RBA shows the way. Yes, the Reserve Bank governor has a bit of a “bite” when pressed; not that of an out-and-out, take-no-prisoners carnivore, but a more genteel nipping. The object of his latest gnawing is the banks and their recent mortgage rise rises and suggestions that the recent rise in bank mortgage rates would somehow impact the economy. Stevens told a Melbourne conference this morning:
“Could the ‘shock’ value of the rises in mortgage rates itself lead to a significant change in that trend, gentle as it is, of improvement? While such an outcome is perhaps conceivable, given the starting point and all the above considerations, it seems to me a bit of a leap to draw that conclusion.”
That’s a gentle put down of what the RBA sees as a very spurious argument. So take that, all those analysts and economists who have made that claim in the past two weeks in forecasting a rate cut from the RBA, possibly at last Tuesday’s meeting. And then there’s the banks and shareholders who many claim that high rates of return are needed to attract investors. Stevens had this to say:
“Let me be clear that in making these comments I am not offering an endorsement of the banks’ actions. Nor should an assumption that shareholder returns must not decline as a result of the effects of supervisory measures, or any other factor, simply be accepted without question. The ‘right’ rate of return for bank shareholders is, as others have observed, an open question. It is not a constant of the universe.”
In other words the RBA would like to see shareholders sharing the pain. The first quarter update from the Commonwealth Bank suggests that time might not be too far away. — Glenn Dyer
CBA slows. For the best part of a year now, the Commonwealth Bank’s cash earnings each quarter have wandered from $2.2 billion to $2.3 billion and $2.4 billion in the September quarter, which was a rise of 0.5% over the year, which doesn’t even match inflation. In other words, the key sharemarket leader is showing more signs that its earnings are now ex-growth, held up only by the lower interest-rate regime of the Reserve Bank, which has enabled it to declare fewer bad loans because fewer customers are finding it harder to repay their loans. So it is no wonder that the CBA told the market this morning its expense for impaired loans was 0.13% of assets in the quarter, compared with 0.16% in the year to June. It said the group’s net interest margin was “slightly lower” because the bank was holding more liquid assets, and trading income was lower than average. The bank said its troublesome and impaired loans fell to $5.5 billion, down from $6 billion in the previous quarter.
Although most of its mortgagees are repaying loans faster than they have to, the CBA and other banks face an interesting question: will their recent mortgage rate grab (plus the earlier one for investors) generate a rise in repayment stress for more recent borrowers, and therefore a potential rise in bad debts and impaired loans? A self-inflicted wound, so to speak. And, shareholders had better not be hoping for a solid increase in interim dividend next February — a 0.5% rise in cash earnings is really no rise at all; in recent banking terms, its like going backwards. — Glenn Dyer
Janet sharpens her rate rise. Fed chair Janet Yellen has given the starry-eyed in the markets a rude reminder that a rate increase next month is very much on the cards in testimony to the US Congress overnight. Some of the lazier US and other analysts and economists were starting to think that the recent flow of indifferent data on the US economy might have the Fed shy away from a rate increase at its pre-Christmas meeting next month and push reality out into 2016, thereby prolonging time at the sugar bowl. But Yellen dashed those hopes by pointing out to Congress that the US central bank still expects “the economy will continue to grow at a pace that’s sufficient to generate further improvements in the labour market and to return inflation to our 2 per cent target over the medium term, and if the incoming information supports that expectation, then our statement indicates that December would be a live possibility.” Certainly the Reserve Bank of Australia is wanting the Fed to move, because that will take pressure of it and off the dollar. — Glenn Dyer
Vroom, vroom, VW sinks deeper. Moody’s overnight joined rival ratings group, Standard & Poor’s in cutting the credit standing of embattled German automaker Volkswagen after the diesel emissions tampering scandal expanded to cover a new group of cars, including, for the first time, petrol-powered models with a smaller engine size. And Porsche said it was suspending sales of its top of the line diesel powered Sports Utility models. There are now around 12 million vehicles world-wide involved in the still developing scandals. Das Auto kaput? — Glenn Dyer
Crikey is committed to hosting lively discussions. Help us keep the conversation useful, interesting and welcoming. We aim to publish comments quickly in the interest of promoting robust conversation, but we’re a small team and we deploy filters to protect against legal risk. Occasionally your comment may be held up while we review, but we’re working as fast as we can to keep the conversation rolling.
The Crikey comment section is members-only content. Please subscribe to leave a comment.
The Crikey comment section is members-only content. Please login to leave a comment.