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National Australia Bank’s recent fee cuts have received much positive media attention yet the moves mask a deeper strategy by the bank to access cheaper funding lines.
The media has generally portrayed the move as having the aim of keeping existing customers happy whereas it was more likely done as a move to attract new deposit customers.
NAB has performed the worst of the Big Four in attracting retail deposits throughout the rush into deposits sparked by the financial crisis. Even though NAB increased retail deposits by $13 billion to $56 billion from mid-2007 to August 2009 this was well below the  performance of its peers.

NAB’s banking rivals attracted somewhere in the range of $11 billion and $22 billion more of cheaper funding during the recent crisis, leaving NAB now scrambling for market share.It is easly to conclude that NAB’s latest round of fee cuts appear more like a desperate attempt to claw back some of the ground it has lost recently.

The move by NAB is set to cost the bank over $100 million a year.

But if it succeeds in boosting deposit levels, it will prove a cunning move.

If NAB can increase deposits quickly, it will provide a funding source for a potential spike in residential lending, as the newly acquired mortgage broker army from Challenger begins writing the bank’s loans.

The strategy at NAB seems to be a case of giving with one hand and while taking back with the other.

Thanks to www.burning-pants.com/ for the bringing this to our attention

ASIC, in conjunction with Consumer Affairs Victoria (CAV), has released a report examining how lenders and mortgage brokers respond to borrowers experiencing financial difficulties.

The report, Helping home borrowers in financial hardship (REP 152), found that while some lenders are responding well to the needs of their customers, there is generally room for improvement and provides guidance to industry on how to improve practices.

‘This report highlights the importance of industry taking an active role in dealing with hardship’, said ASIC’s Senior Executive Leader, Deposit Takers, Credit and Insurance Providers, Mr Greg Kirk.

‘With forecasts of growing unemployment, we can expect to see increasing numbers of borrowers experiencing mortgage stress. In many cases, however, financial difficulties will be temporary, allowing problems that arise to be resolved.’

‘It’s important that lenders and intermediaries have processes and procedures in place to provide constructive responses to financial hardship. These include procedures to identify customers in hardship, to provide clear and timely information to customers on their right to seek relief, and to engage sufficiently with a customer’s circumstances in order to provide appropriate and flexible assistance’, said Mr Kirk.

The report found that:

• Information about financial hardship is usually only provided following payment default, making it very difficult for borrowers to take positive action at an early stage. Equally concerning, this information is often insufficient for borrowers to understand their options and make informed choices;
• Some lenders do very little to identify borrowers who may require hardship assistance. Many lenders leave this identification of need to collection officers who may not be trained for the purpose eg. one lender only identifies hardship where the borrower raises the need for assistance themselves;
• Lenders appear to prefer offering short-term assistance, such as a three month payment moratorium, rather than genuinely engaging with, and responding to, a borrower’s specific situation. For example, a home loan borrower who has lost income through reduced overtime may need their loan to be extended with lower repayments over a longer period. In such circumstances, a short moratorium is a very temporary fix leaving the borrower likely to default when repayments resume;
• Some lenders have adopted policies that are inconsistent with the rights and remedies available to borrowers under the Uniform Consumer Credit Code. For example, by refusing hardship assistance once payments are more than 60 days overdue or limiting any variation in repayments to a maximum period of six months; and
• Despite clear industry standards mortgage brokers generally have a limited understanding of their role in responding to financial hardship. While most brokers say they offer assistance, there is little evidence of formal policies and procedures to ensure it is done effectively or constructively.

‘This report examined industry practices as at late 2008 and there are already moves within some sectors to improve. On 5 April 2009, the Federal Treasurer announced an agreement with the four major banks wherein they commit to assist borrowers who are experiencing financial difficulty as a result of the global recession’, Mr Kirk said.

‘ASIC is confident industry will welcome the guidance provided by the report, and we’ll continue to work with them to promote better outcomes for borrowers.’

‘Helping home borrowers in financial hardship’ also provides guidance for borrowers. Further information for borrowers is also available on ASIC’s consumer website, FIDO, at www.fido.asic.gov.au.

Victorian borrowers are also encouraged to visit the Consumer Affairs Victoria website (www.consumer.vic.gov.au) for publications that can assist them in dealing with their credit providers. These publications explain the rights and responsibilities of both lenders and borrowers in Victoria.

This note compiled by Lisa Bennett of AMP Capital looks at the latest GDP data released in Australia. The key points are:

• The Australian economy finally succumbed to the global downturn in the December quarter with GDP falling 0.5%. We are now effectively in recession. In the absence of Government stimulus the fall would have been even steeper.
• The recession probably has another 6 to 12 months to run. The global slump has yet to really hit our exports and leading indicators are continuing to slide. On average, Australian recessions last approximately 12 months.
• Unemployment is likely to rise to 7% by year end before peaking next year around 9%. The recent up-tick in the housing market is likely to be just a false dawn before more weakness, company profits are likely to fall 20 to 30% this year and the cash rate has more downside. The decision by the RBA to leave interest rates on hold was premature.
• Fortunately, the absence of housing oversupply, the fall in the $A and quick stimulatory action by the authorities should mean that the recession in Australia will be milder than that already underway in most other developed countries. Nevertheless, its going to be a pretty rough ride over the year ahead.

There was much joy among residential lenders in January as they celebrated droves of first home buyers returning to the residential property market.

First home buyers also appear unafraid of loading up with cheap debt – combining the carrot of the Government grant and lower interest rates to push the average first loan up 7 per cent for the quarter.

The latest Australian Bureau of Statistics figures, for the quarter ending November 2008, show the average first time home loan jumping $18,100 to $269,200.

This suggests that first home buyers are ‘stretching’ themselves and not necessarily reducing the amount required to borrow as rates fall.

In fact, first home buyers are taking a punt Australian official interest rates continuing to fall from 4.25 per cent, which seems likely in the short term with March and June 90 day bank bill futures contracts below three per cent.

This is reflected by the fact new mortgage borrowers remain heavily skewed towards variable lending, with only 2.5 per cent of the 49,383 mortgages financed in November having fixed rate terms.

This is a dramatic turnaround from the 19.3 per cent fixed average for all loans financed during the 2008 financial year. The current fixed average for FY09 is 4.4 per cent.

Overall, new home purchases financed in November 2008 (the latest Australian Bureau of Statistics housing finance data) jumped 18 per cent to 11,665, month on month, as the falling interest rate environment and the government grant encouraged new entrants.

Existing property purchasers are placing less confidence in the market, with financed loans crashing 13 per cent in November to 37,718, leaving total loans financed for the month down three per cent to 49,383.

From www.burning-pants.com

Investors aboard the borrow to invest, get rich quick trainare finally jumping off, or more to the point falling off, with the number of open margin lending accounts declining in the September quarter, for the first time since the Reserve Bank of Australia (RBA) began publishing margin lending data in 2000.

Open margin lending accounts fell 2 per cent to 202,200, as investors with leveraging in mind are not just sitting on the sidelines waiting to re-enter, but totally exiting the market by closing accounts.

Client account growth had been rapid in recent years, increasing 5 per cent in the year to September 2008, 26 per cent in the last two years and 44 per cent in the last three.

The aggregate credit limit declined by 4 per cent to $71 billion, as expected due to account closures, but also indicating those margin lenders remaining in the market are not increasing lending limits.

Margin calls of 4.32 per day per 1,000 clients in the September quarter were over double the 1.75 the June quarter, and four times the 1.04 in the corresponding period a year before.

The full story at Financial Services Review

ASIC has launched a new financial literacy program Your Money Starter- Insurance and Super designed to assist young Australians in making decisions about insurance and superannuation.

It is a resource for secondary schools in each state and territory and is currently being distributed to every high school in the country.

“Young Australians who understand insurance as a way to protect their assets and superannuation as an effective way to save for retirement will get a head start on two key areas of personal finance”, Superannuation and Corporate Law Minister Nick Sherry said

“Your Money Starter includes a variety of innovative classroom materials, activities and multimedia elements designed to make learning about financial services relevant and attractive to teenagers,” ASIC chair Tony D’Aloisio said.

The materials are available in hard copy and on CD-ROM and can be downloaded, free of charge, from ASIC’s consumer website, FIDO, at www.fido.gov.au/yourmoneystarter.

The Minister for Superannuation and Corporate Law, Senator Sherry, has released  draft legislation on the disclosure of covered short sale transactions. Senator Sherry said the Corporations Amendment (Short Selling) Bill has been released in preparation for the possible future removal of the current halt on most types of covered short selling put in place by regulators from 22 September 2008.

Senator Sherry said the draft legislation addresses ambiguity around covered short selling and requires the disclosure of transactions where a seller has entered into a securities lending arrangement to cover a sale.

In particular, covered short sales would have to be disclosed by sellers to a financial services licensee who in turn would be required to disclose the position to the market operator.

Submissions are due by 21 October 2008 and can be sent to: Manager, Market Integrity Unit, Corporations and Financial Services Division, The Treasury, Langton Crescent, Parkes ACT 2600 – or email shortsellingbill@treasury.gov.au.

ASIC has also advised that it has reviewed the operation of the market since its announcements and had opportunity to consult with ASX and industry. ASIC has now issued an advisory which summarises its position regarding the prohibition of naked and covered short selling including permitted exceptions which are in line with overseas developments.

ASIC states that where covered short selling is permitted, the short selling transaction needs to be disclosed in accordance with ASIC Class Order [CO 08/751].

ASIC also notes that the exemptions may change. Accordingly, ASIC will monitor the market to ensure there is no misuse of the exemptions.

Source: Minister for Superannuation and Corporate Law media release No 057, 23 September 2008 ASIC advisory AD 08-22, 23 September 2008

Jocelyn Furlan, Acting Chairperson of the Superannuation Complaints Tribunal, has reported a significant increase in the number of complaints received by the Tribunal.

In the June 2008 quarter, complaints were up by 23.6% when compared to the same quarter in 2007.

The number of complaints within jurisdiction relating to fund administration continues to rise as a percentage of total complaints received and now comprises the largest category of complaints. Complaints about delays in rollovers or benefit payments and investment option changes comprised over 27%, and disputes regarding account balances representing a quarter of administration complaints.

Ms Furlan said that whilst this increase may or may not be a direct result of negative investment returns, in a falling market trustees should review any undertakings given in relation to the processing time for benefit payments, rollovers, investment switches and other transactions impacting on the member’s account balance.

Falling markets may have implications for death benefit payments.

The Tribunal encourages trustees to review their policies regarding the investment of pending death benefit payments (and any insurance proceeds) during the period of the claim staking process (and resolution of a dispute by the Tribunal if a complaint is lodged) and ensure that this has been disclosed to members.

An explanation to the potential beneficiaries/legal personal representatives of how the account will be invested during the period between confirmation of death and the payment of the death benefit may help to reduce the number of complaints to the Tribunal about any unexpected change in the value of the benefit. The Tribunal is aware that some funds have adopted the policy that any investment choice in place at the date of death continues until the benefit is paid. The Tribunal has received complaints that the trustee will not accept a request to change the investment option, on the basis that, in the Trustee’s view, no one (including a surviving spouse or a legal personal representative of the deceased member’s estate) is authorised to request such a change.

The tribunal has now merged with the Banking Industry ombudsman to form the Financial Ombudsman Service.

The Federal Government has formally approved the establishment of the First Home Savers (FHS) Accounts scheme. It is anticipated that eligible first home buyers will benefit from the scheme. The scheme will be offered through banks, building societies, credit unions and life insurers.

Although the detailed features of the scheme have not been finalised, key features include:

• co-contribution from the government of a minimum of 15% on after-tax contributions of up to $5,000;
• individuals aged between 18 to 65 will be able to open an account with an initial contribution of at least $1,000, so long as they comply with the eligibility criteria for the First Home Owners Grant;
• the minimum savings period for the scheme is four years;
• interest earned will be taxed at a rate of 15%; and

withdrawals will only be permitted for the purchase of an eligible first home and will be tax-free. Alternatively, individuals can roll over the full amount of the account to their superannuation fund at any time

From Thomson Tax & Accounting Insights

The government has issued a discussion paper on their proposal for new Home Saver Accounts.

Overview

• First Home Saver Accounts are the first of their kind in Australia and will provide a simple, tax effective way for Australians to save a deposit for their first home through a combination of a Government contribution and low taxes.

Eligibility

• An individual can open an account if they:
  • are aged 18 or over and under 65;
  • are an Australian resident for taxation purposes;
  • have not previously purchased or built a first home in Australia to live in;
  • do not have or have not previously had an account; and
  • make an initial contribution of at least $1,000.

Contribution arrangements

• Individual contributions of up to $10,000 (indexed) may be made into an account each year. These contributions may be made by the account holder or another party, such as an employer, on behalf of the account holder.
  • Contributions have to be made from after-tax income.
• The Government will make an additional contribution which will be paid directly into the account, with arrangements broadly reflecting those for superannuation.
  • The Government contribution will be made on up to $5,000 of individual contributions each year.
  • The contribution level will be either 15 per cent, or the account holder’s marginal income tax rate less 15 per cent, whichever is greater.
    • Individuals with incomes of up to $80,000 who contribute $5,000 to their account will receive a Government contribution of $750.
    • For individuals on incomes above $80,000, the contribution will vary depending on the marginal income tax rate of the individual.

    More details on the Treasury fact sheet