US Hourly Earnings Up Just 0.4% In Past Year

Data from the US Bureau of Labor Statistics  shows from February 2017 to February 2018, real average hourly earnings increased 0.4 percent, seasonally adjusted. The increase in real average hourly earnings combined with a 0.3-percent increase in the average workweek resulted in a 0.6-percent increase in real average weekly earnings over the 12-month period.

Real average hourly earnings for production and nonsupervisory employees increased 0.2 percent from January to February, seasonally adjusted. This result stems from a 0.3-percent increase in average hourly earnings combined with a 0.1-percent increase in the Consumer Price Index for Urban Wage Earners and Clerical Workers.

Real average weekly earnings increased 0.8 percent over the month due to the increase in real average hourly earnings combined with a 0.6-percent increase in average weekly hours.

From February 2017 to February 2018, real average hourly earnings increased 0.1 percent, seasonally adjusted. The increase in real average hourly earnings combined with a 0.6-percent increase in the average workweek resulted in a 0.7-percent increase in real average weekly earnings over this period.

NOTE: Seasonally adjusted data are used for estimates of percent change from the same month a year ago for current and constant average hourly and weekly earnings. Special techniques are applied to the CES hours and earnings data in the seasonal adjustment process to mitigate the effect of certain calendar-related fluctuations. Thus, over-the-year changes of these hours and earnings are best measured using seasonally adjusted series. A discussion of the calendar-related fluctuations in the hours and earnings data and the special techniques to remove them is available in the February 2004 issue of Employment and Earnings or at www.bls.gov/ces/cesfltxt.htm.

Global Growth Is Booming, Central Banks Turning Less Cautious

The global economy is experiencing boom-like growth conditions and central banks are becoming less cautious as inflation risks rise, according to Fitch’s latest “Global Economic Outlook” (GEO). As a result, Fitch predicts further interest rate rises over the next couple of years.

The US, eurozone and China are all likely to grow well above trend in 2018 and global economic growth is set to remain above 3% for three consecutive years until 2019, a performance not achieved since the mid 2000s.

“The acceleration in private investment, pro-cyclical US fiscal easing and global monetary policies that are still very loose are all boosting growth in the advanced economies, while high commodity prices and the weakening of the dollar have underpinned the emerging market recovery. China is gently touching the brakes but is still prioritising high growth in the near term,” said Brian Coulton, Chief Economist at Fitch.

Growth in advanced economies is benefitting from a strengthening investment cycle as business sentiment improves, external demand picks up and labour resources become increasingly scarce. Tax reforms in the US could also boost investment. The pick-up in bank lending in the eurozone is particularly helping small and medium-sized firms, which account for half of capex, but reduced economic and policy uncertainty and rising capacity utilisation rates are also supporting the investment outlook. We have revised up investment forecasts for the US and the eurozone.

Consumer spending in advanced economies is benefitting from the ongoing tightening in labour markets. Global monetary policy settings remain highly accommodative and credit conditions very easy despite the recent increases in bond yields. US fiscal policy is being eased aggressively, with the federal deficit likely to rise to over 5% of GDP by 2019 from around 3.5% in 2017.

Strong growth and declining unemployment have increased inflation risks in the advanced economies but a sharp surge in inflation still seems unlikely. The trade-off between inflation and unemployment has flattened in recent years, headline unemployment rates may understate slack and rising investment could boost productivity, holding down unit labour costs. Nevertheless, diminishing spare capacity is cementing the move towards monetary policy normalisation.

“Central banks are becoming less cautious about normalising monetary policy in the face of strong growth and diminishing spare capacity. We expect the Fed to raise rates no less than seven times before the end of next year. And while still sounding tentative, the ECB is clearly laying firm groundwork for phasing out QE completely later this year. We now also expect the BoE to raise rates by 25bp this year,” added Coulton.

We expect China’s economy to slow in 2018 as credit growth decelerates, housing sales flatten off and investment growth eases. Macro-prudential tightening has been a bit more concerted than expected but the authorities have recently reaffirmed their commitment to maintaining high growth rates in the short term. The wider emerging-market recovery has been helped by a weaker dollar and rising commodity prices but these benefits are likely to fade. We expect oil prices to fall back below USD60 per barrel (Brent) and the dollar to be supported by faster Fed rate rises and improving US growth prospects.

We have again upgraded growth forecasts as the eurozone recovery powers ahead, US fiscal policy eases by more than anticipated and investment prospects improve. US growth has been revised up to 2.7% in 2018 and 2.5% in 2019 from 2.5% and 2.2%, respectively, in our December 2017 GEO. Eurozone growth has been revised up to 2.5% in 2018 and 1.8% in 2019 from 2.2% and 1.7%, respectively. China’s 2018 forecast has also been revised up slightly (by 0.1pp) but growth is still expected to slow to 6.5% from 6.9% in 2017. Growth forecasts for Japan and the UK are unchanged for 2018 at 1.3% and 1.4%, respectively.

The key risks to the forecasts are a sharp pick-up in US core inflation – which would necessitate more abrupt, growth-negative adjustments in interest rates – and a major escalation in global trade protectionism. US-China trade tensions seem highly likely to increase in coming months but the situation would have to deteriorate quite dramatically to adversely affect the near-term global growth outlook.

Aussie Home Loans Relied On The Banks To Trap Mortgage Fraud

From Business Insider.

CBA owned mortgage broker Aussie Home Loans does not have the capability to detect fraud committed by its brokers and instead waits until the banks detect scams and alert them as it does not have the resources.

The admissions were made by Aussie Home Loans general manager of people and culture Lynda Harris in a second day of questioning at the banking royal commission from counsel assisting Rowena Orr, QC.

It was revealed the company had recently bolstered the risk and compliance function at the broker to a total of nine employees.

Ms Harris was being questioned about the process behind the termination of an Aussie Home Loans broker Emma Khalil. Ms Khalil submitted multiple loan applications that were based on fake supporting documents including many from the same employer and with the same details.

“We don’t have that, we are reliant on the lenders to provide that expertise because ultimately they are the organisation that is approving the loans,” Lynda Harris said.

The fraud was not picked up until the client applied for a credit card with Westpac using different income details.

After the extent of the fraud committed by Ms Khalil was revealed, multiple internal emails between Aussie management revealed the broker was waiting for confirmation from Westpac before acting.

“If Westpac find that there was fraudulent activity on her part and revoke her accreditation, then that will be in breach of her contract and ultimately result in her termination from Aussie,” one such email read.

Ms Orr asked why Aussie was waiting to hear back from Westpac before terminating the employment of Ms Khalil despite identifying a number of suspect loans supported by similar or identical fake letters of employment.

“So Westpac – and in fact all large banks, have credit specialists and fraud teams that have the expertise to be able to determine fraud. We don’t have that, we are reliant on the lenders to provide that expertise because ultimately they are the organisation that is approving the loans,” Ms Harris said.

“What I want to put to you, Ms Harris, is that it’s not good enough, it’s not good enough that Aussie Home Loans outsources to a third party investigations of a fraudulent conduct made against one of its own employees. What do you say to that?” Ms Orr asked.

Ms Harris replied by saying that Ms Harris was not an employee of Aussie Home Loans and was in fact an independent contractor. She also said that company was not able to justify the expense.

Following an incredulous look from Ms Orr, Commissioner Ken Hayne sought clarification of the point

“It is open to me to conclude from your evidence from the time of the Khalil events and earlier, Aussie was of the view it was the role of the lender to investigate and determine whether there was fraud associated with one or more transactions?”

“Is it open to conclude from what you have told me that it remains Aussie’s view that it is for the lender and not Aussie to investigate and determine whether there was fraud associated with one or more transactions?”

Ms Harris explained the mortgage broker continued to invest in its systems and processes and hoped to develop a fulsome and rigorous process for the detection of anomalies in the loans submitted by its brokers.

She said the mortgage broker was developing a dashboard that would give it better visibility over its network however it was still in pilot phase.

Broker or Banker – Which is Best?

Well, according to new research from Roy Morgan, home loan customer satisfaction with banks when using a mortgage broker was only 77.3%. This compares to 80.3% when home loans were obtained in person at a branch. So Banker is best….

Even among more recent home loans (held for under six years) satisfaction with going directly into branch was 81.7% compared to 78.7% for mortgage brokers. This is an important finding because it illustrates the potential impact that a third party can have on the satisfaction level of customers with their banks.

These results cover the six months to January 2018 and are from the Roy Morgan Single Source survey of over 50,000 consumers per annum, including over 12,000 mortgage holders.

Nearly all of the largest banks home loan customers have higher satisfaction with their bank when they obtained their loan in person at a branch, rather than through a mortgage broker. Home loan customers of Bendigo Bank who obtained their loan in person at a branch had the highest satisfaction with 92.6%, followed by Bankwest (87.3%) and St George (86.8%). The best of the big four was NAB with 82.4%, followed by ANZ (79.7%). All of the largest banks, with the exception of Westpac, had higher satisfaction when going direct rather than using mortgage brokers.

Home Loan Consumer Satisfaction: Obtained through Branch vs Mortgage Broker2 – Largest Home Loan Banks1

Source: Roy Morgan Single Source (Australia). 6 months to January 2018, n= 6,052 Base: Australians 14+ with home loan. 1. Based on largest number of home loans purchased at a branch. 2. Excludes other methods of obtaining home loans. 3. Includes brands not shown.

Satisfaction when using mortgage brokers was highest for St George with 85.6%, Bankwest (82.1%) and Suncorp Bank (82.0%). Each of the big four were below the market average (77.3%) for home loan customer satisfaction when using a mortgage broker, with the best of them being NAB (76.4%) and Westpac (75.7%).

Home loan customers go in person to branch

Despite many channels available to obtain home loans, over half (52.4%) of all current loans were sourced from going in person to a bank branch. This is well ahead of the 34.3% who purchased their loan through a mortgage broker. With these two channels accounting for 86.7% of the current market, it is important for banks to know how they perform in each in terms of customer satisfaction.

Method Used To Obtain Home Loan

Source: Roy Morgan Single Source (Australia). 6 months to January 2018, n= 6,052. Base: Australians 14+ with home loan
Other channels used to obtain home loans were, ‘in person with a mobile bank representative’ (8.7%, satisfaction 78.9%) and ‘over the phone’ (4.0%, satisfaction 80.3%).

ANZ to suspend consumer asset finance in Australia

ANZ has announced it will suspend providing new secured asset finance loans for retail customers in Australia while it undertakes a detailed review of its business.

Consumer asset finance includes loans provided for motor vehicles, boats and caravans for retail customers. The announcement covers both direct and broker originated channels.

ANZ will continue to service its existing consumer asset finance customers and will continue to provide customers with access to personal loans during the suspension.

Its asset finance product for commercial customers is not impacted by this announcement.

ANZ Managing Director Retail Distribution Catriona Noble said: “Given the increased technology costs required to effectively compete in the secured consumer asset finance market, we have decided to suspend all new loans while we conduct a detailed review of the business.

“Our secured consumer asset finance product represents less than one per cent of revenue within our broader Australian business, so we need to assess if it is better for our customers, shareholders and employees if we focus our investment on areas of our business that are core to what we do.

“Providing asset finance solutions for commercial customers remains a core business for ANZ and we will also continue to service existing retail customers for the duration of their loans,” Ms Noble said. The suspension of new loans is effective 30 April 2018. The review is expected to be completed by 30 September 2018.

NAB launches super virtual assistant

From Financial Standards.

NAB has launched a digital assistant that helps MLC members engage with their superannuation.

Available on Google Home devices, Talk to MLC answers 15 common questions members ask: such as how to open an MLC account, find lost super and change investment options.

MLC customer experience specialist Peter Forster said the super fund expects most members to access superannuation in a way that’s convenient and personalised without the need for passwords.

He said millennials and older Australians will likely be the first to embrace Talk to MLC.

“The technology took us six weeks to develop and deploy, and we’re in the process of developing other technology at a similar speed that will help to reduce asymmetry of information and further benefit our customers,” Forster said.

He added in the near future MLC will be able to provide personalised tips to help members boost their super; project where their super balance will be at retirement time; and advise how best to invest their money in super.

NAB executive general manager of digital and innovation Jonathan Davey said the proliferation of voice-activated, hands-free devices such as Siri and Google Home and Amazon’s Alexa in the Australian market is reshaping consumer behaviour and expectations.

“We live in a world that wants instant gratification. We want quick answers and problems that are solved immediately – we don’t want to be left waiting. Our lives are busier than ever before,” Davey said.

Early this year, CBA launched Ceba, a chatbot that recognises about 60,000 consumer banking questions.

Ceba’s point of difference, according to CBA executive general manager digital Pete Steel, is that it can actually carry out tasks for customers, rather than providing instructions on how they can be done.

ANZ is also deploying chatbots with the help of Progress’ NativeChat, to enable customers to converse and transact with chatbots naturally. NASDAQ-listed Progress helps develop industry-specific and self-learning chatbots for organisations.

Banking Is Changing – A Case In Point – NAB and The Riverina

A release from NAB today.  Bye-bye branches.

In 2018, the way customers are banking in the Riverina and the surrounding areas has changed. Today, in response, NAB confirms changes to some of its branches in the area.

  • NAB invests $1.6M to improve branches in the Riverina and surrounding areas in 2017 and 2018.
  • Following consultation with local teams, NAB can confirm Ardlethan, Lockhart, Grenfell, Culcairn, Boort, Barham and Euroa branches will close in June.
  • Customers in these towns can continue to do their banking at Australia Post offices, including making deposits up to $10,000 cash or withdrawals up to $2,000 per day.
  • NAB continues to back the Riverina through its other NAB branches across the region, sponsorships, including NAB AFL Auskick, and by funding and advocating for infrastructure so regional areas can grow.
  • Our business and agri bankers will continue to service the areas.

Locally, NAB is investing more than $1.6M into improving branches in Cowra, Seymour and Kerang, completed last year, and Tatura, Alexandra and Griffith, scheduled to be completed by September 2018, including installing and upgrading 32 ATMs in the area. Many of these ATMs are ‘Smart ATMs’, where customers can make deposits, check balances, and withdraw cash so customers can bank at their convenience.

As improvements are made to some branches, other branches in the area will be closing. Between 80-90% of NAB customers in Ardlethan, Lockhart, Grenfell and Culcairn are using other branches in the area such as Temora, Wagga Wagga, Young and Holbrook. Similarly approximately 85% of customers using Euroa, Boort and Barham are using other branches .

NAB General Manager, Retail, Paul Juergens, explained the decision was a difficult one to make and was only made after careful consideration.

“While our branches continue to be an important part of what we do at NAB, the way our customers are banking has changed dramatically in recent years,” Mr Juergens said.

“Increasingly we find that our customers are banking at other branches, or prefer to do their banking online, on the phone, or through our mobile app.

“In the locations we are closing, more than 80% of our customers are also using our other NAB branches in the area.

“Importantly, we are continuing to support the Riverina and surrounding areas, including a $1.6M investment into other branches in the area as well as through local sponsorships.”

Mr Juergens emphasised that NAB wants to continue to help our customers with their banking.

“Over the coming weeks, we’ll be spending time with our customers explaining the different banking options available to them, including online banking and banking through Australia Post.

“We know that some NAB customers still like to bank in person, which is why we have a strong relationship with Australia Post offices, which offer banking services on NAB’s behalf.

“At Australia Post, NAB customers can do banking like check account balances, pay bills and make deposits up to $10,000 cash or withdrawals up to $2,000 per day.”

NAB is working with our local branch employees to discuss their next steps.

“When we make changes to our branches, we make every effort to find opportunities for our local teams at other branches in our network, and often this is possible. If we can’t find opportunities, we help our employees through The Bridge, our industry leading program where employees are provided up to six months of career coaching as they decide what’s next for them – whether that be retirement, pursuing a new career or starting a small business.”

ABA’s Positive Spin On ACCC Report

Every cloud, even the ACCC report, they say has a silver lining. The ABA found theirs…. but it sort of missed the point….

The Australian Banking Association welcomes today’s ACCC interim report into residential mortgages, which clearly shows very high levels of discounting in the Australian home loan market. It’s clear that competition is delivering better deals for customers, shopping around works and Australians should continue to do so to get the best discounts on the advertised rate.

The report itself states that “an overwhelming majority of borrowers with variable rate residential mortgages at the Inquiry Banks were paying interest rates significantly lower than the relevant headline rate” (the advertised rate). Discounts on home loans ranged between .78% and 1.39% below the relevant headline interest rate.

The advertised variable discount rate for home buyers today is 4.5%, close to the lowest ever recorded.

Data from APRA(1) and Canstar further illustrates there is strong competition in the home loan market, with over 140 providers, offering over 4,000 home loan products. Truly a vast and competitive market for Australians to choose a home loan.

Other evidence shows that Australians are taking advantage of this competitive market and are shopping around. Research by Galaxy shows that:

  • 3 million people had switched banks over the last three years.
  • Of those who had switched banks over the last three years, two-thirds (68 per cent) found that switching was an easy process.

SME Funding an Issue Says New Report

The latest edition of the Scottish Pacific SME Growth Index has been released. It gives an interesting snapshot on the critically important SME sector in Australia. Once again, as in our own SME surveys, cash-flow is king. 90% of SME owners said they faced cash-flow related issues.  That said, the non-bank sector, including Fintechs need to do more to raise awareness of the solutions they offer.

SME business confidence is on the rise finds small business owners forecasting revenue to improve during the first half of 2018.

There appears to be a splitting of the pack in SME fortunes, with a greater number of previously “unchanged” growth SMEs moving into positive or negative growth.

For most SMEs cash flow has improved compared to 12 months ago, however one in 10 say they are worse off now. The number of SMEs reporting significantly better cash flow (27%) and better cash flow (42%) will hopefully act as a major driver of new capital expenditure and business investment demand.

Despite this reported rise in cash flow, nine out of 10 SMEs say they had cash flow issues in 2017 and nine out of 10 say these issues impacted on revenue. On average, small businesses say that better cash flow would have increased their 2017 revenue by 5-10%.

For SMEs with plans to invest in expansion over the next 6 months, 24% of them report they will fund that growth by borrowing from their main relationship bank – continuing a downward trend, and well short of the high of 38% who nominated this option to fund growth in the first round of the Index in September 2014.

21.7% of SMEs say they plan to use non-bank lenders to fund upcoming growth (with 90.8% planning to use their own funds). Non-bank lending intentions have trended upwards since the first Index, closing the gap between bank and non-bank lending intentions. Despite these intentions, more than 91% of SMEs responded in H1 2018 that in the previous 12 months they had not accessed any non-bank lending options to provide working capital for their business.

So while SMEs seem unsatisfied with traditional banks, they are not yet fully accessing opportunities available to them in the non-banking sector.

Results show that growth SMEs are five times more likely to use alternative lending options than declining growth SMEs, with debtor finance the most popular option. The growth potential for the non-bank lending sector is significant, given that 48% of SMEs who didn’t use non-bank lending in 2017 are considering it for 2018.

With SME owners revealing a solid reliance on personal credit cards to give their business the working capital required for day to day operations, those with better business solutions must find a way to reach these small business people.

Businesses implementing appropriate working capital solutions to get on top of cash flow impediments are well placed to realise their growth ambitions.

What The Banks’ Memos Say

An excellent summary of the ACCC’s report, which we discussed yesterday, from MPA’s Otiena Ellwand.  It confirms the banks were well aware of the opportunity to capture substantial economic benefit of hundreds of millions of dollars in additional revenue, and a quest to meet financial targets.

The ACCC’s interim report into residential mortgage pricing reveals the “lack of transparency” around how the ‘inquiry banks’ – ANZ, CBA, Macquarie, NAB and Westpac— make these decisions.

The regulator found a “lack of vigorous price competition” between the big four banks in particular, with negative public reaction being a major concern.

The ACCC examined thousands of internal documents for this report. This is what they reveal:

1. Banks raised rates to reach internal performance targets:

The ACCC found that achieving profit and/or revenue-related performance targets affected the banks’ decisions on interest rates.

For example, concern about a shortfall relative to target was a key factor in two inquiry banks increasing headline variable interest rates in March 2017.

Tweaking the headline variable interest rates may be in the banks’ favour because it affects both new and existing borrowers, so even small increases can have a significant impact on revenue, the report found. And the majority of existing borrowers would likely not be aware of small changes in rates and would therefore be unlikely to switch.

2. A shared interest in avoiding disruption:

The banks’ pricing behaviour “appears consistent with ‘accommodating’ a shared interest in avoiding disruption of mutually beneficial pricing outcomes”, the ACCC found.

Instead of trying to increase market share by offering the lowest interest rates, the big four banks were mainly preoccupied and concerned with each other when making pricing decisions.

In fact, in late 2016 and early 2017, two of the big four banks each adopted pricing strategies aimed at reducing discounting in the market even though this was potentially costly for them if the other majors didn’t follow suit.

3. Reputation is everything:

The banks are particularly attentive to when and how they explain interest rate decisions to the public, and strong public reaction can even put pricing decisions on hold.

One inquiry bank decided to defer a rate rise due to the reputational impact.

Another bank’s internal document noted that changing the headline variable interest rate without an easily understood reason or trigger event could have the “potential to attract a lot more attention and focus” from the public.

In an email discussion among a group of bank executives, one leader noted that it had not made the case for repricing its back book.

“I am also very conscious that we suspect that many first home buyers, unable to afford owner occupier homes, have instead have [sic] bought [an] investment property to take advantage of the low interest rates, tax break and keep a foot on the housing market. I don’t think that this would play well from a customer or community stand point,” the executive wrote.

4. Not just about APRA:

In July 2015, all of the big four banks attributed interest rate increases to APRA’s limits on investor lending.

However, one inquiry bank said in an internal memo that the “substantial economic benefit” of hundreds of millions of dollars in additional revenue was a consideration in its decision.

Where does this ACCC report come from?

Back in June 2017, the banks indicated that rate increases were primarily due to APRA’s regulatory requirements, but once under further scrutiny they admitted that other factors contributed to the decision, including profitability.

In December, the ACCC was called on by the House of Representatives Standing Committee on Economics to examine the banks’ decisions to increase rates for existing customers despite APRA’s speed limit only targeting new borrowers.

The investigation falls under the ACCC’s present enquiry into residential mortgage products, which was established to monitor price decisions following the introduction of the bank levy.