What happened Monday

A review of things you need to know before you go home on Monday; ASB cuts TD rates, BNZ grows mortgage book, livestock tax values change, hedge funds short Aussie banks, swaps flatten, NZD rises

23rd May 16, 4:00pm by David Chaston

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

TODAY'S MORTGAGE RATE CHANGES
No changes here today, but we did review how wide the offers are in this market.

TODAY'S DEPOSIT RATE CHANGES
ASB followed up its mortgage rate cuts last week with term deposit rate cuts today. They took -5 to -10 bps off all rates 1yr to 5 yrs, plus their 6 mths rate.

BNZ MORTGAGE BOOK GROWS ABOVE OVERALL MARKET
BNZ's move to resume working with mortgage brokers last year after a 12-year break appears to be starting to pay off. The bank recorded net home loan growth of $757 million, or 2.33%, in the March quarter during which Reserve Bank sector credit data shows home loan growth of 1.93%. Meanwhile BNZ has announced the retirement of two long serving directors with Susan Macken and Andy Pearce both retiring on June 30. Bruce Hassall is replacing Macken, and a replacement for Pearce is yet to be named.

DAIRY PRICES RISING?
The NZX dairy futures markets are indicating another small raise at the next event on June 2.

LIVESTOCK TAX VALUES
Something we missed last week: the IRD's livestock tax values for 2016 have now been released. You can find them compared with those for the past 10 years here. There are key decisions to think about relating to these changes, and they are assessed here.

BUYER BEWARE
The Aussies have launched a public information campaign warning about property investment seminars. These are big on hype, over-selling and pressure. Their message is very relevant here.

MORE TALK I
Peter Dunne has called for "a National Housing Conference to develop real solutions to the country's housing problems".

MORE TALK II
It's a sign of public pressure that the Housing minister has today 'announced' that three Auckland sites capable of building 740 new homes are now completed, "paving the way for development". The three are at Manukau Station Road (600), Mt Albert (60) and Waterview (80). Hopefully we will still be around (and awake) to report when the first one is completed, and ready for buyers to move into.

DOWN SHARPLY
Japan's exports fell in April at the fastest pace in three months as a stronger yen and weakness in China and other emerging markets take their toll on the country's shipments. Exports declined more than -10% year-on-year in April, Ministry of Finance data showed today, and worse than an almost -7% drop in March. It was the seventh straight month of declines and the biggest since the -13% fall in January.

HEDGE FUNDS SHORTING AUSSIE BANKS
The Wall Street Journal is reporting that hedge funds are shorting the Aussie bank share price at an increasing pace, betting that bad debt write-offs will grow to be a big enough problem for investors to push down share prices. Short positions on the four pillar banks have collectively soared 50% this year to more than AU$9 bln, the highest level since regulators began compiling data six years ago.

SWAP RATES FLATTEN FURTHER
Wholesale swap rates rose +3 bps for 1yr and 2yrs, +2 bps for 3yrs, and +1 bp for most terms longer. That is a flattening trend. NZ swap rates are here. The 90-day bank bill rate is up another +1 bp as well, to 2.39%.

NZ DOLLAR INCHES HIGHER
The NZD carried on with its rising trend across the board today. The Kiwi dollar is now at 67.8 USc, at 93.7 AUc, and 60.4 euro cents. The TWI-5 is now at 71.8. 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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21 Comments

by Ralph | 23rd May 16, 5:27pm 1463981256

..Conference to develop real solutions..

Isn't that an oxymoron?

by Ralph | 23rd May 16, 5:44pm 1463982245

Actually, I take that back. A junket (Oops) conference is just the ticket. I personally have loads of ideas, so my attendance is a must. I have even done some quality research into where the event might be held...

http://www.hopper.com/articles/233/the-ten-most-luxurious-hotel-suites-…

by Afewknowthetruth | 23rd May 16, 5:48pm 1463982529

Not sure that it's an oxymoron but the concepts are definitely mutually exclusive.

I think the 'real solutions' apply to appetites for luxury foods and for fine wines, with a bit of sightseeing and some self-promotion as added bonuses. .

by Justice | 23rd May 16, 6:14pm 1463984064

Remember that Job Summit?

by Ralph | 23rd May 16, 6:50pm 1463986242

Only too well Justice - I missed out on that pig trough completely!!

by O.Farr-Kinnell | 23rd May 16, 6:47pm 1463986027

LMAO :) !! Perfect.

by Stephen Hulme | 23rd May 16, 5:29pm 1463981342

Short positions on the four pillar banks have collectively soared 50% this year to more than AU$9 bln, the highest level since regulators began compiling data six years ago.

Hmmm - a year ago was the time to place short bets. I think the pickings are slim at this juncture without a solvency event evolving to default.

Debt investors are taking rising bad loans at Australia’s major banks in their stride, with the cost to insure their bonds falling to an almost four-month low.

Credit default swaps for the country’s four biggest lenders fell to 97 basis points on average on Thursday, a level unseen since Jan. 25, according to data compiled by Bloomberg. The premium over similar U.S. bank instruments also shrank to just 20 basis points from as much as 50 in February.

Moody’s Investors Service said this month that even with asset-quality pressures, the lenders’ balance sheets are solid and their domestic retail units are “exceptionally” profitable while record-low interest rates support mortgages. Read more

Couldn't be clearer for the down under central banks - look after the residential mortgage speculating debtors with ever lower interest rates and the rest be damned.

by Ralph | 23rd May 16, 5:34pm 1463981698

Well quite - but given the size in the portfolio residential mortgages represents in their balance sheets they have clearly made it to the safety of "too big to fail" social welfare net.

Low interest now at everyone else's expense - or - bank collapse later at everyone else's expense.

by Stephen L | 23rd May 16, 6:10pm 1463983833

Indeed, Stephen. The banks may have reasonable exposure to mining companies, and there will presumably be some hits there, but my understanding is that is probably factored in. The ANZ has or had exposure in Asia, but again I understand that is allowed for. It is difficult to see real hits in residential or say farming loans, in that the underlying collateral will likely be worth at least 70-90% of the current values even in a downturn, and that will likely more than cover most loans. New Zealanders and Aussies cannot of course as easily walk away from mortgages as Americans can, and the hedge funds may not have allowed for that. Just maybe they watched "The Big Short" one too many times.

by Ralph | 23rd May 16, 6:34pm 1463985277

I am thinking cashflow and leverage. One Fitche's document I have from March 2015 states the numbers for an Aussie bank something like this:

Residential loans - 289,624
Gross loans - 562,231
Total equity - 49,828
Leverage approx. - 11:1

So a 4 percentage impairment of residential loans alone would eat about 24% of that banks equity.

by Stephen L | 23rd May 16, 6:55pm 1463986557

I do actually get that their dividends may be reduced, if only to meet tougher capital ratio rules. Their balance sheets will also include some impairment assumptions already, so a 4% hit on residential mortgages, which would seem very high to me, would not be net of amounts already factored.
Nevertheless I also accept that hedge funds could be self fulfilling prophecies; if enough investors believe a share price will go down, then it probably will in the short term at least. A reasonable challenge may also come from peer to peer lenders disturbing their margins. Time will tell.

by Ralph | 23rd May 16, 7:13pm 1463987603

That was in no way meant as any criticism of you Stephen. My point is simply that *any* business running an 11:1 loan to equity ratio may look okay in good weather, but has very few options if the tide turns. Local banks best scenario would be where real estate flattens behind inflation over years whilst all other things remain equal.

But it is not hard to imagine a scenario where a 3.7% fall in residential real estate in nominal terms came also with a drying up of off shore liquidity and a business downturn with an associated 1.7% impairment load. They would have to cashflow through the liquidity crisis whilst watching their loan to equity ration shoot through, "can you spell insolvent". Ratio rules would be suspended I believe.

Of course RBA wouldn't allow an insolvency, but the losses would be real for some poor sod. Both from directly socialised loses and RBA money printing like crazy to paper over the holes.

by Stephen L | 23rd May 16, 10:38pm 1463999934

No offence taken at all; rather on reflection there probably are some reasons to be wary of banks as investors, and some good reasons to still like them.
I look at simple multiples like PE ratios and dividend yield, but accept the hedge funds will have likely done some more homework. I don't think the banks are remotely under any risk of serious failure, but medium term dividend yields could be under some threat.Time will tell.

by Afewknowthetruth | 23rd May 16, 5:40pm 1463982022

As previously discussed, Japan is in terminal decline and will probably be one of the first highly-developed nations to suffer economic collapse.

Money-printing and negative interest rate Abenomics did briefly support the collapsing Nikkei, but even that seems to be over now.

https://in.finance.yahoo.com/q/bc?s=%5EN225&t=my&l=on&z=l&q=l&c=

by Stephen L | 23rd May 16, 6:15pm 1463984123

Japan has 3.2% unemployment.
Their current account is near a record high.
They look further from economic collapse than almost any country on the planet.
http://www.tradingeconomics.com/japan/current-account

by Afewknowthetruth | 23rd May 16, 7:57pm 1463990252

Only as long as energy prices remain so low energy companies and entire nations slowly go bankrupt, and as long as other resources remain subsidised by cheap energy.

by Afewknowthetruth | 23rd May 16, 9:17pm 1463995025

Also note, with respect to Japan:

'Imports fell 23.3 percent, leaving a trade surplus of 823.5 billion yen ($7.5 billion), the highest since March 2010.'

A 23.3% decline in imports suggests demand in Japan is falling off the cliff.

http://www.bloomberg.com/news/articles/2016-05-22/japan-s-exports-post-…

by Zachary Smith | 23rd May 16, 9:36pm 1463996175

If anyone can pull through the Japanese can.

by Stephen L | 23rd May 16, 10:35pm 1463999705

Most of Japan's imports are as materials and parts for re manufacture. Exports fall then imports fall.
Consumption more or less stays the same.

by Stephen Hulme | 24th May 16, 9:07am 1464037634

Does it?

by Boatman | 23rd May 16, 8:40pm 1463992807

And the Kiwi $ remains stubbornly strong ..........