Small Businesses Warned on Email Practices

From Smart Company.

Small businesses are warned to get across their obligations when managing customer databases and sending email communications, after internet provider TPG was fined $360,000 this month for failing to process “unsubscribe” requests from customers.

The Australian Communications and Media Authority (ACMA) confirmed last Friday that TPG Internet received the infringement notice after an investigation prompted by customer complaints revealed the company’s “unsubscribe” function was not working as required in April 2017.

Customers complained that despite having hit the “unsubscribe” button after receiving electronic promotions from TPG, and withdrawing consent to receive such material, they kept getting these messages.

ACMA found TPG’s systems weren’t processing the requests properly in the month of April, meaning the company breached subsection 16(1) of the Spam Act 2003, which relates to sending messages to customers without their consent.

The Act makes it compulsory for businesses sending electronic communications to include “a functional unsubscribe facility”.

“This is a timely reminder to anyone who conducts email or SMS marketing to make sure the systems they have for maintaining their marketing lists are working well,” ACMA chair Nerida O’Loughlin said in a statement.

The communications authority has marked consent-based marketing strategies as an area of top priority.

However, director of CP Communications Catriona Pollard tells SmartCompany that in her experience discussing email and electronic content with businesses, too many are not aware of are rules for collecting data and communicating with customers.

“I would suggest there is a high percentage of people who haven’t ever read the Spam Act and don’t have any information about what they can and can’t do,” she says.

Aside from the risks of fines, Pollard says from a brand perspective, this lack of knowledge can mean companies might really infuriate customers.

“People hate spam, and I think businesses are often more focused on building up their database than on how people will see them,” she says.

Unsubscribes are unavoidable, so make sure the function works

Pollard warns businesses never to do things like “hide the unsubscribe button”, explaining unsubscribe requests are “part and parcel” of sending any digital communication, and businesses must take that on board.

Companies will see regular unsubscribe requests from customers, but even so, “email marketing is still one of the most powerful marketing tools,” Pollard says.

Director of InsideOut PR, Nicole Reaney, observes businesses are often keen to use low-cost formats like email to build a user base, but they still have to follow legislative requirements and make sure customers have consented to getting this information.

“It’s extremely tempting for businesses to utilise the very affordable and efficient platform of digital media with direct emails and text messages. However, it does place them in a position of exposure if there was no prior relationship or consent to the contact,” she says.

Pollard says for smaller operators, one way to get bang for buck is to focus on writing informative and useful content for your audience. That way, regardless of some people hitting the unsubscribe, a business will be engaging with those who most want that kind of information.

“Writing really good copy is really effective. It’s not just thinking about blasting information out to your database,” she says.

SmartCompany contacted TPG Internet for comment but did not receive a response prior to publication.

US Tax Plan Will Be Revenue Negative, Result in Higher Deficits

United States: Outlook for Public Finances Worsens says Fitch Ratings who expects a version of the tax cuts presented in the Tax Cuts and Jobs Act to pass the US Congress.

Such reform would deliver a modest and temporary spur to growth, already reflected in growth forecasts of 2.5% for 2018. However, it will lead to wider fiscal deficits and add significantly to US government debt. As such, Fitch has revised up its medium-term debt forecast.

US federal debt was 77% of GDP for this fiscal year. Fitch believes the tax package will be revenue negative, even under generous assumptions about its growth impact. Under a realistic scenario of tax cuts and macro conditions, the federal deficit will reach 4% of GDP by next year, and the US debt/GDP ratio would rise to 120% of GDP by 2027.

The Republican tax plan delivers a tax cut on corporations, seeking to lower the corporate tax rate to 20% from 35%, and removing many exemptions, while eliminating some tax breaks affecting corporate and personal filers. It would leave the overall personal tax burden somewhat lower, although the effects would differ depending on circumstances.

Tax cuts may lead to a short-lived boost to output, but Fitch believes that they will not pay for themselves or lead to a permanently higher growth rate. The cost of capital is already low and corporate profits are elevated. In addition, the effective tax rate paid by large corporations is well below the existing statutory rate. From a macroeconomic perspective, adding to demand at this point in the economic cycle could add to inflationary pressures and lead to additional monetary policy tightening.

Fitch expects US economic growth to peak at 2.5% in 2018 before falling back to 2.2% in 2019. The US will enter the next downturn with a general government “structural deficit” (subtracting the impact of the economic cycle) larger than any other ‘AAA’ sovereign, leaving the US more exposed to a downturn than other similarly rated sovereigns.

The US is the most indebted ‘AAA’ country and it is running the loosest fiscal stance. Long-term debt dynamics are also more negative than those of peers, with health and social security spending commitments set to rise over the next decade. In Fitch’s view, these weaknesses are outweighed by financing flexibility and the US dollar’s reserve currency status, underpinning its ‘AAA’/Stable rating. The main short-term risk to the rating would be a failure to raise the debt ceiling by 1Q18, when the Treasury’s scope for extraordinary measures is expected to be exhausted. The debt ceiling is currently suspended until early December.

What Does The Recent Bank Results Tell Us About Mortgage Defaults?

We have now had results in from most of the major players in retail banking this reporting season. One interesting point relates to mortgage defaults.  Are they rising, or not?

Below are the key charts from the various players. Actually, there are some significant differences. Some are suggesting WA defaults in particular are easing off now, while others are still showing ongoing rises.

This may reflect different reporting periods, or does it highlight differences in underwriting standards? Our modelling suggests that the rate of growth in stress in WA is slowing, but it is rising in NSW and VIC; and there is a 18-24 month lag between mortgage stress and mortgage default. So, in the light of expected flat income growth, continued growth in mortgage lending at 3x income, rising costs of living and the risk of international funding rates rising, we think it is too soon to declare defaults have peaked.

One final point, many households have sufficient capital buffers to repay the bank, thanks to ongoing home price rises. Should prices start to fall significantly, this would change the picture significantly.

Bank of Queensland

ANZ

CBA

Genworth

Westpac

US Corporate Tax Reform: Implications for the Rest of the World

The Treasure has released a paper “US Corporate Tax Reform: Implications for the rest of the world” which examines the likely impacts of the US reforms on the US and on the rest of the world, placing the US changes in the context of the global trend toward lower corporate taxes.

The paper says that the economic impact of the Republicans’ tax plan will depend on how time and compromise shape the package that is ultimately legislated. Key in this regard is the size of the cut, how it is funded and whether investors believe it is a permanent reduction.

On 27 September 2017, the United States (US) Administration and Republican Congressional leadership released a framework for US tax reform, including a reduction in the federal corporate tax rate from 35 to 20 per cent.

The key elements of tax framework with respect to corporate tax are:

  • a reduction in the federal corporate income tax rate from 35 to 20 per cent;
  • immediate expensing of depreciable assets (except structures) for at least 5 years;
  • limitations on interest deductions;
  • the removal of the domestic production deduction;
  • an exemption for dividends paid by foreign subsidies to US companies (where the US company owns 10 per cent or more of the foreign company); and
  • a one-time tax on overseas profits.

These proposals were reflected in the draft of the Tax Cuts and Jobs Act released by the House Ways and Means Committee on 2 November 2017.

This paper examines the likely impact of this reform on the US and rest of the world, placing the US changes in the context of the global trend toward lower corporate taxes.

In theory, a corporate tax rate cut stimulates investment by making more investment opportunities sufficiently profitable to attract financing. The extent to which this is the case in practice will depend on how the tax cut is funded and whether investors consider the tax cut to be permanent. If the corporate tax rate cut results in an overall reduction in tax on US investments and investors believe that the tax cut is permanent, we are likely to see an increase in the level of US investment. If investors believe that the tax cut is temporary, the effect on US investment may be minimal. Ultimately, the economic impact of the plan on the US will depend on how time and compromise shape the final package.

If a US corporate tax cut does result in an investment boom, goods, labour and funds will be required. In a scenario in which the investment boom is largely funded domestically from US savings, negative impacts on the rest of the world are likely to be short-lived and modest.

Realistically, however, a US investment boom is likely to be only partially funded domestically and would draw funds and goods from the rest of the world. In this scenario, the rest of the world would experience a decline in capital stock resulting from the flow of capital into the US. The magnitude of the resulting welfare loss in those countries will depend on the size of the US corporate tax cut; how it is funded; the elasticity of the US labour supply response and the US saving response. For Australia, the size of the negative impact will also depend on how other countries respond.

While the size of the US economy means changes to the US tax system have particular significance, it is important to consider these reforms as part of an ongoing trend. As capital markets have become increasingly global and business location increasingly mobile, governments have sought to drive economic growth in their jurisdictions by lowering corporate tax rates. The US reforms have the potential to accelerate tax competition between jurisdictions, making Australia’s current corporate tax rate increasingly uncompetitive internationally.

While the Administration and Republican Congressional leadership have indicated that they will ‘set aside’ the idea contained in the House Republicans’ 2016 plan to move to a destination-based cash flow tax (DBCFT), this paper also provides a discussion of the theoretical underpinnings of the proposal.

CBA 1Q18 Trading Update

CBA released their latest trading update today, with a rise in profit, and volumes as well as a lift in capital. Expenses were higher reflecting some provisions relating to AUSTRAC, but loan impairments were lower. WA appears to be the most problematic state.

Their unaudited statutory net profit was approximately $2.80bn in the quarter and their unaudited cash earnings was approximately $2.65bn in the quarter, up 6% (on average of two FY17 second half quarters). Both operating income and expense was up 4%.

Operating income grew by 4%, with banking income supported by improved margins. Home lending growth was managed within regulatory limits.

Trading income was broadly flat. Funds management income decreased slightly, with lower margins partly offset by the benefit of positive investment markets, which contributed to AUM and FUA growth in the quarter.

Insurance income improved reflecting fewer weather events and the non-recurrence of loss recognition.

Group Net Interest Margin was higher in the quarter driven by asset repricing and reduced liquid asset balances, partly offset by the impact of the banking levy, higher funding costs and competition.

Expense growth of 4% includes provisions for their current estimates of future project costs associated with regulatory actions and compliance programs – including those related to the Australian Transaction Reports and Analysis Centre (AUSTRAC) proceedings. On 3 August 2017, AUSTRAC commenced civil penalty proceedings against CBA. CBA is preparing to lodge its defence in response to the allegations in the Statement of Claim and at this time it is not possible to reliably estimate any potential penalties relating to these proceedings. Any such potential penalties are therefore excluded from these provisions.

Loan Impairment Expense (LIE) of $198 million in the quarter equated to 11 basis points of Gross Loans and Acceptances, compared to 15 basis points in FY17.

Corporate LIE was substantially lower in the quarter. Troublesome and impaired assets were lower at $6.1 billion, with broadly stable outcomes across most sectors.

Consumer arrears were seasonally lower but continued to be elevated in Western Australia.

Prudent levels of credit provisioning were maintained, with Total Provisions at approximately $3.7 billion.

68% of their balance sheet is funded from deposits.

The average tenor of wholesale funding extended a little. The Group issued $9.5 billion of long term funding in the quarter, including a 30 year US$1.5bn issue –a first for an Australian major bank.

The Net Stable Funding Ratio (NSFR) was 107% at September 2017.

The Liquidity Coverage Ratio (LCR) was 131% as at September 2017, with liquid asset balances and net cash outflows moving by similar amounts in the quarter. Liquid assets totalled $132 billion as at September 2017.

The Group’s Leverage Ratio was 5.2% on an APRA basis and 5.9% on an internationally comparable basis, an increase under both measures of 10 basis points on June 17.

The Group’s Common Equity Tier 1 (CET1) APRA ratio was 10.1% as at 30 September 2017. After allowing for the impact of the 2017 final dividend (which included the issuance of shares in respect of the Dividend Reinvestment Plan), CET1 increased 55 basis points in the quarter.

Credit Risk Weighted Assets (RWAs) were lower in the quarter, contributing 16 basis points to CET1, partially offset by higher IRRBB9(-13 bpts) driven by interest rate movements and risk management activities.

The maturity of a further $350m of Colonial debt compressed CET1 by 8 basis points in the quarter. The final tranche of Colonial debt ($315m) is due to mature in the June 2018 half year, with an estimated CET1 impact of -7 basis points.

In September 2017 the Group announced the sale of its Australian and New Zealand life insurance operations to AIA Group Ltd. The sale is expected to be completed in calendar year 2018 and is expected to result in a pro-forma uplift to the CET1 (APRA) ratio of approximately 70 basis points.

ANZ Appoints New Lead for New Business, Emerging Tech and Ventures

ANZ today announced it has appointed Ron Spector as Managing Director, New Business, Emerging Technology and Ventures, reporting to Group Executive Digital Banking Maile Carnegie.

Currently based in San Francisco, Mr Spector is a strategic innovation and venture advisor with more than 27 years’ international experience in financial services, retail and media industries.

In his new role, Mr Spector will have responsibility for developing potential new business opportunities and disruptive technologies as well as investing in emerging growth companies to improve the products and services provided to customers.

Commenting on the appointment, Mrs Carnegie said: “Ron will lead a Group-wide function to accelerate our efforts to make our customers’ lives simpler and find new, innovative opportunities to build a world-class digital bank.

“We’re confident this focus will open new markets for ANZ, while also improving the products and services we provide our customers,” Mrs Carnegie said.

Prior to joining ANZ, Mr Spector was CEO of Circini Innovation in San Francisco, CEO of Conferserv Inc, and Senior Vice President of MediaZone. He was also a founding partner of Macquarie Technology Ventures and was US Head of Technology Investment Banking at Macquarie Group.

Mr Spector holds a Doctor of Jurisprudence from the University of the Pacific and a Bachelor of Arts (Hons) from the University of California.

Mr Spector will be based in Sydney from January 2018.

RBA Holds (Month 15)

At its meeting today, the Board decided to leave the cash rate unchanged at 1.50 per cent.

Conditions in the global economy are continuing to improve. Labour markets have tightened and further above-trend growth is expected in a number of advanced economies, although uncertainties remain. Growth in the Chinese economy is being supported by increased spending on infrastructure and property construction, with the high level of debt continuing to present a medium-term risk. Australia’s terms of trade are expected to decline in the period ahead but remain at relatively high levels.

Wage growth remains low in most countries, as does core inflation. Headline inflation rates are generally lower than at the start of the year, largely reflecting the earlier decline in oil prices. In the United States, the Federal Reserve has started the process of balance sheet normalisation and expects to increase interest rates further. In a number of other major advanced economies, monetary policy has become a bit less accommodative. Equity markets have been strong, credit spreads have narrowed and volatility in financial markets remains low.

The Bank’s forecasts for growth in the Australian economy are largely unchanged. The central forecast is for GDP growth to pick up and to average around 3 per cent over the next few years. Business conditions are positive and capacity utilisation has increased. The outlook for non-mining business investment has improved, with the forward-looking indicators being more positive than they have been for some time. Increased public infrastructure investment is also supporting the economy. One continuing source of uncertainty is the outlook for household consumption. Household incomes are growing slowly and debt levels are high.

The labour market has continued to strengthen. Employment has been rising in all states and has been accompanied by a rise in labour force participation. The various forward-looking indicators continue to point to solid growth in employment over the period ahead. The unemployment rate is expected to decline gradually from its current level of 5½ per cent. Wage growth remains low. This is likely to continue for a while yet, although the stronger conditions in the labour market should see some lift in wage growth over time.

Inflation remains low, with both CPI and underlying inflation running a little below 2 per cent. In underlying terms, inflation is likely to remain low for some time, reflecting the slow growth in labour costs and increased competitive pressures, especially in retailing. CPI inflation is being boosted by higher prices for tobacco and electricity. The Bank’s central forecast remains for inflation to pick up gradually as the economy strengthens.

The Australian dollar has appreciated since mid year, partly reflecting a lower US dollar. The higher exchange rate is expected to contribute to continued subdued price pressures in the economy. It is also weighing on the outlook for output and employment. An appreciating exchange rate would be expected to result in a slower pick-up in economic activity and inflation than currently forecast.

Growth in housing debt has been outpacing the slow growth in household income for some time. To address the medium-term risks associated with high and rising household indebtedness, APRA has introduced a number of supervisory measures. Credit standards have been tightened in a way that has reduced the risk profile of borrowers. Housing market conditions have eased further in Sydney. In most cities, housing prices have shown little change over recent months, although they are still increasing in Melbourne. In the eastern capital cities, a considerable additional supply of apartments is scheduled to come on stream over the next couple of years. Rent increases remain low in most cities.

The low level of interest rates is continuing to support the Australian economy. Taking account of the available information, the Board judged that holding the stance of monetary policy unchanged at this meeting would be consistent with sustainable growth in the economy and achieving the inflation target over time.

Brokers should ‘move away from being a broker’

From The Adviser.

As technology and artificial intelligence make loan processing easier to automate, brokers should be looking to move from being a broker toward having “a professional mortgage practice”, a mortgage industry veteran has said.

According to author, broker and High Trust mortgage sales training specialist Todd Duncan, brokers should be focusing on improving culture and building trust if they are to succeed, as the dominance of technology means that “the trust barometer is really suffering”.

Speaking at The Adviser’s US Study Tour in San Francisco last week, Mr Duncan explained: “I want you to think about the decision you make as a leader, in terms of culture. I want you to think about how you’re building and running your organisation. I want you to be thinking about what is the strategic advantage that everybody in my company has in any customer interaction. And to understand that the measurement in life of any company — whether it be product, culture or the final relationship a customer has with you and the overall experience — is based on trust.

“Because what we see in the world is that the trust barometer is really, really suffering right now. We see world trust declining, we see corporate trust declining, we see financial sector trust declining, we see trust in a one-to-one relationship being held at suspicion if there’s not some direct referral, or some previous knowledge or existence of that person and what they do. And what I know about trust is that it really becomes the most important selling proposition that anybody has in this room.”

However, Mr Duncan acknowledged that trust is the “hardest” aspect of building a successful business.

“We can spend our entire career building an organisation around trust, but it can be gone like that [in a click]… And the decline of trust can absolutely bury a company, can tilt a company from forward-thinking growth to being reactive and respondent, all the way to non-existent.

“So we need to think about how every person on our team has to be not only an initiator of trust, an embracer of trust, a creator of trust, but also an endorser and a practitioner of trust. Because it is the one thing that gives you a strategic advantage in the marketplace.”

Establish an emotional connection ‘mandate’

Mr Duncan gave the example of the US bank Wells Fargo, which recently lost billions of dollars of deposits because of a perceived “low trust culture, with incentivised sales and compliance and regulation deficiencies”.

He said that the best companies, therefore, make it a “mandate” to have every sales activity centre based around empathy and emotional connection, as that is the unique trait of humans that technology has not been able to replicate — and is one which is the fastest at establishing trust.

The Duncan Group founder said: “It’s not about coverage, it’s not about advertising, it’s not about marketing, it’s not about any of that. It is about, at the very essence, the heartbeat between two human beings. One’s a specialist and one’s in need of advice around the most important decision they’re ever going to make in their household, which is buying and financing real estate…

“Plus, customers with an emotional investment in the business are more likely to turn into repeat long-term customers, and customers with an emotional connection to your business are likely to recommend your business to others.”

Specialisation is key

Mr Duncan added that specialisation was also a key trait to have, as there are an increasing number of products, rates and mortgage technology out there that can cause confusion.

The High Trust founder and CEO gave the example that when searching for a “do-it-yourself mortgage” on Google, there can be more than 17 million results. Further, there are 72 million results for “online mortgage”, which means that brokers are at the forefront of sifting through the noise and reducing customer confusion.

He outlined that brokers should therefore start building trust by moving away from branding themselves as brokers, but instead marketing their companies as “a professional mortgage practice”.

“I would even move away from being a broker. I would rebrand myself, I would rebrand the way that I operate. I want to position myself as having a professional mortgage practice, and I want this to be my brand.”

Mr Duncan concluded: “I think you need to begin to look at what you’re doing in the marketplace to have unadulterated, unequivocal, rating-supported, compliance-driven trust.

“Because if you have high trust, you shorten sale cycles. If you have high trust, you lower loan expense. If you have high trust, you accelerate the referral networks that are available to you in your marketplace that are just screaming for this kind of solution. And if you don’t have that, then you have nothing.”

How Has the Economy Performed around Fed Chair Transitions?

From The On The Economy Blog.

Jerome Powell has been nominated to be the next chair of the Federal Reserve Board. Historically, what has happened to economic growth following a transition?

Average Growth Sometimes Slows in the Short Term

Whether a transition to a new Fed chair affects economic growth in the short term is not apparent at first glance, as can be seen in the figure below.

GDP per Fed Chair

Notable growth slowdowns occurred immediately after Chairs William McChesney Martin, Paul Volcker and Ben Bernanke took office. However, growth was stronger in the year after the terms began of Chairs Arthur Burns, G. William Miller, Alan Greenspan and Janet Yellen.

Taking the average of all seven Fed transitions since World War II, the economy grew about 0.6 percentage points more slowly in the year after a new Fed chair took office than during the year preceding the transition, as seen below.

GDP periods new Fed chair

Clearly, this is due to the very large slowdowns that occurred after Martin, Volcker and Bernanke took office. It was more common for growth to increase in the year after a transition than to decrease, but the magnitudes were smaller.

Average Growth More Often Slows over the Medium Term

In the two years following a Fed chair transition, average growth was about 0.7 percentage points less than during the two years prior to the transition, as seen in the figure above. Growth slowdowns in three-year and four-year before-and-after comparisons were somewhat larger, at 1.5 and 1.3 percentage points, respectively.

While only three of the seven transitions resulted in growth slowdowns at the two-year horizon, five of the seven transitions resulted in slower growth in both the three-year and four-year periods. In addition to transitions to Martin, Volcker and Bernanke, who experienced growth slowdowns at every horizon considered here, transitions to Miller and Greenspan also were followed with slower three- and four-year growth than had occurred prior to their terms.

Growth Slowdowns Are a Feature of the Recent Period, Too

It’s possible that early post-WWII Fed chairs faced unusual circumstances that aren’t relevant anymore:

  • Martin helped establish Fed independence from the Treasury after WWII and faced the disruption of the Korean War.
  • Burns served during the Vietnam War and, according to some observers, faced unusual political pressures.
  • Miller served the briefest term of all post-WWII chairs.

It turns out that the average growth slowdown around a Fed chair transition has been larger in recent decades (beginning in 1979) than it was before at each of the horizons considered here. The figure below shows the before-and-after growth averages for one-, two-, three- and four-year horizons for only the four most recent Fed chairs.1

GDP latest fed chairs

Remarkably, the average growth slowdown is nearly two full percentage points at both the three- and four-year horizons. As before, the large declines experienced after the Volcker and Bernanke transitions play the largest roles, but average growth also slowed in the three- and four-year periods after Greenspan took office.

Why Would a Transition Lead to Slower Growth?

The historical pattern shown here might be merely a coincidence. Another possibility is that it might reflect heightened uncertainty in financial markets and the economy as Fed leadership changes. It also might be the result of incoming Fed chairs pursuing monetary policy somewhat differently than their immediate predecessors.

Would a New Fed Chair Face a Growth Slowdown?

The number of Fed chair transitions since WWII is small, so it’s difficult to generalize about what might happen next. Nonetheless, the pattern of slower growth on average after a new Fed chair takes office is striking—especially at the three- and four-year horizons.

Notes and References

1 Janet Yellen has not been the Fed chair long enough for four full years of data, so her four-year data covers 3.5 years.