Retail Dies A Little More

Australian retail turnover rose 0.2 per cent in September 2019, seasonally adjusted, according to the latest Australian Bureau of Statistics (ABS) Retail Trade figures. In line with our expectations, and continuing to show the pressure on households, and the limited impact of the tax cuts, and even lower interest rates.

This follows a 0.4 per cent rise in August 2019.

Rises were seen in other retailing (0.8 per cent), cafes, restaurants and takeaway services (0.6 per cent), and food retailing (0.1 per cent). These rises were slightly offset by a fall in clothing, footwear and personal accessory retailing (-0.5 per cent) and department stores (-0.2 per cent). Household goods (0.0 per cent) was relatively unchanged.

In seasonally adjusted terms, there were rises in New South Wales (0.3 per cent), Western Australia (0.7 per cent), Tasmania (1.0 per cent), South Australia (0.2 per cent), the Australian Capital Territory (0.1 per cent), and the Northern Territory (0.1 per cent). Victoria (0.0 per cent ) was relatively unchanged. Queensland (-0.1 per cent) fell in seasonally adjusted terms in September 2019.

The trend estimate for Australian retail turnover rose 0.2 per cent in September 2019, following a rise of 0.2 per cent in August 2019. Compared to September 2018, the trend estimate rose 2.4 per cent.

Online retail turnover contributed 6.3 per cent to total retail turnover in original terms in September 2019. In September 2018 online retail turnover contributed 5.6 per cent to total retail.

Quarterly volumes fall 0.1 per cent

For the September quarter 2019, there was a fall of 0.1 per cent in seasonally adjusted volume terms. This follows a rise of 0.1 per cent in the June quarter 2019.

The quarterly fall in volumes was led by cafes, restaurants and takeaway food services (-1.0 per cent), and department stores (-0.1 per cent). Food retailing (0.0 per cent) was relatively unchanged. Household goods (0.9 per cent), other retailing (0.3 per cent), and clothing, footwear and personal accessories retailing (0.3 per cent) rose in seasonally adjusted volume terms.

Westpac 2019 Profit Down 16%

What ever way you look at the 2019 results, out today, Westpac had a bad year in a low growth, low interest rate, high customer remediation environment. Their statutory net profit was $6,784 million, down 16%, while cash earnings were $6,849 million, down 15%.

In FY19 and FY18, the Group raised provisions called “notable items” of $1,130m which relate to Customer remediation Provisions of $958 million (after tax) in FY19, $281 million in FY18.

The majority of the provisions relate to remediation programs for:

  • Ongoing advice service fees associated with the Group’s salaried financial planners and authorised representatives
  • Refunds for certain customers that had interest only loans that did not automatically switch, when required, to principal and interest loans
  • Refunds to certain business customers who were provided with business loans where they should have been provided with loans covered by the National Consumer Credit Protection Act
  • Other items as part of our get it right, put it right initiative Wealth reset In March 2019, the Group announced its decision to reset its Wealth business. In FY19, provisions for restructuring and transition costs were $241 million (after tax $172 million)

Cash earnings per share was 198.2 cents, down 16%. Westpac’s return on equity (ROE) was 10.75%, down 225 bps. The Final fully franked dividend is 80 cents per share, down 15% from 94 cents per share.

Their net interest margin was 2.12%, down 10 bps

Their common equity Tier 1 (CET1) capital ratio was 10.7%, still above APRA’s unquestionably strong benchmark.

Even if you exclude the “one-offs”, cash earnings were $7,979 million, down 4% and the ROE at 12.52%, is down 94 bps.

Westpac said credit quality remains sound and impairment charges remain low at 11 basis points of loans. Nevertheless, they have seen a rise in 90 day mortgage delinquencies over the year, in part due to low wage growth and slowing economic activity. A number of factors are evident:

  • Existing 90+ day borrowers remaining in collections for longer due mainly to weak housing market activity in most of FY19 –
  • A greater proportion of P&I loans in the portfolio (70% of portfolio at 30 September 2019)
  • NSW/ACT delinquencies rose 6bps in 2H19 (16bps higher over FY19) to 69bps at 30 September 2019 (NSW/ACT represents 41% of the portfolio)–
  • Seasoning of the RAMS portfolio, as this portfolio has a higher delinquency profile

70% of Australian home loan customers are ahead on their repayments including offset accounts. Australian properties in possession increased over the year by 162 to 558. Properties in possession continue to be mostly in WA and Qld. Loss rates are 3 basis points. In their “stressed” scenarios losses would rise to ~57 basis points.

They say negative equity remains low based on dynamic calculations using Australian Property Monitors data. Not clear at what level data is applied.

Looking at the segments:

Consumer cash earnings were $3,288, 4% lower due to a decline in non-interest income and increased impairment charges. Mortgage lending increased 1% and deposits rose 2%. Net interest margin was down 3bps due to lower mortgage spreads from increased competition and lower interest only lending.

Business cash earnings were $2,431 and performance was impacted by notable items ($270 million after tax). Excluding these items, cash earnings were $60 million or 2% lower from a reduction in non-interest income and higher regulatory related costs. Deposits rose by 3% over the year. Non-interest income was down 11%, mainly due to provisions as well as lower wealth income from new platform pricing and product mix changes.

Westpac Institutional Bank cash earnings was $1,014. Lower cash earnings were primarily due to a $78 million movement in derivative valuation adjustments, no contribution from Hastings and a $62 million turnaround in impairment charges. (2019 impairment charge of $46 million). In FY18, Hastings contributed $203 million to non-interest income, $158 million to expenses and $29 million to tax.

Westpac New Zealand was the brighter spot, with cash earnings ($NZ) of
1,042 3 (12) Cash earnings growth was supported by a gain on the sale of Paymark and a $10 million impairment benefit. Loans increased 5% with growth evenly spread across mortgage and business lending, while deposits
also grew 4%. RBNZ gaave their NZ IRB model the tick today, after 18 months remediation!

The CEO Brian Hartzer said:

We expect system credit growth in the year to September 2020 to lift from 2.7% this year to 3%. That will be largely driven by housing where we expect a lift from 3.1% to 3.5%, although business credit growth is expected to slow somewhat from 3.3% to 3%.

By my calculations, that would not be sufficient to reverse Westpac’s decline.

Westpac successfully completes RBNZ remediation process

Westpac New Zealand Limited (Westpac) has retained its accreditation as an internal models bank following completion of an extensive remediation process required by the Reserve Bank.

In 2017 the Reserve Bank required Westpac to undertake an independent review of its compliance with internal models obligations. The review found that Westpac was using a number of unapproved models and that it had materially failed to meet requirements around model governance, processes, and documentation.

The Reserve Bank imposed a precautionary capital overlay in light of the regulatory breaches, and gave Westpac 18 months to remedy the failures or risk losing its accreditation as an internal models bank.

Deputy Governor Geoff Bascand says that following the remediation process, Westpac is now operating with peer-leading processes, capabilities and risk models in a number of areas.

“Westpac has taken the findings of the independent review as an opportunity to make meaningful improvements to its risk management, and we commend it for its co-operative and constructive engagement in working with Reserve Bank over the remediation period.

“The changes that Westpac has made to its internal processes, governance and resourcing, as well as a suite of new credit risk models for which it has sought approval, have given us confidence in its capital modelling and compliance and satisfied us that it now meets the internal models bank standard.

“Looking forward, we will continue to hold all internal model banks to the same high standards.”

Internal models banks are accredited by the Reserve Bank to use approved models to calculate their regulatory capital requirements. Accreditation is earned through maintaining high risk management standards, and comes with stringent responsibilities for the bank’s directors and management.

Banks are required to maintain a minimum amount of capital, which is determined relative to the risk of each bank’s business. The way that risk is measured is important for ensuring that each bank has an appropriate level of capital to absorb large and unexpected losses.

The Reserve Bank will amend Westpac’s conditions of registration from 31 December to remove the two percentage point overlay applying to its minimum capital requirements.

As a condition of retaining its accreditation Westpac will need to satisfy several ongoing requirements, which it has committed to resolving, Mr Bascand says.

Mounting Evidence Against Cashless Debit Cards

It would be nice if the “facts” being thrown around in the debate over the Cashless Debit Card were peer-reviewed, or even just evidence-based. Via The Conversation.

Instead, there are anecdotes. And it’s these that are being used to justify the government’s decision to spend A$128.8 million over four years continuing the existing trial of the cashless debit card in five sites in Western Australia, Queensland and South Australia and extending it to Cape York and all of the Northern Territory.

The extension will lift the number of people on the card from 11,000 to 33,000. Most will be Indigenous people – its disproportionate targeting has already attracted the attention of the National Congress of Australia’s First Peoples and the Human Rights Commission.

The cashless card was recommended to Prime Minister Tony Abbott in a report from mining billionaire Andrew Forrest in 2014. He initially called it the “Healthy Welfare Card”.

It wasn’t a new idea. Some A$1 billion dollars had already been spent on income management programs in the past, many of which had failed to meet their stated objectives.

It’s been tried before

The 2007 Basics Card. AAP

The biggest was the Basics Card introduced as part of the 2007 Northern Territory Emergency Response (the “Intervention”) which was only made possible through the suspension of the Racial Discrimination Act.

Research published by the Australian Research Council funded Life Course Centre of Excellence found its introduction was correlated with negative impacts on children, including reductions in birth weight and school attendance.

It points to several possible explanations, including increased stress on mothers, disrupted financial arrangements within households, and confusion about how to access funds.

The government has not addressed these serious issues. Instead, it now seeks to place those who have been left on the basics card for over ten years now, on to the cashless debit card.

What was ‘Basics’ has become ‘Indue’

The 2016 Indue Cashless Debit Card. indue.com.au

The “Indue” Cashless Debit Card trials underway since 2016 direct 80% of each payment to the card (Forrest asked for 100%) where it can only be spent on things such as food, clothes, health items and hygiene products. Purchases of alcohol and withdrawals of cash are not permitted.

The trials are compulsorily for everyone living in the trial sites receiving a disability, parenting, carer, unemployment or youth allowance payment.

My own research in the East Kimberley found it makes those people’s lives harder.

Those targeted are a broad group needing support for a broad range of reasons, yet all are treated as if they have issues with alcohol or drugs or gambling.

Most of the people on it do indeed have a common problem: that is trying to survive on meagre payments in remote environments with a chronically low supply of jobs.

Of all the claims made for the card, the least believable is that it gets its users into jobs.

What it does do is limit access to cash needed for day to day-to-day living. It makes it hard to buy second-hand goods, transport and (at some outlets) food, and can make living more expensive.

For anyone actually struggling with addiction, it can’t substitute for treatment, a concern raised by medical specialists.

While the government says the trials have been community-led, in reality consultation has been limited to a small group of people not subject to the card.

When leaders in the East Kimberley who had agreed to the card withdrew their support, the government continued with the trial.

Its success has not been established

In addition to relaying on anecdotes, the government continues to cite a widely condemned report by Orima Research. Among others, the Australian National Audit Office found this report was inadequate to draw any conclusions from.

Profiting from the Cashless Debit Card has been Indue, a private company whose deputy chairman up until 2013 is now the present President of the National Party, Larry Anthony.

Indue’s involvement is helping to create a two tiered banking system in which most people have a choice of financial providers, but those subject to the card are restricted to one, which provides a very different product to the others.

Indue is also not a member of the Australian Banking Association, and so is not bound by the consumer protection provisions of its Banking Code of Practice.

The inquiry is due to report next week. Given the expensive and harmful consequences of the trial, it ought to find the extension is not justified. There are better ways to spend $128.8 million that would actually help vulnerable Australians.

Author: Elise Klein (OAM), Senior Lecturer in Development Studies, University of Melbourne

Auction Results 02 Nov 2019

Domain released their preliminary results for today.

The latest data continues the story of high clearance rates, though on relatively low volumes (and the weekend before the big race on Tuesday), hence low counts in Melbourne.

Canberra listed 66 auctions, reported 50 and sold 42, with 2 withdrawn and 8 passed in, giving a Domain clearance of 81%

Brisbane listed 121 auctions, reported 54 with 32 sold and 11 withdrawn and 22 passed in, giving a Domain clearance of 49%.

Adelaide listed 82, reported 42, sold 31 with 8 withdrawn and 11 passed in, giving a Domain clearance of 62%

The Pushmi-pullyu Economy – The Property Imperative Weekly 02 Nov 2019

The latest edition of our weekly finance and property news digest with a distinctively Australian flavour.

Contents:

0:25 Introduction
1:15 US Economy
2:20 Fed Cuts
06:40 China/trade
9:10 US Markets
12:10 China GDP

14:00 Australian Section
14:00 ANZ/Credit/Remediation
15:50 Building Approvals
17:07 Auction Results
17:30 Property Prices
20:00 Rental Yields
20:40 Hot Spots
24:40 Wealth Inequality
26:40 First Time Buyer Incentives
27:15 Australian Markets

Action Stations On The Cash Ban!

I discuss the latest with CEC’s Robbie Barwick.

With 2 weeks left to make a Senate submission, we explore some of issues people may want to touch on, to assist.

Final date is 15th November 2019.

https://www.aph.gov.au/Parliamentary_Business/Committees/Senate/Economics/CurrencyCashBill2019

There is still time to make a submission, and stop this from becoming law. Our civil liberties depend on it.

Here’s how you make a submission: email economics.sen@aph.gov.au

Address to: Senate Standing Committees on Economics, PO Box 6100, Parliament House, Canberra ACT 2600

Some points to consider:

Civil liberties – cash is legal tender and you have the right to privacy and to not use a bank; you don’t want government and banks to “monitor and measure” everything you do.

Practical benefits of cash – power supplies and communications technology not always reliable; instant settlement of payments so can be better for commerce, good for discounts etc; whatever else.

Excuses for the law are false. Eliminating the black economy is a lie and won’t work: Australia’s black economy is small and shrinking, and cash restrictions have not reduced black economies in Europe, in fact the opposite.

Restricting cash won’t stop tax evasion, because the majority of evasion is done by large corporations and bank, assisted by the Big Four accounting firms – who want this ban. As Andrew Wilkie said, the government has enough laws to crack down on money laundering and the black economy – use them.

Real reason is to trap Australians in banks. This is explicit from the IMF: Cashing In: How to Make Negative Interest Rates Work. Won’t be able to escape negative interest rates, or bail-in.

Finally, government’s reassurances are fake, not guarantees. Treasury issued a fact sheet, which Melissa Harrison quickly refuted: exemptions aren’t contained in the legislation, just in the regulation that is easily changed.

US Agencies Announce Threshold for Smaller Loan Exemption

The US Consumer Financial Protection Bureau, Federal Reserve Board, and Office of the Comptroller of the Currency today announced that the threshold for exempting loans from special appraisal requirements for higher-priced mortgage loans during 2020 will increase from $26,700 to $27,200.

The threshold amount will be effective January 1, 2020, and is based on the annual percentage increase in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) as of June 1, 2019.

The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 amended the Truth in Lending Act to add special appraisal requirements for higher-priced mortgage loans, including a requirement that creditors obtain a written appraisal based on a physical visit to the home’s interior before making a higher-priced mortgage loan. The rules implementing these requirements contain an exemption for loans of $25,000 or less and also provide that the exemption threshold will be adjusted annually to reflect increases in the CPI-W. If there is no annual percentage increase in the CPI-W, the agencies will not adjust this exemption threshold from the prior year. However, in years following a year in which the exemption threshold was not adjusted, the threshold is calculated by applying the annual percentage change in CPI-W to the dollar amount that would have resulted, after rounding, if the decreases and any subsequent increases in the CPI-W had been taken into account.