Cynical Westpac? Banks are not known for the their PR smarts — and Westpac this morning provided the latest best-in-class example by announcing that it will sting its home loan customers by raising home mortgage rates to help build up its capital base, rather than forcing shareholders to accept no increase or a reduction in their dividends to achieve the same end. In a series of announcements, Westpac said it would raise home loan rates by 0.2% as part of moves to meet the new APRA requirements for banks to hold more capital against their mortgages. The rate increase will start for all customers from November 20. The bank also announced it will raise $3.5 billion through a discounted share issue to shareholders to boost its capital reserves.
Headline interest rates at the country’s second biggest bank will rise to 5.68% for owner-occupiers and top 5.95% for investors. And the bank rushed out its 2014-15 profit (it was due to report on November 2) and revealed a rise and a higher dividend. Statutory net profit rose 6% to $8.01 billion and the more preferred cash earnings edged up 3% to $7.82 billion. Seeing first-half cash earnings were up 8% at $3.77 billion, the bank recorded a slowdown in the second half (but not in its core Australian bank, where cash earnings were up a solid 8% for the year). And a final dividend of 94 cents a share has been announced, up 2 cents a share. The interim dividend was upped 4 cents a share to 90 cents, meaning that rather than cut payouts to shareholders to boost capital to meet the new regulatory requirements, cynical Westpac are going to sting home loan customers (and no doubt credit cards and business loans as well). Westpac’s return on equity (the measure of profitability all watch) fell 0.57% to 15.8%. That is still very strong, despite some media suggesting the fall represented a weakness. Importantly the bank’s net interest margin was unchanged at 2.08% (which was a strong performance given the two reductions in interest rates this year). — Glenn Dyer
Off with their heads? Well, not quite, but perhaps it might be a case of nobbling their abacuses, short-circuiting their economic models, or just drumming the economists at NAB out of the Australian Business Media Clickbait Society for conduct too optimistic about the economy. That was after what was an upbeat and generally positive appraisal of the outlook for the Australian economy in yesterday’s September survey of business conditions and confidence from the bank. There was no resorting to doom-and-gloom warnings of big price falls in property, recessions, downturns and the like — as the likes of Macquarie, Goldman Sachs, Bank of America and Credit Suisse have done in recent months — and generated considerable publicity online (with clickbait-friendly words like “housing price falls” and recession) and in the dead-tree editions of our newspapers.
NAB sees unemployment falling in the back half of 2016-17 (5.75%), it sees growth picking up and no more interest rate cuts. In fact it says the market is “overly pessimistic” in pricing in another cut of 0.125% in the next six months. The NAB remarked ”the ongoing high level of business conditions and trend improvement in key leading indicators such as capacity utilisation supports our view that the gradual recovery in the non-mining economy is becoming more resilient”. — Glenn Dyer
China trade redux. Markets didn’t know how to take yesterday’s preliminary trade data from China for September — exports were down less than 2%, which was better than expected, with shipments rising to many of the country’s major export markets, especially the US. Imports, though, were down a massive 20% (in US dollar terms), and the trade surplus was a whopping US$60.3 billion and nearly an all-time high (that was set in February of this year with a figure of US$60.6 billion reported). In fact imports have now fallen for 11 months in a row, as of last month, and many analysts and investors took that and the deadline figures as confirming “China slide looms”.
Next Monday’s third-quarter GDP estimates will probably show a sub-7% growth rate for the three months to September and one that would be the lowest growth rate for years. But like all things data, the story in imports is a bit more than just the headline. China used price falls for iron ore (down 13%) and copper (down more than 8%) to load up on both commodities. Iron ore imports were at 86.12 million tonnes, the highest this year, and up 16% from August’s 76 million tonnes, which was boldly described as the new normal for iron ore imports by some analysts. In fact China’s iron ore imports totalled just over 699 million tonnes in the nine months to September, just short of the 705 million tonnes in the same period of 2014.
That all means those gloom-and-doom forecasts for a 10% slump in Chinese iron ore imports this year are now wrong — unless China stops importing iron ore for one of the remaining three months of this year. And copper imports surged, especially metal products — up 31% or 110,000 in a month to 460,000 tonnes in September from the flat 350,0000 tonnes a month level seen in June, July and August. Oil imports picked up 8.6% from August on a daily rate, but surprisingly some analysts now think the country is well on the way of adding an extra 200 million barrels of oil to its strategic reserves by exploiting the big price fall for oil in the past year. — Glenn Dyer
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