Friday, February 24, 2012

RBA chief says big banks "not excessively profitable"; thinks stellar rise of Australian dollar "a bit odd"

The governor of the Reserve Bank says the Australian banking sector is not too profitable.

Appearing before the House of Representatives Standing Committee on Economics, RBA governor Glenn Stevens said that if he had to choose between unprofitable and profitable banks he would chose the latter.

"You only have to look at the dimension of the banking problems in Europe to see we don't want banks that can't earn a good return," Mr Stevens said.

"Are they too profitable? Our assessment is if you look at the rates of return on equity at our banks over a lengthy period of time they're actually broadly in line with the listed company sector in general."

The big four banks have recently come under scrutiny for raising their variable mortgage rates outside the Reserve Bank's official cycle while at the same time posting record profits.

The banks have blamed weak lending growth and rising funding costs for their rate rises as the eurozone's sovereign debt problems slow economic growth around the world.

Mr Stevens also told the committee he had no plans to intervene in currency markets to reduce the strength of the Australian dollar.

The manufacturing and export sectors have come under pressure as the dollar holds at historically high levels.

Thousands of jobs have been slashed in those industries as a result, but Mr Stevens does not believe intervention would be effective at this stage.

He said Australia's natural resources and its proximity to Asia were behind the currency's strong rise.

"I'm not saying we'd never do it, but we have not done so to date," Mr Stevens said.

"We do continue to ask ourselves whether what's happening in the currency markets makes sense.

"The most recent bout of strength is happening at a time when the terms of trade have actually peaked and started to come down. That is a bit odd, but we'll see what happens."

Business heavyweight Graham Bradley warns labor leadership stoush is damaging economy

One of Australia's most powerful business leaders has warned that the battle for the Labor leadership is damaging confidence in the Australian economy.

The chairman of HSBC bank and Stockland property group, Graham Bradley, told AM that important policy debate was being sidelined by the showdown between Prime Minister Julia Gillard and Kevin Rudd.

Read the story on ABC News Online here.

"Changes of leadership are destabilising - they affect consumer confidence and they affect business confidence - and the fact that there's going to be a lot of distraction with federal ministers over the coming months can't be helpful," Mr Bradley said.

Mr Bradley said the Government's relationship with the business community had deteriorated in the past year, but he would not be drawn into the debate about who should lead the Labor party.

"We'd welcome any leader, as we welcome Julia Gillard's commitment to better consultation with business around business regulation and a better understanding of the challenges of business," he said.

Mr Bradley also called for the carbon tax to be reviewed.

Thursday, February 23, 2012

Ombudsman says some insurance company sales staff don't understand the policies they sell; customers not the only ones confused

The General Insurance Ombudsman has expressed concern that workers in the industry do not always understand the policies they sell.

The fears have been raised as the insurance industry tries to rebuild its reputation, which was tarnished by its handling of last year's cyclones, floods and bushfires.

In all there were eight official disasters, 275,000 claims and losses of $5 billion.

Ombudsman John Price told AM there must be a greater focus on training and communication in the industry to ensure frontline staff provide customers with clear information.

"Policies do not clearly inform individuals, and it's not only the consumer that's confused - it's also the salespeople that are confused," Mr Price said.

"And if the salespeople trained by the industry are confused as to what the cover offers then how do you expect the consumer to understand?"

The industry is trying to head off tougher regulation of policies and payouts after complaints that some claims were either unpaid or unresolved.

Tuesday, February 21, 2012

Reserve Bank defends bank claims on higher funding costs

The Reserve Bank has backed claims by major commercial lenders that higher funding costs are forcing them to pass on new costs to borrowers through independent interest rate increases.

In the minutes from its board meeting on February 7, the RBA confirmed that funding costs were "significantly higher" than in the middle of 2011 because of a dislocation of bank debt markets.

"The cost of swapping funds raised in offshore markets into Australian dollars has increased in recent months," the RBA noted. 

Listen to my analysis broadcast on The World Today shortly after the RBA minutes were released.

The minutes say that at the same time, banks continued to compete for deposits, meaning reductions in deposit rates had not fully matched the cumulative 0.5 per cent cash rate cuts in November and December.

"Collectively, these developments had increased banks' overall cost of funding relative to the cash rate and had narrowed the difference between banks' lending rates and funding costs," the board noted.

The Reserve Bank surprised most economists a fortnight ago by leaving the cash rate on hold at 4.25 per cent.

According to the minutes, the RBA board judged the current setting to be "appropriate" given the overall economic outlook.

Major banks responded with independent increases in their standard variable rates, fuelling anger from Federal Treasurer Wayne Swan, borrowers and consumer groups.

The RBA's defence of the higher funding cost argument counters claims by Societe Generale's head of strategy in Asia, Christian Carrillo, that banks were wrong to claim funding costs on global markets were higher.

"What we have seen over the last six months is that overall funding costs for Australian banks have absolutely come down," Mr Carrillo told AM.

"Research suggests that effectively pretty much every source of funding that they use - in terms of domestic deposits, short-term funding onshore, long-term funding onshore - has actually gone down. "

Monday, February 20, 2012

Bluescope boss calls company "bipolar" as he posts a $530 million half year loss

Bluescope Steel has reported a loss of $530 million for the first half of the financial year due to restructuring costs and weak trading conditions.

The result was nearly 10 times the $55 million loss posted in the same period last year, bu
t includes $260 million for restructuring.

Here's my analysis broadcast on The World Today.

Read the story on ABC News Online.

Last August, the steelmaker posted a full-year loss of $1 billion and slashed a total of 1,000 jobs at its Port Kembla steelworks in New South Wales and its Western Port steel mill in Victoria.

Chief executive Paul O'Malley says the company expects to record a much smaller loss this half as the benefits of the restructure flow through to the bottom line.

"Really the story is of a bipolar company in many respects," Mr O'Malley said.

"The Australian business is really challenged but we have taken significant steps to restructure and improve that performance, and as I mentioned we'll start to see improvements - material improvements - in that business performance in the coming months."

Bluescope Steel shares fell as much as eight percent at one point.

Business warns Labor leadership war is damaging confidence, demands swift resolution for "good of the country"

One of Australia's biggest business lobby groups has denied reports it has been approached by Kevin Rudd or his backers to rebuild bridges with business.
Labor's leadership crisis appears to be near breaking point, with supporters on both sides telling the ABC the brawl could be resolved as early as this time next week.

The Labor caucus is due to meet next Tuesday, February 28 unless a special meeting is called to put the party leadership, and therefore the prime ministership, to a vote.

This morning the Australian Chamber of Commerce and Industry (ACCI) called on the Labor caucus to resolve the leadership debate for the good of the country.

ACCI chief executive Peter Anderson said he was agnostic about who should be Labor leader, but speaking to me on AM, warned the matter needed to be resolved "for the good of the country."