Air travel jumps; IFRS9 affects banks; US growing faster; CBA faces major AML lawsuit; BofE signal higher rates; SAA looted; China deals with quake fast; UST 10yr yield at 2.23%; oil down, gold unchanged; NZ$1 = 74.4 US¢, TWI-5 = 76.7

Here's my summary of the key events overnight that affect New Zealand, with news the Commonwealth Bank of Australia is facing a major AML lawsuit.

Firstly however, air travel worldwide is growing very fast. For international travel it was up +7.5% in June from the same period a year ago. In the Asia-Pacific region the growth is +9.1%. However, the real story is the explosion of growth in domestic air travel in China and India.

Moody's is reporting that new accounting rules (IFRS9) will force banks to provide for loan losses earlier in the credit cycle, and therefore dampen earnings somewhat as an economy starts to weaken. That may require them to bolster capital at that time. But Moody's also says that the overall effect will be to strengthen banks' abilities to weather any downturn better. In NZ, BNZ has already adopted IFRS9.

In the US, all eyes are on tomorrow's non-farm payrolls report. Meanwhile, the Atlanta Fed's GDP Now tool suggests the American economy is on track to expand at a +4% annualised pace in the third quarter, boosted by strong growth in inventory levels. The actual Q2 GDP result for the US was +2.6% annual growth which was -0.2% lower than what the GDP Now forecast model predicted.

In Australia, the Commonwealth Bank has been accused of "serious and systemic" breaches of anti-money laundering and terrorism financing laws that could leave it exposed to heavy civil penalties. The allegations follow an official investigation into the CBA's use of an ATM system for deposits that customers used for over 50,000 suspect transactions, each one of which is regarded as a violation. The automated system was in place between November 2012 and September 2015. The maximum penalty for each of the 53,700 contraventions is up to AU$18 mln. The accusation is that because the bank did not verify each transaction received via the machine on a know-your-customer basis, those that were made using cards from other institutions broke the AML regulations.

Here in New Zealand Justice Minister Amy Adams announced last night that Parliament unanimously passed reforms to strengthen the existing Anti-Money Laundering and Countering Financing of Terrorism Act. The Anti-Money Laundering and Countering Financing of Terrorism Amendment Bill will extend the current regime to lawyers, conveyancers, accountants, real estate agents, sports and racing betting and businesses that deal in certain high value goods. 

In England, their central bank has followed the other majors in signaling that a long era of easy money is gradually drawing to a close, saying that it anticipates raising interest rates in the UK at a faster pace than investors currently expect. Two dissenters wanted to move faster and raise their rates now.

In South Africa, reports are surfacing that their national airline is close to bankruptcy. Apparently the carrier "is being looted".

In China, on August 3, 2014, a 6.5 magnitude earthquake hit the Chinese area of Ludain. It killed over 600 people. Today, their government declared the completion of the full reconstruction of the area, after spending some NZ$1.5 bln in the effort.

In New York, the UST 10yr yield is down -4 bps today at 2.23%.

The price of oil is down slightly today at just over US$49 a barrel, while the Brent benchmark is now just over US$52.

The price of gold is unchanged US$1,268/oz. The World Gold Council released its second quarter data for supply and demand and it presents an uninspiring view of the markets for gold.

And the Kiwi dollar will start today basically unchanged at 74.4 USc. On the cross rates we are marginally lower at 93.7 AU¢, and at 62.6 euro cents. As a result the TWI-5 index is at 76.7.

If you want to catch up with all the changes yesterday, we have an update here.

The easiest place to stay up with event risk today is by following our Economic Calendar here ».

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33 Comments

In England, their central bank has followed the other majors in signaling that a long era of easy money is gradually drawing to a close, saying that it anticipates raising interest rates in the UK at a faster pace than investors currently expect.

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Mark Carney said Brexit is casting the biggest shadow over the U.K.’s economic outlook, as his confidence in an orderly departure from the European Union starts to fade.

The Bank of England governor’s comments follow slow progress in the initial round of exit talks after Prime Minister Theresa May lost her parliamentary majority in June. Carney said that there’s only so much monetary policy can do as the central bank cut its forecasts for economic growth and wages.

Inflation, at 2.6 percent in June, is above the BOE’s 2 percent target. That’s crimping household spending, a key driver of the economy, and economists predict any reduction in trade with the EU will ultimately weigh on growth.

The central bank now projects economic growth of 1.7 percent this year and 1.6 percent in 2018, down from 1.9 percent and 1.7 percent. The downgrades were enough for the majority of the Monetary Policy Committee to keep their cautious stance, with the vote for no change coming in as expected at 6-2. Read more

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"In China, on August 3, 2014, a 6.5 magnitude earthquake hit the Chinese area of Ludain. It killed over 600 people. Today, their government declared the completion of the full reconstruction of the area, .. . . ."

Why is it taking so long to complete the reconstruction of Christchurch? Rebuild of 1931 Napier earthquake was completed within two years, rebuild following the 2011 Japanese earthquake and tsunami has long been completed.
The CBD is still largely incomplete and some homeowners still waiting for insurance pay out and/or repairs.
As a country, we cant currently be proud of our ability to recover from natural disasters.

We are a "market" economy which means that when the insurance market has to pay is is very very slow.

Half true.
We are a market based economy.
However, for some reason we really hate having that fundamental market element of competition.

What's the incentive for the rebuild to happen fast?
In terms of the construction/materials supply companies, nothing. The longer, the better for them.

With dams bursting,buildings collapsing and sink wholes appearing i would be wary of any reconstruction done by the Chinese Govt.They are full of it.

Because the government in power are weak, ineffective, complacent, and basically don't give a shit.

The simplest solution is to enforce penalties on insurance delays. Any outstanding claims after 12 months receive 10% per annum bonus payout to client.

Eg. A 500k claim, that takes 5 years to complete, the customer receives and additional $200,000 as compensation to cover alternative living costs and for being fucked around.

Chch has a very serious problem.
The CBD land is soft ex-marshland soil and all foundations need to be TC5, the strongest and deepest foundations = extremely expensive. Developers of new CBD buildings are not able to get the high rent to give a decent return on the astronomical cost of building a multi story building.
Lessees like law firms etc are very happy in Addington (for example) where they can offer lots of car parks to their clients and staff and where they are paying a third of the rent they would pay in the CBD.
Banks are realizing that some of the completed buildings are worth LESS than their cost value because of the low rent. (the value of a commercial building is a multiple of its rental income). So the banks are not lending anymore either.
It's a terrible mess.

I am with you printer8. I travel to China frequently, and their ability to get things done is outstanding. 43 hours to replace an 10 lane bridge!!
https://www.youtube.com/watch?v=vz_j_BEkVCQ.
20 years to complete a tunnel in Auckland, 6 plus years on and still ChCh is a mess, and we cant even look down a tunnel 7 years later - not a great success story.
Come on NZ - get your s**t together.

I would sooner take some time with a project rather than destroy a habitat, pollute the waterways, foul the air. Hey but thats just me..

Totally agree. South Korea is also an incredible example, I go there a lot. 12 years ago Seoul (over 12 million people) had catastrophic gridlock (making Auckland look like a breeze) now, despite increased population, the traffic flows better than Auckland. So it can be done !

This is trivia going mad - CBA breaches AML laws

That means next time you go into New Wold, or Countdown or Pack'n'Save, buy your groceries, and as you check out at the check-out counter and ask for $100 cash out at the same time, your favourite supermarket is breaking the AML Act

I would be first to agree with you, as many 'breaches' are for trivial things, failing to tick the boxes, or having a system not quite like the one mandated. I've had a quick look at the complaint. This one looks much more real. Systematic and ongoing ML-enabling through ATMs, on a significant scale.

It was for ATM deposits (IDMs they're called apparently) but 53,700 suspect transactions at $18 million fine each would have to be a bit of a worry.
Although when UBS was busted (several times) for laundering (on a huge scale) the ill gotten gains of terrorists, slave traders, illegal arms dealers, crooked dictators, drug dealers, pirates; the scum of the earth basically, they got a slap on the wrist fine and they're still trading though perhaps covering their tracks a bit better. When was the last time a bank had its license pulled for criminal activity?

Just over a month to go to the election and NZ moves the NZ version of the AML Act along a little bit further - just a touch - not much

Glad to see that at least some AML measures are having an effect. Do we know whether the recent bill thats been passed on strengthening these measures has finally kicked in for Real Estate Agents since they were the ones that insisted they need more time?

Only 2019

yep, it extends to real estate agents, lawyers, etc.

The question whether it will make a material difference, or indeed whether the current system is effective, hasn't been asked. [The former has been, seemingly, but arguably (and demonstrably) in a way that obscures much of the reality, and sits on a sea of unsupported assumptions]

Any decent political science student could deconstruct the policy-making process, and apply any number of objectively verifiable adjectives to it, but it's difficult to prove the real driver. There is, however, plenty of circumstantial evidence to suggest that it possibly has rather more to do with getting the FATF tick than anything much to do with policy effectiveness.

And now the dogs breakfast has been tossed into the sandpit for the regulatory and enforcement agencies. The real test will be what they do with it.

Sweet deal that "serious and systemic" breaches of anti-money laundering and terrorism financing only get you civil penalties. Is it a fair dinkum penalty or just a cost of business in the banking world?

"The drug money laundering business is a staple and important part of global banking. Money laundering is one of the things bankers do well. They should, they practice every day. It is not a one off rogue teller or rogue ofice. It is not something the bank does once and never again. Amex did it many times. HSBC has a history. You only have to go back to the murkey and bloody AGIP affair to find the same names and the same widespread conspiracy to commit financial and legal crimes. Dig deep enough and you’ll find the names of politicians, senior ones and find yourself meeting some of the people who make sure the truth of such matters does not come out and whose job it is to protect the guilty and do their dirty work.

Drug money, criminal at the start of its journey, is still crminal at its ‘respectsble’ end. Drug Money is criminal and dirty no matter how many times it is laundered, by no matter how many banks. The bankers know this better than anyone. Yet they do it every day, every week, every year and every decade in every major financial centre and everyone knows it."

http://www.golemxiv.co.uk/2012/08/a-word-about-banks-and-the-laundering-...

Is that a Rowan Bosworth-Davies quote? Sounds like his direct style.

In most countries it is usually possible for criminal charges, typically if someone facilitates ML with reckless disregard for the source of funds. HSBC facilitating Mexican laundering was apparently to have been prosecuted, but (reportedly at the intervention of UK's then Chancellor, as HSBC was too important) the Americans were persuaded to stick with civil only. Other circumstances may include accountants, lawyers, etc who facilitate financial transactions in the face of obvious red-flags and fail to ask questions as not wanting to 'know'. In fact, reckless disregard is sufficient, but it's not been used in NZ yet.

HSBC was shocking - HSBC tellers accepting custom made money trollies specifically designed to physically maximise the dirty cash that could be rolled through the teller door.... linked now.

"So rampant was the practice, prosecutors said, that on some days drug traffickers deposited hundreds of thousands of dollars at HSBC Mexico accounts. To speed things along, the criminals even designed "specially shaped boxes" that fit the size of teller windows at HSBC branches, according to the documents."

http://www.reuters.com/article/us-hsbc-probe-idUSBRE8BA05M20121212

With an explosion in air traffic over India , I hope the air traffic controllers and safety officers in India get their act together.

I was on an internal flight ( to be fair some years ago ) , and almost every passenger had a child ( some not that young ) sitting on their lap . Some had their suitcases on their laps .

The overhead baggage space was full ........ no problem just use the space where your legs go , and even the aisle at the back had stuff on the floor .

The place we landed had no runway lights due to a power outage, so they used vehicles on the side of the runway

They are not as bad as the trains in India , but they are are notoriously slack and air space there is fraught with safety issues

I had the opposite experience..flew Singapore to Trivumdum -India. Expecting a shed found a brand new Modern gleaming airport just upgraded. Love India..hardley any overweight people and very friendly

@frazz I have been told that things have improved dramatically in India , and there are now NO LONGER any Indian Airlines banned from flying over or into the EU due to safety concerns , which is an improvement .

Good to hear Boatman...now they just need to upgrade their trains which are still ok to travel on...but risky!

We were travelling on an overnight train in India a few years ago. The guard came around and made us sign a form stating that if we were attacked, raped or murdered we could not hold the government responsible, very comforting

Saw this one the other day. The Air India A320 had to land half way between Mumbai and Kolkata. The plane was nearly out of fuel, caused by the extra drag of flying the with the undercarriage down!
http://timesofindia.indiatimes.com/india/ai-plane-flies-with-wheels-out-...

What a mess South Africa has become, every bit of news about them is bad or negative and they cant even play rugby so well anymore !

How come Air New Zealand which is similar in fleet size is so profitable and SAA with almost a domestic monopoly and a massive market of 60,000,000 people , is bankrupt ?

When a countries leader thinks that having sex with a virgin can protect you from HIV/AIDS then you know you are in deep doodoo.

Its called corruption. It's in Africa's DNA

Affirmative action/job for life at its best. The customer service at the airports is laugh out loud appalling.