were up 31.28 per cent to $3.19 at 11.42am AEDT.
12.06pm:Aussie dollar poised to jump
AUD/USD could jump today unless the RBA increases its jawboning on the currency and rates. Weekly charts show a tentative break above the daily downtrend line from March 2013, now at about US76.7c on a weekly basis.
A break above last week’s high at US77.10c would tend to confirm the line has broken, though ideally it needs to break on a weekly close basis. Such a move could see a rapid shift toward the August peak at US77.56c and April peak at US78.35c.
The fundamental backdrop is generally positive thanks to delays in US rate hikes and stabilising commodity prices, although US political uncertainty is a wildcard for risk assets before the Presidential election on November 8.
Sellers could also emerge on rallies before domestic CPI data on October 26, given its potential to spark another rate cut from the RBA.
Meanwhile, iron ore price weakness is still generally expected before year end. The 50-day moving average offers support at US76.06c after containing the dip to US75.91c last week.
The Australian dollar currently sits at US76.81c.
11.54am:Building approvals stronger than expected
Building approvals fell 1.8 per cent in August, though that was stronger than the 6 per cent fall expected by economists. The year-on-year rate for approvals was also a stronger-than-expected 10.1 per cent.
Approvals for houses fell 1.3 per cent while dwellings excluding houses - mainly apartments - fell 3.6 per cent.
The fall in dwellings excluding houses comes after a 15.7 per cent surge in July.
11.45am:Henderson shares surge on merger
Henderson Group shares jumped in early trade after the asset manager announced late yesterday it would join forces with Janus Capital to create a $US6bn fund manager giant.
The new entity, Janus Henderson Global, will have around $US320bn in assets under management and will keep the ASX listing and primary NYSE listing, while cancelling its London trade.
Henderson shares had lifted 12.06 per cent to $4.46 at 11:40 AEDT.
11.20am:CLSA bearish Aussie banks
CLSA’s Brian Johnson reitereates his ‘underweight’ stance on Aussie banks and ‘sell’ ratings on Westpac and CBA.
“Over and above our expectation that the four Australian major banks are about $29bn proforma short of CET1 capital, and will raise dilutive capital in the medium term or cut their dividend payout ratios, the requirement to lengthen funding duration and hold more liquidity will drag on net interest margins,” Mr Johnson says.
“Add in the commencement of even a modest loan loss cycle as the recent writeback gains on previously provisioned exposures do not recur and it’s not looking good for the Australian banks, which have been over-earning, over-distributing and even now look over-bought.”
Mr Johnson does note some slippage of Basel 3 global bank regulatory reforms, with APRA now expected to finalise its regulatory framework for Aussie banks in 1Q17 as opposed to the previously flagged December 2016 deadline.
He also notes APRA has made some favourable concessions to banks in its net stable funding ratio proposal, due to apply from January 1, 2018.
“However, every recent speech by APRA has expressed concern about the 20 per cent of funding the Australian banks derive from short-term funding, in particular short-term offshore funding, with APRA chairman Wayne Byres stating - ‘some further lengthening of Australian bank maturity profiles is therefore likely to be needed over time to truly strengthen their funding resilience’,” he says.
11.04am:Aussie bond yields kick up
Aussie 10-year Commonwealth government bond yields have kicked up a hefty 15 basis points to 2.05 per cent today as the local market catches up with a six basis point rise in US 10-year Treasury yields over the past two trading days. Australia’s bond market was closed yesterday for Labour Day.
Global funding markets are very expensive after the recent issues with Deutsche Bank, while US money market reforms, due to take full effect on October 14, are also a factor in pushing up yields, says ANZ’s head of rate strategy, Martin Whetton.
He also points to hedging before the new 30-year Commonwealth Government bond yield in Australia, tender details of which are due to be announced this Friday.
The book is due to open Monday or Tuesday, with pricing probably due next Wednesday. In any case, for the equities market investors should keep an eye on the recent high near 2.17 per cent. A break above that point would indicate a decent correction is underway, perhaps triggering the “bondcano” that could spark a deeper sell-off in bond-like equities.
10.49am:Qantas, Airbnb in Frequent Flyer tie-up
Qantas and Airbnb have announced a world-first partnership that will give the airline’s 11.4 million frequent flyer members the opportunity to earn points when they book accommodation with the share economy giant.
Under the new arrangement Qantas’s frequent flyer members will earn one Qantas Point for every dollar they spend on any of Airbnb’s 2.5 million accommodation listings across 191 countries.
The partnership marks the first time that the San Francisco-based Airbnb has worked with an airline loyalty program.
Mitchell Bingemann
10.25am:Stocks dip into the red
The Australian sharemarket has followed Wall Street lower in early trade as investors eyed the prospect of an imminent lift in US interest rates.
At the 10.15am (AEDT) official market open, the benchmark S&P/ASX 200 index dipped 15.7 points, or 0.29 per cent, to 5,462.8, while the broader All Ordinaries index gave back 15.1 points, or 0.27 per cent, to 5,549.7.
The big four banks were all in the red, with NAB’s 0.7 per cent retreat the lowpoint and Westpac’s 0.3 per cent fall the high-water mark for the sector.
The resources sector shone in comparison, aided by another rise in the price of crude.
In energy, Santos jumped 1.4 per cent to $3.75, Origin Energy was steady at $5.52, while Woodside inched up 0.1 per cent to $28.89.
Daniel Palmer
Read more
10.15am:Foxtel snaps up Seven’s Presto stake
Foxtel has bought out Seven West Media’s shares the Presto digital streaming joint venture.
It is understood Foxtel, which is owned by The Australian’s publisher News Corporation and Telstra, will migrate Presto’s customers onto its Play service, starting from December.
Jake Mitchell
10.09am:Still value in the banks: Macquarie
Macquarie says valuations remains supportive for Australian banks, with the sector trading on a 14 per cent relative discount to its 10-year average vs industrials ex-banks.
It also sees scope for this discount to unwind, given the shifting regulatory tone both globally and domestically, potential upside on better cost management, and a lessening of earnings headwinds, including margins and bad and doubtful debts.
Despite the recent competition for stable deposits, combined with subdued asset growth, Macquarie analysts note that deposit competition may ease after amendments to proposed rules for net stable funding requirements. They estimate that the latest amendment around self-securitised mortgages will improve banks’ NSFRs by 4-5 per cent and lift NSFR ratios across the majors to 101-105 per cent, removing potential downside risk from far more aggressive competition on deposits in FY17.
Macquarie does expect pressure on lending volumes amid ongoing regulatory scrutiny coupled with a highly-leveraged household sector, with banks continuing to tighten their lending standards around interest-only and high loan-to-valuation loans. In its view this gives downside risk to consensus expectations around balance sheet growth, which will help capital generation and dividends.
It says CBA continues to gain market share in mortgages, while ANZ continues to lag, while challenging trends in regional banks like Bendigo & Adelaide Bank and Bank of Queensland have pushed them to take on higher LVR portfolios, at a cost to margins and profitability. But recent anecdotal evidence suggests these trends have started to abate, with loan discounting falling 15-20 basis points. CBA and Westpac have led household deposit growth, followed by NAB and ANZ.
9.48am:IOOF chairman to retire
Financial services group IOOF has announced the retirement of chairman Roger Sexton after four years in the role.
Dr Sexton will formally stand aside at the group’s annual general meeting on November 24, with his position to be assumed by current director George Venardos.
Daniel Palmer
9.36am:Bradken backs Hitachi takeover bid
Bradken’s long line-up of failed suitors will have one last chance to revisit their offers after the mining consumables group drew a $976.1 million takeover bid by Japan’s Hitachi Construction Machinery.
Bradken’s board late yesterday recommended shareholders accept Hitachi’s $3.25 per share cash offer, which would crystallise the firm’s strong share price recovery this year. The offer, if successful, would finally cap a tumultuous two years of M & A machinations at Bradken that drew offers from a host of groups.
Private equity plays Pacific Equity Partners, Bain Capital Asia, Koch Industries and CHAMP Private Equity, along with Chilean industrial conglomerate Sigdo Koppers, have all considered or tabled offers for Bradken in various combinations since 2014.
Paul Garvey, Bridget Carter
9.05am:Miners face $150m hit from SA blackout
South Australia’s biggest mining and industrial sites are facing revenue losses of more than $150 million from last week’s blackout as they plan for at least another week without power, writes Matt Chambers.
And the extended production suspension is starting to impact on global metal prices, helping pushing lead prices on the London Metal Exchange to a 16-month high.
7.20am:Wall Street pulls back from Friday’s rally
US stocks pulled back after Friday’s rally capped their best quarter of the year.
The Dow Jones Industrial Average declined 54 points, or 0.3 per cent, to 18254. The S&P 500 fell 0.3 per cent, and the Nasdaq Composite dropped 0.2 per cent.
Stocks briefly pared losses after a gauge of US manufacturing rebounded in September.
7:00am:Australian market set to open lower
The Australian market looks set to open lower after Wall Street fell with investors fretting about the health of big banks.
At 6:45 (AEDT) on Tuesday, the share price index was down 16 points at 5,448. Major US banks extended recent declines as investors worried about the stability of Deutsche Bank and also Wells Fargo & Co’s handling of sales abuses.
In Australia, the market on Monday closed higher thanks to gains in financial and energy stocks.
The benchmark S&P/ASX200 index was up 42.6 points, or 0.78 per cent, at 5478.5, The broader All Ordinaries index rose 39.6 points, or 0.72 per cent, to 5,564.8 points.
AAP
6:50am: Iron ore dips
The iron ore price has slipped further and is a hair above the May Budget’s estimate of $US55 a tonne, as the commodity continues to cool from levels that were widely viewed as unsustainable.
Iron ore lost 0.2 per cent to $US55.10 overnight, according to The Steel Index, from $US55.20 the previous day.
The steelmaking ingredient has fallen 17 per cent since reaching an August peak of $US61.80, but its extended rally and delayed decline have forced many analysts to adjust their price assumptions.
6:45am: Dollar lifts against greenback
The Australian dollar has risen against its US counterpart.
At 6:35 (AEDT) on Tuesday, the local unit was trading at 76.76 US cents, up from 76.51 cents on Monday.
AAP
6:30am:Wall St slips
With half an hour of trade left, the Dow is 0.3 per cent lower. US stocks pulled back after Friday’s rally capped their best quarter of the year.
Stocks briefly pared losses after a gauge of US manufacturing rebounded in September. The Institute for Supply Management said its manufacturing index increased last month, after a contraction in activity in August.
The results bring hope for manufacturers that have been hurt by weak business spending and sluggish economic growth.
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