The latest edition of our weekly finance and property news digest with a distinctively Australian flavour.
Contents:
00:20 Introduction 0:45 US Markets 1:30 The WHO 3:20 US Economy 5:00 Supply Chain disruptions 07:45 China stimulus 10:20 Eurozone 11:35 HSBC 13:00 Bitcoin and Fedcoin 16:15 Australian Segments 16:20 Economic data 18:50 Bendigo Bank 20:20 Brokers Best Interests Duty 21:40 Poverty Line 23:30 Property Markets 28:20 Aussie Markets
For followers of the DFA blog, we are making some changes under the hood to our archives and blogging system. As a result, until further notice, posts from the blog will cease. However, we will still be releasing content via our Twitter, YouTube and Patreon channels.
We will let you know when normal service is restored. It may be a few days…
We have outgrown our current systems… (which is a good thing…)
Australian banks have been dialing back their wealth management businesses in response to the Royal Commission, fees for no service issues and the confusion about advice models. The focus has been towards the simplification of their businesses with a focus on mortgage lending, despite this being at a time when lending growth, according to the RBA is at historic lows, and low cash rates are crushing margins, and competition destroying fee income. Housing credit to December was at a low 3.1%.
Elsewhere, especially in the US, the large investment banks are pivoting away from trading markets and lending TOWARDS wealth management. Bloomberg for example reported that Morgan Stanley has agreed to buy discount brokerage E*Trade Financial Corp. for $13 billion, pushing further into the retail market in the biggest acquisition by a Wall Street firm since the financial crisis.
The all-stock takeover adds E*Trade’s $360 billion of client assets to Morgan Stanley’s $2.7 trillion, the companies said Thursday in a statement. Morgan Stanley also gets E*Trade’s direct-to-consumer and digital capabilities to complement its full-service, advisory-focused brokerage.
“Our clients increasingly want digital access and digital banking, and their clients want wealth-management advice,” Chief Executive Officer James Gorman said in an interview. “It’s the continuing evolution of Morgan Stanley into a stable, well-diversified business.”
In reshaping the firm since the financial crisis, Gorman has been emphasizing Morgan Stanley’s wealth-management powerhouse. Purchasing E*Trade helps him add clients who are less wealthy than its traditional customers. The New York-based company has lost some business to the retail brokerages in recent years as those firms invested heavily in their web platforms.
“Wall Street banks continue to covet Main Street customers,” Greg McBride, an analyst at Bankrate.com, said in an email. The acquisition “gives them access to brokerage customers, employees with company stock, and the lifeblood of financial services — low-cost retail bank deposits.”
The retail-brokerage industry is being reshaped by price wars and consolidation. In early October, Charles Schwab Corp. eliminated commissions for U.S. stock trading, spurring other brokerages to follow suit and sweeping away an important revenue stream.
The following month, Schwab agreed to buy rival TD Ameritrade Holding Corp. for about $26 billion and create a mega-firm with $5 trillion in assets, forcing smaller brokerages like E*Trade to contend with a much more formidable competitor.
For Morgan Stanley, the deal “deepens the ‘safe’ wealth-management franchise — rich in fees and stability,” credit analyst David Havens at Imperial Capital wrote in a note to clients. “It reduces reliance on the more mercurial trading and markets businesses.”
Interesting test today, as according to the latest ABS figures on unemployment trend stayed at 5.2%, but seasonally adjusted rose 0.2% to 5.3%. Who will report what (many were keen to highlight the recent falls in SA terms, will the reverse be true too?). We continue to prefer the more reliable trend series. Note too the incoming rotation group had a higher unemployment rate than the group it replaced. So, how much is real and how much noise? Still whatever, on these numbers you can forget wages growth. And this is before the China freeze really hit!
Employment and hours
In January 2020, trend monthly employment increased by around 20,000
people. Full-time employment increased by around 15,000 and part-time
employment increased by around 5,000 people.
Over the past year, trend employment increased by around 257,000 people
(2.0 per cent), in line with the average annual growth over the past 20
years (2.0 per cent).
Year on Year Employment Change Over 20 Years (%)
Full-time employment growth (1.7 per cent) was above the average annual growth over the past 20 years (1.6 per cent) and part-time employment growth (2.8 per cent) was below the average annual growth over the past 20 years (3.0 per cent).
The trend monthly hours worked increased by less than 0.1 per cent in January 2020 and by 1.3 per cent over the past year. This was lower than the 20 year average annual growth of 1.6 per cent.
Underemployment and underutilisation
The trend monthly underemployment rate remained steady at 8.5 per cent in January 2020, and increased by 0.2 percentage points over the past year.
“The underemployment rate continues to remain high, but is still below the levels from 2016-17,” said Mr Hockman.
The trend monthly underutilisation rate also remained steady at 13.7 per cent in January 2020, an increase of 0.4 percentage points over the past year.
States and territories trend unemployment rate
The monthly trend unemployment rate increased in Victoria and decreased in South Australia and Tasmania in January 2020. The unemployment rate remained steady in all other states and territories.
Over the year, unemployment rates fell in Western Australia, Tasmania and the Australian Capital Territory. Unemployment rates increased in New South Wales, Victoria, Queensland, and the Northern Territory. Seasonally adjusted data
The seasonally adjusted unemployment rate increased by 0.2 percentage points to 5.3 per cent in January 2020, while the underemployment rate increased 0.3 percentage points to 8.6 per cent. The seasonally adjusted participation rate increased by 0.1 percentage points to 66.1 per cent, and the number of people employed increased by around 14,000.
The net movement of employed in both trend and seasonally adjusted terms is generally underpinned by over 300,000 people leaving employment and around 300,000 people entering employment in the month.
In original terms, the incoming rotation group in January 2020 had a lower employment to population ratio than the group it replaced (62.0% in January 2020, compared to 64.2% in December 2019), and was higher than the sample as a whole (61.8%). The incoming rotation group had a lower full-time employment to population ratio than the group it replaced (43.2% in January 2020, compared to 44.5% in December 2019), and was higher than the sample as a whole (42.7%).
The incoming rotation group had a higher unemployment rate than the group it replaced (5.8% in January 2020, compared to 4.0% in December 2019), and was higher than the sample as a whole (5.7%). The incoming rotation group had a lower participation rate than the group it replaced (65.8% in January 2020, compared to 66.9% in December 2019), and was higher than the sample as a whole (65.6%).
ASIC has today started a four week consultation on draft guidance about the new best interests duty for mortgage brokers.
The new obligations were legislated by the Parliament in response to Recommendation 1.2 of the Royal Commission.
From 1 July, the obligations will require mortgage brokers to act in
the best interests of consumers and to prioritise consumers’ interests
when providing credit assistance.
Announcing the
consultation, ASIC Commissioner Sean Hughes said, ‘The obligations
properly align the interests of mortgage brokers with the interests and
expectations of their clients – the borrowers. Consumers should feel
confident that their broker is offering the best loan for their
circumstances and we expect that consumer outcomes will improve as a
result of this reform.’
‘We have released this
draft guidance for consultation as early as possible, to help promote
certainty for mortgage brokers as industry prepares for the new
obligations to commence in July’ Mr Hughes added.
ASIC’s proposed approach to the guidance is outlined in Consultation Paper 327 Implementing the Royal Commission recommendations: Mortgage brokers and the best interests duty
(CP 327). Consistent with the legislation, the draft guidance is
high-level and principles-based, but also incorporates practical
examples. The purpose of the guidance is to explain the obligations
introduced by the Government, it does not prescribe conduct or impose
additional obligations.
The draft guidance is
structured around the key steps common to the credit assistance process
of brokers, such as gathering information, considering the product
options available and presenting options and a recommendation to the
consumer.
ASIC welcomes views from
all interested stakeholders on the proposals in CP 327, as well as the
draft guidance. This will allow ASIC to understand how the guidance can
best assist brokers to meet these new legal obligations. ASIC expects
that the new obligations will also improve competition in the home
lending market.
ASIC seeks public comment on the draft guidance by 20 March 2020.
ASIC intends to publish final guidance before the obligations commence on 1 July 2020.
Download
Consultation Paper 327: Implementing the Royal Commission recommendations: Mortgage brokers and the best interests duty
Background
In February 2019, Parliament passed the Financial Sector Reform (Hayne Royal Commission Response—Protecting Consumers (2019 Measures) Act 2020,
which introduces a best interests duty for mortgage brokers in response
to Recommendation 1.2 of the Royal Commission. The duty is a statement
of principle which seeks to align the interests of the mortgage broker
with the interests and expectations of the consumer.
ASIC’s proposed guidance
will assist mortgage brokers to comply with these new legal obligations
by setting out ASIC’s views on what the best interests duty provisions
require and steps that can minimise the risk of non-compliance.
The best interests duty
introduced by the Government applies in addition to the responsible
lending obligations. ASIC’s draft guidance explains the interaction of
these two obligations, including that information gathered for the
purpose of complying with the responsible lending obligations may help
brokers to comply with the best interests duty.
ASIC’s draft guidance follows research we published last year in Report 628Looking for a mortgage: Consumer experiences and expectations in getting a home loan. Key findings from this research included:
consumers who visit a mortgage broker expect the broker to find them the ‘best’ home loan;
mortgage brokers were inconsistent in the
ways they presented home loan options to consumers, sometimes offering
little (if any) explanation of the options considered or reasons for
their recommendation; and
first home buyers were more likely to take out their loan with a mortgage broker.
Campaigners have called for Chancellor Rishi Sunak to save banknotes and coins, saying without urgent new laws the cash system could collapse within a decade. From the BBC.
They want Mr Sunak to take action in his first Budget on 11 March.
“We
must ensure the shift to digital doesn’t leave millions behind or put
our economy at risk,” said Natalie Ceeney, of the Access to Cash Review.
The Treasury said it wanted “to ensure everyone who needs cash can access it.”
Cash
is important to millions of people, who still use it for paying for
vital goods and services, such as utility and council bills.
According
to the Financial Inclusion Commission, nearly two million people in
Britain don’t have a bank account, meaning they need notes and coins to
pay their way.
There were 11 billion
cash payments in the UK in 2018, but they are forecast to fall to 3.8
billion in 2028, accounting for fewer than one in 10 (9%) of all
payments.
A cashless society
“The UK is fast becoming a cashless society – without knowing what this really means for consumers or for the UK economy,” said Ms Ceeney.
Over
the past year, 13% of free-to-use UK cash points have closed, as lower
levels of cash use have made them economically unviable. A quarter (25%)
of the machines now charge people to withdraw their cash.
The
Post Office’s cash access service has come under threat. Barclays
recently reversed plans to stop customers taking cash out from Post
Offices after a backlash.
Long-term access to cash
“The
cash network has already been dramatically eroded, and unless urgent
action is taken in the Budget, it’s clear that it will crumble
completely,” warned Jenny Ross, Which? Money Editor.
“The
new Chancellor must seize this opportunity and guarantee long-term
access to cash in the Budget, while developing a clear strategy to
ensure that the transition to digital payments doesn’t leave anyone
behind.”
Various initiatives have been
set up by the industry to help maintain people’s access to cash,
including cashback initiatives at local shops and a “request an ATM”
service.
But the Access to Cash Review
believes the only way to manage the cash system is for the government to
legislate and give regulators the tools that they need to protect cash
access.
Banks should be forced to provide suitable cash access to their customers, they say.
A spokesman for the
Treasury said: “Technology has transformed banking for millions of
people, but we know that many still rely on cash.
“That’s why we’ve invested £2bn to ensure everyday banking services are available at 11,500 Post Office branches across the UK.
“We’re also working closely with industry and regulators to ensure everyone who needs cash can access it.”
A
UK Finance spokesman said the banking and finance industry recognises
the importance of ensuring cash remains free and widely available for
those that continue to need it.
It said
the industry has introduced a number of measures to achieve help,
including “arrangements by Link to protect free-to-use ATMs in more
remote and rural areas and to ensure that every High Street in the UK
has free access to cash.”
The trade
body warned that there is no “one size fits all” approach and
understanding the needs of local communities is critical.