A review of things you need to know before you go home on Monday; SBS Bank cuts a home loan rate, building consents rise, FMT sold, bank funding even more short term, swaps & NZD unchanged, & more

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

MORTGAGE RATE CHANGES
SBS Bank has cut its one year fixed rate to 4.05%.

TERM DEPOSIT RATE CHANGES
No changes to report today.

RISING
Dwelling consents issued in December totaled 2,382, which is +10% higher than the 2,167 issued in December 2017. For Auckland the same same numbers were 938 and 876 or a +7% gain. Statistics New Zealand figures show nationwide building consents have more than doubled in the last seven years, though the total for 2018 of 32,996 was below the peak seen in the mid-1970s.

DIVING
Meanwhile in Australia, the number of new dwelling consents dived in December, fanning fears a housing slump will drag on their economy. They fell an eye-watering -26% in December compared with the same month a year ago and their lowest in five years. For all of 2018, the decline was -5.6% compared with 2017 - although the number of houses consented was flat. The biggest falls are in the apartment sector.

WAVERING
Total non-residential consent values rose +9.0% in the year to 2018. But office building consents were down -50% in December year-on-year, with consent values -$63 mln less than in December 2017. This drop was driven by falls in Tauranga, Albany, and Christchurch (down -$27m, -$23m, and -$12m respectively), even as Palmerston North softened the blow with an additional +$14m in office building consents. (H/T Infometrics.)

DEALMAKERS PICK UP FIRST MORTGAGE TRUST
The private equity firm CapitalGroup has bought First Mortgage Managers Limited, the management company of New Zealand’s largest non-bank first mortgage provider First Mortgage Trust. First Mortgage Trust has almost $1 bln of assets under management. Auckland-based CapitalGroup specialises in merchant banking activities for the real estate development industry. They pride themselves on buying assets "at good value". The sellers are essentially a range of lawyers in Tauranga. No price was disclosed. In a statement First Mortgage Trust says no "discernible" changes will occur for investors and borrower as a result of the sale. The last annual financial statements show First Mortgage Managers received a $2.2 million, or 33%, increase in management fees to $8.9 million. It also received almost $4.8 million in loan processing fees, just under $3.4 million in salaries and wages, and $438,002 of directors' fees. Additionally dividends of nearly $3.3 million, or $3.62 per share, were paid, with further dividends of $2.79 per share declared after the reporting balance date, totaling $2.53 million.

ANTICIPATION
Tabloid news has come to the world of banking, insurance and financial services as the Aussies await the Hayne Report. (Kudos goes to Canberra politicians for ensuring there were no leaks.) Speculation will turn into 'analysis' at 6:15pm today when it is released. All the big four bank stocks are well off their lows today on the ASX, showing small gains. The life insurers, especially AMP, are still being marked down. It is only on release that we will see how many armchair commentator presumptions were on the money. There will be more than a passing interest in it on this side of the ditch.

MORE CORPORATE BONDS COMING
Trustpower has said it is looking to issue up to $100 mln in "ten year unsecured, unsubordinated, re-setting fixed rate bonds".

SAVED BY FOREIGN WHOLESALE FUNDING
Bank funding rose +4.4% in 2018 to end the year at a massive $440.7 bln. But boy, is it short-term. Customer deposits make up 73.3% of all funding and that is a rise from 72% at the end of 2017. But 95.7% of this is due to mature within one year (up from 95.0% at December 2017). It is the wholesale funding from overseas that gives the bank funding maturity some respect with $69.7 bln of that (or 59%) with a maturity of longer than one year. The Core Funding ratio is an essential constraint.

SWAP RATES FLATTEN
Local wholesale swap rate moves are little-changed today. The UST 10yr yield is also holding at 2.68%. Their 2-10 curve has widened to just under +18 bps. The Aussie Govt 10yr is now at 2.22% (down -1 bp), the China Govt 10yr is unchanged at 3.15%, while the NZ Govt 10 yr is down at 2.24% and that is down another -4 bps. The 90 day bank bill rate is down -1 bp at 1.92%.

BITCOIN HOLDS
The bitcoin price is virtually unchanged again, at US$3,422.

NZD LITTLE-CHANGED
The NZD is also little-changed against the greenback again at 68.9 USc. On the cross rates we holding at 95.3 AUc, and at 60.2 euro cents. That puts the TWI-5 still at 72.9.

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23 Comments

Is this the Beginning of a Globalized Housing Downturn?

https://www.youtube.com/watch?v=ZzCIPheGm5c

Nothing most on here don't already know. But a reminder that 'stage 2' is when the local media changes from upbeat, 'it can't happen here because...' to fearmongering of 'look how much a downturn will/is going to cost the economy'.... then...it really kicks into gear! Oh, and the imagery of the Chinese media starting to report 'Chinese investors in far-flung property markets are getting their shirts ripped off by price falls!".

'it can't happen here because...' to fearmongering of 'look how much a downturn will/is going to cost the economy'.

In Australia, this message has only really been communicated in the past 6 months but been amped up in the past 2 months. Straight from the seminal work of Edward Bernays, even though I suspect the outcomes are correct. But that's not the point. The point is controlling the behavior and attitudes of the masses.

Brighten up, life is wonderful : )

In addition to the data on Australia's decline in consents, other information on areas suffering high levels of negative equity as Sydney's housing bust gathers pace. Particularly in areas where new builds were bought on low deposit finance.

https://www.youtube.com/watch?v=WM-z5MTG2Cg

World’s Largest Pension Fund Loses $136 Billion in Three Months
https://www.bloomberg.com/news/articles/2019-02-01/world-s-biggest-pensi...

This is certainly where the PMI’s and industrial figures agree; manufacturing and industry in China hasn’t been this bad since the last time the whole world was in a downturn.
https://www.alhambrapartners.com/2019/02/01/fear-or-reflation-gold/

In anticipation of the Royal Commission Release, this ABC article offers a few reminders of what the Aussie banks have been up to over the ditch, but certainly not in New Zealand.

https://www.youtube.com/watch?v=LIYhJ0VifKI

hahaha, yeah right... tui ad

Amazing person.
Worth a watch.
Thanks for the link Andrew

… in some suburbs. Thanks for the link, the table at the bottom is especially good.

A spread of -7.4% to +11.4% is surprisingly large!

I gueessed the banks would be getting very little deposits at the long end, but 95% of deposits for less than 1 year, is this good practice? In any case im not interested in 5 year rates under 4.5 %.
Surely the banks should be required to hold more at the long end.

It must be pent up FHB deposits

Or alternatively loans are actually deposits on the banks balance sheet and hence the nature of short term deposits mirror the short term mortgages that come up over the next couple of years.

thinking out loud....If 1,000,000 kiwis had $40,000 each in their kiwisavers (and that would have to be in cash funds for this calculation and assume that some haven't already tapped into kiwisaver to buy property). then the banks would have around $40 billion in cash (deposit) funds. Essentially 10% of the deposits....

Now we have had a negative savings ratio for most of the last 30 years which is also on the RBNZ site so how does this all work.... A lot of baby boomers are holding debt but do have an income from that debt, negatively geared or otherwise, are they really saving all the surplus?. My question is who is providing the other 9/10th of the bank deposits that are alluded to be funding the banks??? It isn't Fonterra or many of our other industries, they're all carrying debt too, not cash for deposits.

Can anyone give me an idea where the other 9/10th's of bank deposits are coming from because with bail-in you would have to be mad to be depositing large amounts of cash in our banks with no depositor guarantee...

No you are in-correct. I think you will find there is no legal term for deposit (happy to be corrected here), really you have lent the bank your money at your risk, ie it is an un-secured loan to incompetent loan sharks in nice suits.

"you would have to be mad to be depositing large amounts of cash in our banks with no depositor guarantee"

I think the term is "moral hazard" even with the OBR legislation in place (or maybe especially) your loan is a huge risk for diddly gain. So what we have is really a large number of the "saved" baby boomers expecting a Govn bailout when it all goes south and have the political clout to get it.

Of course also there is really no where to hide even for sophisticated investors let alone numb skulls such as myself.

My view is I'm hoping this game last a few more years then my strategy such that it is is in place, But even today I can jump quickly as best I can with what little I have and can do so in a week.

Hi Steven

About deposits.

https://vimeo.com/264805980

Hayne Royal Commission is out, and what a waste of time it's been.
Someone knocks over a deli for $50 worth of cigarettes; gets caught and goes to jail for 18 months. A banker defrauds his customer of ( pick a figure in the hundreds of millions of dollars worth of collective compensation they have/will pay) and not only does he just get a jolly good telling off, but he gets to keep his bonuses from said malpractice.
Something's very wrong with the whole lot. But I guess we know that.....

Full Royal Commission Report Final Report attached for those that want some bedtime reading

https://www.royalcommission.gov.au/sites/default/files/2019-02/fsrc-volu...

" members of the public submitted more than 10,000 complaints about financial services entities"

"Rewarding misconduct is wrong. Yet incentive, bonus and commission schemes... have measured sales and profit, but not compliance with the law and proper standards."

"entities and individuals acted in the ways they did because they could."

"A ‘good enough’ outcome was pursued instead of the best interests of the relevant clients"

"Financial services entities that broke the law were not properly held to account."

And on it goes. And yet, no one is being held accountable - no one.

Hi bw.
The Guardian interpretation is worth a look at for an edited version of the report. This is not political yet and the masses have not yet been fully appraised. when they start to become aware properly, it will become political and the promise of criminal charges will be something that will no doubt come up in the build up to the election, from one side or the other. Now, we said we didn't need a Royal Commission because the Aussies were doing one. Question is will our media pick up on this and will our government and regulators or will it get disappeared as not in the interest of alarming the public by giving them too much information.

https://www.theguardian.com/global/live/2019/feb/04/banking-royal-commis...

"Question is will our media pick up on this and will our government and regulators"

Answer: No