What happened Friday

A review of things you need to know before you go home on Friday; savers face lower returns, Robinson faces porridge, less people on a benefit, fewer job ads, lower bank bill rates

17th Jul 15, 4:00pm by David Chaston

Here are the key things you need to know before you leave work today.

TODAY'S MORTGAGE RATE CHANGES
ASB, Sovereign and NZ Home Loans all reduced some standard mortgage rates, but they have better 'special' rates for the same terms and those 'specials' did not change.

TODAY'S DEPOSIT RATE CHANGES
ASB and Westpac both cut call/savings rates today and Westpac and Heartland both reduced term deposit rates today by between -5 and -15 bps.

PORRIDGE
An Auckland financial adviser Andrew Robinson has today been sentenced to six years in prison for stealing $2.7 mln from clients who used his services. The offenses occurred in 2012 and earlier. You can see how this compares with other sentences here.

LESS ON A BENEFIT
Benefit numbers are falling according to June data released today by MSD. Totals are -2.9% lower than for June 2014. Over the past five years, the total numbers of working age people on a benefit has fallen by -47,500 while the employed workforce has grown by +217,300 over almost the same period.

GLOSS OFF?
Job advertising data released today by ANZ suggests demand for labour continues to ease, particularly in Canterbury, the Waikato and the Manawatu. Hawke’s Bay and Auckland are experiencing the strongest growth in job ads. Total job advertising fell -0.6% sa in June. Job ads have declined for five of the past six months and the trend is now declining.

THE TIGHTENING STARTS
The mortgage door has closed for property investors with less than 30% equity following an announcement by ASB that it will issue no more pre-approved mortgages for property investors in the Auckland area who can't meet that standard. This follows the June RBNZ policy change and ASB noted that although they don’t formally take effect until 1 October, the regulator expects banks to act in the spirit of the changes in advance.

WHOLESALE RATES FALL
NZ swap rates fell again today at the short end but rose at the long end. These changes were minor though. However, the 90 day bank bill rate fell by another -5 bps to 3.07%. That's the second day in a row, clearly signaling next Thursday should bring an OCR cut again.

NZ DOLLAR HOLDS
The NZ dollar is now at 65.3 USc, at 88.1 AUc, and 60 euro cents. It is holding the lower levels it fell to yesterday. The TWI is now at 70.1. Check our real-time charts here.

You can now see an animation of this chart. Click on it, or click here.

Daily exchange rates

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Source: RBNZ

Source: CoinDesk

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22 Comments

by King of the whiners | 17th Jul 15, 11:44pm 1437133499

Banks creating money:
http://www.nzherald.co.nz/opinion/news/article.cfm?c_id=466&objectid=11…

by Guido | 17th Jul 15, 11:51pm 1437133875

I would like to know; if NZ's new immigrants, bringing their own financing, from their own banks, are they also creating NZ money?

by Roger Witherspoon | 18th Jul 15, 8:47am 1437166049

They have to pay in NZD presumably. NZD probably newly created for the purpose by an Australian bank. Modern banking is almost infinitely complex but rests on the ability to create credit freely whenever the bank wants to.

by Henry_Tull | 18th Jul 15, 9:29am 1437168556

the ability to create credit freely whenever the bank wants to.

"The real issue is what do you do with the money?" he said.

"We could use it elsewhere in the business. As we said in our last half-year results we plan to invest more in NSW which provides a different capital ratio outcome and return." Hodges said it would be unlikely for ANZ to distribute the capital to shareholders. But an alternative to investing in loan assets in NSW was to invest in the bank's efficiency by improving straight-through processing which would reduce the cost-to-income ratio.

http://www.afr.com/brand/chanticleer/anz-hits-back-at-macquarie-attack-…

by Anarkist | 19th Jul 15, 3:27pm 1437276435

Henry_Tull,

In the United States its far worse. I wonder if the TPPA contains provisions which will enact a similarly liberal view of what constitutes commercial activities that banks consider to be complementary to finance.

"All of this was big enough news in itself. But it would take half a generation – till now, basically – to understand the most explosive part of the bill, which additionally legalized new forms of monopoly, allowing banks to merge with heavy industry. A tiny provision in the bill also permitted commercial banks to delve into any activity that is "complementary to a financial activity and does not pose a substantial risk to the safety or soundness of depository institutions or the financial system generally.."From the perspective of the banks," says Saule Omarova, a law professor at the University of North Carolina, "pretty much everything is considered complementary to a financial activity...Today, banks like Morgan Stanley, JPMorgan Chase and Goldman Sachs own oil tankers, run airports and control huge quantities of coal, natural gas, heating oil, electric power and precious metals. They likewise can now be found exerting direct control over the supply of a whole galaxy of raw materials crucial to world industry and to society in general, including everything from food products to metals like zinc, copper, tin, nickel and, most infamously thanks to a recent high-profile scandal, aluminum.

Read more: http://www.rollingstone.com/politics/news/the-vampire-squid-strikes-aga…
Follow us: @rollingstone on Twitter | RollingStone on Facebook
."

by cowboy | 18th Jul 15, 10:52am 1437173550

they have to pay with _existing_ NZD.
affects NZ NZD banking levels as it's effectively an export transaction. We export one or more citizenships, give them a bunch of pacific pesos, and they give the banks their fureigner muney. Which shows up as good on government books ... you don't think the gov and shadows sell to rich immigrants for our benefit or a social good did you....

by Anarkist | 18th Jul 15, 3:47pm 1437191274

Yes while it is true that the wider banking system does have the collective ability to create credit freely in whatever quantity it wants, individual banks do face quite a few constraints on their credit creation activities.

1) Central Bank reserve ratios. Banks are required by law and agreement under the Basel Accord to hold a certain proportion of capital in reserve to back the credit which they wish to lend out. Sure the capital they hold can grow through choosing to reinvest profits back into the business or attracting external capital investment and thereby increasing the credit they would be able to create.

2) Banks must balance assets (loans) with liabilities (deposits) They can also attract deposits from other banks or settle overnight balances with banks who have surplus funds through the interbank settlement system or borrow from the Central Bank through the Overnight Reserve Repo
Facility at penalty rates.

"cash balances held above this tier are remunerated at the OCR less 100 basis points. The Overnight Reserve Repo Facility (ORRF) continues to be available and costs OCR plus 50 basis points."
http://www.rbnz.govt.nz/regulation_and_supervision/payment_system_overs…

by steven | 18th Jul 15, 1:28pm 1437182885

I wonder how the IRD sees that tax wise. ie I dont quite fathom why it doesnt attract taxation.

by cowboy | 18th Jul 15, 1:58pm 1437184683

all your money are belong to us.
its only a matter of juggling the laws until it seems true.

by scarfie | 18th Jul 15, 2:57pm 1437188222

No, they are contracting the local money supply. Everytime a cashed up offshore buyer purchases a property they retire a local mortgage. That is the credit note that Roelof mentioned. It could be said that the money is likely deposited in a bank, therefore having a neutral effect, but this doesn't take into account any leverage or derivatives on that mortgage, or the security every one is really after in the underlying asset. Remember the creation of money comes from someone being willing to take on the liability of servicing it, that is where the retired mortgage really hurts.

Yes the money coming in has to be converted to NZD. Question is how much of the NZD is inflated because of this?

by Roelof | 18th Jul 15, 12:09pm 1437178174

The Guy who wrote the Herald article.... has not quite got it right .... does not quite understand how money creation works... ( Banks create IOU notes (credit )...which are a claim on money...but which we have come to accept as money..and call money.. Credit is fungible with Money )
(Money being defined as that which is created by a Central Bank.)

Banks are naturally constrained in how much "credit" they can create...

I do get the drift of what he is saying...

by bw | 18th Jul 15, 9:31am 1437168717

"The Government yesterday launched its first-ever defence of the local stock and futures markets with a concerted intervention which drove the Hang Seng Index 8.5 per cent higher....the move drew criticism from analysts who estimated that the buying ....could have cost the Government up to $3 billion."

http://www.scmp.com/article/251780/billions-spent-prop-shares
That....was 1998. This last weeks' effort by China has needed $200 billion, plus...so far, not a mere $3 billion. Desperation has come a long way in the last 17 years.....

by bw | 18th Jul 15, 11:52am 1437177170

“You have a resource economy that’s been blown apart sitting on top of a housing bubble ..much of that borrowed cash has been sunk into real estate, a relatively non-productive sector of the economy, resulting in home prices that are as much as 63 per cent overvalued.”

Sure, that's Canada. But how different are we?
http://www.macleans.ca/economy/economicanalysis/how-canadas-economy-wen…

by Henry_Tull | 18th Jul 15, 1:14pm 1437182068

But how different are we?

Well our banks are being required/forced by the regulator to raise more equity/reserves as we speak. It seems ANZ is selling its assets such as its finance company book - including car dealer financings.

APRA said on Monday it wanted any capital build in Australia to progress in an "orderly manner".

APRA said to be "comfortably positioned" in the top quartile of their international peers over the medium- to long-term, Australia's major banks would need to increase their capital adequacy ratios by at least 200 basis points relative to their position in June 2014. To get to the bottom of the top quartile would require an increase of around 70 basis points in CET1. "However, at this point no decision has been made on the total magnitude of any strengthening of capital requirements nor when that strengthening would need to be completed by," APRA said.

Credit Suisse analyst Jarrod Martin said a 200 basis point increase in capital was equal to an extra $28 billion for the big four banks, a target he expects would mainly be achieved raising money through their dividend reinvestment plans (DRPs) over the coming years.

"Based on our expectation that there will be time to get to these levels, we are looking to see maybe one or two underwritten DRPs," Mr Martin said. "The only real candidate for an outright capital raising is ANZ, if they are unsuccessful with asset sales."

Mr Martin said APRA's findings should not come as a shock, as one reason bank shares have been sold down heavily in recent months is the realisation among investors that the industry would need to raise capital.

What does one do with the 1,000 odd of highly leveraged dairy farms (10% being say half the debt) with funds lent based on servicing at bank nominated fgmp of $5.70 to $6.00 a kg?

by steven | 18th Jul 15, 1:44pm 1437183885

"What does one do with the 1,000 odd of highly leveraged dairy farms " a very good Q... What are we looking at 2?3? 4? years of low payouts? so will NZ be like the US and EU and allow bad debt to be hidden? or will it have to be accounted for up front? will it cause an OBR event?

by cowboy | 18th Jul 15, 1:59pm 1437184769

What level payout are they breakeven?
Without GP nothing is possible.

If they have GP then alternative pay systems can be Greeced out.

by steven | 18th Jul 15, 1:29pm 1437182954

" relatively non-productive" ? what is actually productive? % wise?

by steven | 18th Jul 15, 1:57pm 1437184630

Lots of strikingly similar examples, so much for the un-regulated, free market dogma.

by MortgageBelt | 18th Jul 15, 11:53pm 1437220414

Kiwi fall features on CNBC
http://www.cnbc.com/2015/07/16/small-country-big-problems-new-zealand-d…

by steven | 19th Jul 15, 9:18am 1437254314

The Q is will our RB indeed do a 50basis point cut?

wow, fear, sell....sell! SELL!!!!!

by OnwardsUpwards | 19th Jul 15, 6:53pm 1437288793

CNBC is best used as a contrarian indicator.

by sharetrader | 19th Jul 15, 7:20pm 1437290454

not so sure on that, two months ago they had money traders on saying they had taken short positions on the kiwi, and they have been proven right.
they also had a big investment fund manager saying the Chinese stockmarket was the best short for all time and again proven right.
the world is a big place with a lot of cash out there looking for the next great deal and Auckland housing is not it