Archive | Finance

Australian investors switch loans to owner-occupier status after differential introduced

The Reserve Bank of Australia candidly noted on Friday that housing investors had switched $A61 billion to owner-occupied status after it introduced an interest rate differential between the 2 categories in 2015.

In its financial aggregates for November, the bank said: “Following the introduction of an interest rate differential between housing loans to investors & owner-occupiers in mid-2015, a number of borrowers have changed the purpose of their existing loan.

“The net value of switching of loan purpose from investor to owner-occupier is estimated to have been $A61 billion over the period of July 2015-November 2017, of which $A1.2 billion occurred in November 2017.

“These changes are reflected in the level of owner-occupier & investor credit outstanding. However, growth rates for these series have been adjusted to remove the effect of loan purpose changes.”

Link: Reserve Bank of Australia, financial aggregates November 2017

Attribution: Bank release.

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HNA fails in bid for UDC for lack of transparency

The Overseas Investment Office said today it had declined the Chinese HNA Group’s application to buy UDC Finance Ltd from the ANZ Bank for lack of ownership transparency.

International concerns about HNA’s opaque nature have circled the acquisitive group for months.

TIP-HNA NZ Holdings Ltd – immediate owner Global TIP Holdings 5 BV of Amsterdam – applied under the Overseas Investment Act to acquire 100% of the shares in UDC Finance Ltd from ANZ Banking Group Ltd.

ANZ agreed in January to sell UDC, plus the Esanda name & trademarks in Australia & New Zealand, to HNA for $660 million.

But the Overseas Investment Office said in its decision today: “The information provided about ownership & control interests was not sufficient or adequate for the OIO to determine who the relevant overseas persons are for TIP-HNA’s application to acquire UDC.

“We were therefore not satisfied that the investor test in section 18 of the Overseas Investment Act was met. Without knowing who the relevant overseas person is, the OIO cannot be satisfied that section 18 has been met, therefore we are unable to grant consent.”

The decision was delegated to the Overseas Investment Office as it involved significant business assets only. TIP-HNA can apply to the High Court for a judicial review of the decision. The Overseas Investment Office said it would publish copies of decision documents on its website early in the New Year.

ANZ assesses options

ANZ group executive & NZ chief executive David Hisco said: “While the sale agreement between the parties remains in place, unless HNA successfully overturns the OIO decision the sale will not proceed.

“We don’t know if HNA will attempt to overturn the decision. If the sale does not proceed, we’ll assess our strategic options regarding the future of UDC. It’s a great business and there is no immediate requirement to do anything, particularly given the strength of ANZ’s capital position.

“UDC continues to be a highly profitable & strong business, with great staff & customers, and a growing loan portfolio across a range of industries.

“UDC’s focus remains on its core business of financing vehicles & equipment for people & companies across New Zealand. So, it will be business as usual for our staff & customers.”

Mr Hisco said this OIO decision had no impact on the recently announced $A1.5 billion on-market buyback of ANZ shares. The UDC transaction proceeds are equivalent to about 10 basis points of APRA CET1 capital. If the transaction does not go ahead, ANZ’s 2018 financial year earnings will no longer be adjusted for the sale.”

HNA in pursuit of growth through acquisitions

The HNA Group is based on Hainan Island off the south coast of China and operates globally in the tourism, logistics & financial services sectors. One of its subsidiaries, Hainan Airlines, began a regular service of 3 flights/week between Shenzhen & Auckland on 31 December 2016. In October 2016, HNA agreed to buy 25% of Hilton Worldwide Holdings Inc from asset manager the Blackstone Group LP for $US6.5 billion.

HNA Group was founded on the business of Hainan Airlines Ltd in 1993 and has grown through acquisitions over the last 6 years into an international conglomerate with $US90 billion of assets. TIP Trailer Services is a European transport & logistics arm of HNA.

Links:
OIO, 21 December 2017: Overseas Investment Office declines consent to TIP-HNA
HNA Group
Bloomberg, 11 December 2017: HNA unit bonds fall to record amid concern of lender support
7 December 2017: HNA rules out default in coming years after yield surge
China Human Rights Accountability Centre, 15 August & 19 October 2017: Open letter: Call for investigation into HNA Group’s activities in the US and probable links with corruption at top of Chinese Communist Party

Earlier stories:
12 January 2017: ANZ sells UDC Finance to Chinese HNA Group
30 October 2016: Hainan conglomerate adds Hilton stake to its international expansion

Attribution: OIO & ANZ releases, HNA.

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China Construction Bank registers second NZ entity

The Reserve Bank today registered China Construction Bank Corp, incorporated in China, to provide banking services in New Zealand. It will operate in New Zealand as a branch.

A New Zealand-incorporated subsidiary, China Construction Bank (NZ) Ltd, has been registered to provide banking services in New Zealand since July 2014.

For the 9 months to September, the subsidiary disclosed today that it lifted its operating income from $6.46 million in 2016 to $19.39 million, and improved from a $778,000 pretax loss last year to a $10.2 million profit. After tax, the 2017 9-month profit was $7.35 million. It had $199.2 million of equity in 2016 after negative retained earnings of $6.2 million, but took equity to $202.7 million this September after adding $3.7 million of retained earnings.

The bank lifted its lending from $523 million at September 2016 to $1.445 billion, total assets from $712 million to $1.6 billion. It’s lifted its provision for impairment from $522,000 to $1.45 million. Customer deposits grew from $21.25 million to $118.9 million. The bank had $782 million of residential mortgages, none at a loan:value ratio over 80%.

The 25 registered banks in New Zealand include 10 branches of overseas banks, 4 subsidiaries & 3 branches of Australian banks, Bank of China (NZ) Ltd and the Industrial & Commercial Bank of China (NZ) Ltd as well as the 2 China Construction entities, and 5 New Zealand banks not owned elsewhere.

Link: Register of banks

Attribution: Reserve Bank release & register.

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ANZ sells pensions & investments businesses to IOOF

ANZ Banking Group Ltd said yesterday it had agreed to sell pensions & investments & aligned dealer group businesses to IOOF Holdings Ltd, and continued to review options for its life insurance business.

The latest in a succession of sales to get the bank back to mainstream business is the sale of its OnePath pensions & investments & aligned dealer groups business for $A975 million. As part of the agreement, ANZ will also enter into a 20–year strategic alliance to make available IOOF superannuation & investment products to ANZ customers.

The OnePath pensions & investments business has $A48 billion of funds under management, and the aligned dealer groups business has 7172 aligned advisors & $A19.5 billion of funds managed.

OnePath life insurance has $A1.6 billion of premiums in force, OnePath general insurance $A226 million.

ANZ said the transaction price represented a multiple of 25 times the 2017 financial year net profit after tax, equating to 17 times after separation & transaction costs. Aggregate profit for the year was $A39 million.

The bank estimated its accounting loss on sale of about $A120 million, including sale proceeds of $A975 million, separation & transaction costs of about $A300 million post-tax, and an accounting adjustment of about $A500 million for Treasury shares.

ANZ expected the transaction to increase its tier 1 capital ratio (as set out by the Australian Prudential Regulation Authority) by about 15 basis points on completion.

The bank expects the transaction to take about 12 months to complete.

The context

ANZ group executive for Wealth Australia, Alexis George, put the sale in this context: “The sale of the pensions & investments & aligned dealer groups businesses is consistent with ANZ’s strategy to create a simpler, better balanced bank focused on retail & business banking in Australia & New Zealand, and institutional banking supporting client trade & capital flows across the region. “Financial services such as superannuation, investments & advice are a core part of the support we provide ANZ customers now & in the future.

“By partnering with IOOF, we are able to create greater value for our shareholders while also providing our customers with access to quality wealth products from a specialist provider with the right cultural fit, financial strength & digital capability.

“The sale provides ANZ with greater flexibility to consider options for the life insurance business, including strategic & capital markets solutions.”

Attribution: Company release.

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Words from the bank economist on what first-homebuyers should look for

While a few spokespeople pushed in the last fortnight for Reserve Bank restrictions on home loans to be eased, in the vain hope of maintaining overall sales in a declining market, Bank of NZ chief economist Tony Alexander took a different course.

Mr Alexander suggested first-homebuyers look closely at the wording of ads for clues on how to pitch their offer.

Words such as “bargain”, “take advantage” & “motivated” sprang to mind.

He said a flick through the www.realestate.co.nz website the night before he wrote his BNZ weekly overview column showed 11,195 Auckland homes on the market, and 2766 of them – 25% – carried agents’ words warning of some distress.

What to do about it? “The time is ripe for you, first-homebuyer, to start taking advantage of their pain. Relax. Take a few breaths. Take your time. Look at a number of properties. Start throwing in lowball offers in case you catch a truly panicked fish. Alternatively, simply make an offer for what you think a place is really worth – and stick with it. Don’t let the agent work you. They know that at this point in the housing cycle the effort they need to put in is on the vendor – convincing them that the days of stupid prices have ended.”

Mr Alexander said the chances weren’t high that the Reserve Bank would ease loan:value ratio restrictions soon: “The rules were announced in August 2013. Comparing now with then, although house price inflation has slowed nationwide from 6.3% to 5%, (Auckland 11% to 2%), lending growth is higher at 7.7% from 5.2%, and imbalances clearly persist between demand & supply growth in Auckland.

“The next 12 months will bring pain for late-cycle investors hit by the 40% minimum deposit requirement for new investors, tighter bank lending rules and an oversupply now of developable land in Auckland. Many will be looking to offload an asset they now see falling in price. This then becomes the best market facing first-homebuyers for many years.”

Link: 17 August 2017, Tony Alexander, full BNZ weekly overview

Attribution: Alexander column.

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Heartland lifts profit and looks at note issue

Heartland Bank Ltd increased net profit after tax by 12% to $60.8 million for the year to June. It’s also considering making a notes issue in the next fortnight.

Chief executive Jeff Greenslade said yesterday the increase in profitability was driven primarily by growth in receivables across all divisions – household, business & rural.

Among highlights:

  • 12% increase in profitability to $60.8 million ($54.2 million in the first half of 2016)
  • Net finance receivables up 14% ($447 million) to $3.6 billion
  • 6% return on equity (11.1%)
  • Launch of multiple digital platforms
  • Implementation of new core banking system
  • Earnings/share 12c
  • Total assets up $501.7 million due to the increase in net finance receivables plus an increase in liquid investments
  • Household net receivables increased $227.8 million with reverse mortgages up $126.1 million, motor vehicle loans up $72 million and personal loans (including Harmoney) up $40 million
  • Business division net receivables increased $96.2 million and and rural $123 million
  • Net tangible assets increased from $433.5 million to $490.5 million, and from 91c to 95c/share.

Mr Greenslade said the company was considering making an offer of 5-year unsecured, unsubordinated, fixed-rate notes to institutional & New Zealand retail investors. If the offer proceeds, the company expected it to open in late August.

Link:
Annual results presentation

Attribution: Company release.

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ASB lifts profit over $1 billion

ASB Bank Ltd, a subsidiary of the Commonwealth Bank of Australia, reported statutory net profit after tax of $1.069 billion for the June year, up 17% on the previous 12 months.

Chief executive Barbara Chapman said cash net profit after tax was the preferred measure of financial performance as it presented the bank’s underlying operating results and excluded items that introduce volatility &/or one-off distortions, and weren’t considered representative of ASB’s on-going financial performance.

Results for 2017 (2016 results in brackets):

Interest income: $4.027 billion ($4.048 billion)
Interest expense: $2.176 billion ($2.286 billion)
Net interest earnings: $1.851 billion ($1.762 billion)
Total operating income: $2.386 billion ($2.226 billion)
Impairment losses on advances: $69 million ($130 million)
Net profit before tax: $1.483 billion ($1.270 billion)
Net profit after tax (statutory profit): $1.069 billion ($913 million)
Cash net profit after tax (cash profit): $1.033 billion ($914 million)
Total assets: $88.628 billion ($81.606 billion)
Advances to customers: $78.100 billion ($72.075 billion)
Return on ordinary shareholder’s equity: 17.7% (18.1%)
Return on total average assets: 1.2% (1.2%)
Total operating expenses as a percentage of total operating income: 35.8% (37.2%)

Capital ratios:
Common equity tier one capital as a percentage of total risk-weighted exposures: 10.5% (9.9%)
Tier one capital as a percentage of total risk-weighted exposures: 12.6% (12.3%)
Total capital as a percentage of total risk-weighted exposures: 14.1% (13.2%)

Link:
ASB result, NZX attachments

Attribution: Bank release.

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Construction starts on Ngai Tahu subdivision at Hobsonville Pt

Construction has started on Ngai Tahu’s innovative new residential development for Hobsonville Point that includes a number of long-term rentals.

It’s funded by the NZ Super Fund, Ngai Tahu Property Ltd & New Ground Capital Ltd.

The 208-home development on the former Defence Force base at the top of the Waitemata Harbour, announced in December 2015, was the initial step for Ngai Tahu Property into the Auckland market and is the first direct property investment for the NZ Super Fund.  First homes in the development will be on sale off the plans from September and the whole development is due to be completed by the end of 2018.

The Ngai Tahu development, now known as Kerepeti, covers 2 1ha superlot sites called Kerewhenua (111 homes) & Uku (97 homes).

The NZ Super Fund & Ngai Tahu Property are investing 48% each of the capital required for the development, and New Ground Capital is contributing the remaining 4%.

Each superlot will consist of a mix of apartments, terrace homes & walk-up apartments based on a masterplan by Context architects. They’ll be built by 4 local building companies – Classic Builders Ltd and Naylor Love Ltd (Kerewhenua) and Jalcon Homes Ltd & Haydn & Rollet Ltd (Uku).

About 50% of the 1- to 4-bedroom properties will be priced under the Auckland median house price and 30% will be priced in keeping with the Hobsonville Point affordable homes Axis programme.

About three-quarters of the homes will be available for sale as they are developed, but 47 are to be retained and made available as long-term rental properties to be managed by New Ground Capital, which was set up in 2014 to develop a long-term rental portfolio.

Anyone can apply to rent one of these homes once completed, with lease terms of up to 7 years to provide security of tenure, while still allowing leaseholders to shorten their lease should their circumstances change.

Ngai Tahu Property chief executive David Kennedy said: “The shared vision for this development was to ensure public & iwi funds are reinvested into infrastructure for the long-term benefit of New Zealanders – those who live there and the investors themselves.

“With building of terrace homes and early foundation works for the apartments now starting on both of the superlot sites, we are on the way to ensuring a broader section of the market, be they renter or homeowner, can have a quality place to live and enjoy access to all the amenities & lifestyle on offer at Hobsonville Point.

“We expect the new long-term rental properties to be listed on www.newgroundliving.co.nz in the third quarter of this year.”

Links:

Ngai Tahu Property 
www.ngaitahuproperty.co.nz
NZ Super Fund
www.nzsuperfund.co.nz
New Ground Capital
http://www.newground.co.nz
New Ground Living
www.newgroundliving.co.nz

Attribution: Company release.

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Judge told to reconsider 19 dismissed charges against Hawkins loan companies

The Commerce Commission has won its appeal against a district court decision to dismiss 19 charges against 2 finance companies controlled by former Equiticorp chief Allan Hawkins.

In the Auckland High Court, Justice Rebecca Edwards found in the commission’s favour in a judgment issued on 11 April and remitted the 19 charges back to Auckland District Court judge David Sharp for determination.

Judge Sharp found the 2 companies guilty on 106 charges last year. Dismissing the other 19, he said they concerned representations about the companies’ right to charge interest & costs on contracts entered into before 6 June 2015, following repossession & sale of borrowers’ property where Budget & Evolution had security interest over multiple items.

The commission’s case was that, for loans entered into before 6 June 2015, lenders were prohibited under the Credit (Repossession) Act from charging interest & costs after the first security item had been repossessed & sold. Budget & Evolution argued that where a loan was secured over multiple items, all items had to be repossessed & sold before they needed to stop charging interest & costs.

Budget & Evolution also appealed all 106 convictions on multiple grounds, but Justice Edwards rejected all appeals.

Mr Hawkins headed the Equiticorp finance group in the 1980s but, after the 1987 sharemarket collapse, he ended up in civil & criminal trials over the group’s activities and was sentenced to 6 years’ jail for fraud.

He formed the Cynotech group of finance companies about 12 years ago, using the shells of his 1980s companies.

Mr Hawkins’ listed company, Cynotech Holdings Ltd, was delisted in September 2013 after his private company, Cynotech Securities Ltd, acquired 71% of the shares in 2010 in a bid to fully privatise it. In July 2013, Cynotech Holdings went into liquidation after his backers ended their support.

Mr Hawkins resigned as sole director of Budget Loans on 9 July 2013 but was reappointed on 13 August 2013. He remains a director of Broadway Mortgage Custodians Ltd, Cynotech Finance Ltd & Evolution Finance Ltd, and is one of 4 directors of Budget Loans Group Ltd (renamed from Cynotech Securities Group Ltd in July 2013; in liquidation November 2013).

Link:
Commerce Commission enforcement response register, including judgments

Earlier stories:
18 July 2016: Hawkins’ finance companies guilty on loan contract enforcement
17 December 2014: Commission files criminal charges against 2 Allan Hawkins finance companies
9 November 2013: Commission tells Allan Hawkins’ finance companies to stop repossessions
11 July 2013: Cynotech share trading halted after backers end support
28 July 2010: “Welcome letter” from Hawkins’ Budget Loans to National Finance borrowers came with an illegal $15 fee

Attribution: Commission release, judgments, Companies Register.

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Australian regulator tightens interest-only lending rules

The Australian Prudential Regulation Authority initiated more supervisory measures on Friday “to reinforce sound residential mortgage lending practices in an environment of heightened risks”.

The authority has taken a series of actions this year to tighten lending, but its concern dates back to December 2014, when it directed authorised deposit-taking institutions (ADIs) to improve the quality of new mortgage lending generally and to moderate the growth of investor lending in particular.

The authority said on Friday it had advised authorised deposit-taking institutions that it expected them to:

  • limit the flow of new interest-only lending to 30% of total new residential mortgage lending, and within that:
    • place strict internal limits on the volume of interest-only lending at loan:value ratios above 80%, and
    • ensure there is strong scrutiny & justification of any instances of interest-only lending at a loan:value ratio above 90%
  • manage lending to investors in such a manner so as to comfortably remain below the previously advised benchmark of 10% growth
  • review & ensure that serviceability metrics, including interest rate & net income buffers, are set at appropriate levels for current conditions, and
  • continue to restrain lending growth in higher risk segments of the portfolio (eg, high loan:income loans, high loan:value ratio loans and loans for very long terms).

Authority chair Wayne Byres said the organisation believed the 10% benchmark for growth in lending to investors continued to provide an appropriate constraint in the current environment, balancing the need to continue to moderate new investor lending with the increasing supply of newly completed construction which must be absorbed in the year ahead.

However, he said additional supervisory measures were warranted, particularly in relation to the high level of interest-only lending – nearly 40% of the stock of residential mortgage lending by ADIs, which was quite high by international & historical standards.

“APRA views a higher proportion of interest-only lending in the current environment to be indicative of a higher risk profile. We will therefore be monitoring the share of interest-only lending within total new mortgage lending for each ADI, and will consider the need to impose additional requirements on an ADI when the proportion of new lending on interest-only terms exceeds 30% of total new mortgage lending.”

The authority has also told lenders it’s monitoring the growth in warehouse facilities they provide to other lenders, which allow the lenders to build a portfolio of loans that will eventually be securitised: “APRA would be concerned if these warehouse facilities were growing at a materially faster rate than an institution’s own housing loan portfolio, or if lending standards for loans held within warehouses are of a materially lower quality than would be consistent with industry-wide sound practices.”

Link:
Australian Prudential Regulation Authority

Attribution: APRA release.

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