BFCSA Blog

Go here for Introduction to ReportGo here for Section 1 Greed for Securitisation Profits Spawned Rampant Predatory Lending Section 2. UNDISCLOSED RISK TO BORROWERS “Almost 50 years ago, admittedly in the context of exclusion clauses, the courts propounded the fundamental principle that the more unreasonable a clause, the greater the notice which must be given of it. Lord Justice Denning, in the English Court of Appeal, expressed the principle eloquently in a well-known dictum, observing that ‘some clauses, which I have seen, would need to be printed in red ink on the face of the document, with a red hand pointing to it before the notice could be held to be sufficient’.  
It seems difficult to argue convincingly that this principle should not apply equally to bringing the risks of securitisation to the attention of home loan borrowers today.”  Doctor Pelma Jacinth Rajapakse1. Australia “… no-one who has a loan secured...

Kenneth Hayne's final royal commission report held back 'heavy hits' from the banks ABC News26 February 2019 Stephen Long   The body language said it all. On the afternoon of Monday, February 4, representatives of the banking lobby and various other interest groups were locked in a windowless room at Parliament House, perusing the three-volume report of the Hayne royal commission before its public release by the Treasurer. Some 35 minutes into the lock-up, Anna Bligh, chief executive officer of the Australian Banking Association, sat back, relaxed and looked around the space. Bligh's brow unfurrowed and the tension in her shoulders slipped away. Her minions kept reading, but the former Queensland Premier had seen enough to know that it was a good outcome for the banks. "Fifteen minutes in, people were looking perplexed," recalls someone who was in that room. "Where were the heavy hits?" About the same time as Ms...

IMF sounds alarm on Aussie debt bubble Investor Daily26 February 2019 James Mitchell   The International Monetary Fund has recommended that APRA takes a forensic “deep dive” into the credit risk management frameworks of Australian banks. The IMF has released its Financial Sector Assessment Program (FSAP) report on Australia. While the comprehensive review was generally positive towards the domestic economy and the role of the prudential regulator, it did warn of key risks to the financial system. The IMF noted that stretched real estate valuations and high household debt pose macro-prudential risks to Australia. “House prices, after rising by about 70 per cent over the past decade at the national level, have now started to decline,” the report said. “The price appreciation following the global financial crisis had been even higher in Sydney and Melbourne, where prices had doubled on average over 10 years, though these two cities have also experienced...

This fight is over standards of living Australian Financial Review Feb 25, 2019 11.45pm Craig Emerson Craig Emerson is managing director of Craig Emerson Economics, a Distinguished Fellow at the ANU and adjunct professor at Victoria University's College of Business. [And a former Labor trade minister (2010-13);   Amid the myriad political scandals of the recent parliamentary sitting fortnight, a report by the IMF on prospects for the Australian economy was released to a distracted Canberra press gallery. Among the IMF's many economic projections was one measuring the material living standards of Australians. It received no coverage whatsoever. Yet in that official projection lies Australia's economic challenge and the Morrison government's immediate political challenge. As ministers participated in the scandal-a-thon, it was hardly surprising that the IMF's report on Australia received so little coverage outside of The Australian Financial Review. It certainly was not top of the bulletins on the nightly television...

ASIC wants laws to lock more bankers in jail Australian Financial Review Feb 26, 2019 12.00am John Kehoe, James Eyers   The corporate regulator is pressing the federal Parliament to enact tougher laws to make it easier to jail rogue bankers in order to deter misconduct and improve culture in the financial services industry. Under a proposal that will set off alarms in the finance sector, corporate cop Daniel Crennan, QC, wants the Corporations Act amended to enable more prosecutions of individuals for egregious conduct at financial institutions. Mr Crennan, ASIC deputy chairman, has made the case in Canberra for the law reforms to the offices of Treasurer Josh Frydenberg and shadow treasurer Chris Bowen, so ASIC can meet expectations of the community to "pursue individual responsibility for the purposes of deterrence". "There are probably some other legislative improvements to fix individual responsibility so ASIC can more easily pursue individuals for...

NAB digs in over fees-for-no-service conduct Australian Financial Review Feb 25, 2019 11.00pm James Frost   EXCLUSIVE  NAB is preparing to dig in and defend itself against allegations it charged superannuation customers for services it never provided by sticking to its line that offering customers advice is just as good as providing it. The fight with the corporate regulator on this matter is now in its fifth year and the landmark case will head to court in May. Court documents obtained by The Australian Financial Review show that despite deciding to fully compensate all the customers affected plus interest, NAB will argue that in many of the cases its behaviour was "flawed" but not illegal. The fees-for-no-service issue exploded during 2018 when it was revealed the banks had been dragging their heels on repaying customers for a practice that is now expected to cost the banks upwards of $2 billion and...

Extra bank capital in NZ could trigger $8.1 billion in equity raisings S&P Australian Financial Review Feb 25, 2019 4.04pm James Eyers   S&P Global Ratings expects the major banks will have to raise $8.1 billion in additional equity capital to maintain capital ratios in Australia if the Reserve Bank of New Zealand continues its plan to push bank capital buffers to the highest levels in the world. The international ratings agency said the moves would strengthen the credit profile of the major banks' subsidiaries in NZ and its ratings would be unchanged. However, the action would be a big cost for the major banks, which lend $9 in every $10 in New Zealand, forcing them to raise additional equity to maintain "Level 1" (Australian parent) capital ratios. ANZ Banking Group and National Australia Bank would require the most capital, according to S&P's analysis, with each needing $2.4 billion to maintain...

Deutsche Bank analysts warn car loans pose profit risk for big banks Australian Financial Review Feb 25, 2019 4.45pm Jonathan Shapiro   Late payments on car loans could wipe out as much as 23 per cent of big banks' profits, say Deutsche Bank analysts who have flagged the problem as an understated risk for investors. In a note titled Is there a canary in the car?, Deutsche Bank analysts Matthew Wilson and Anthony Hoo argue that an increase to more normal loan-default levels could affect bank profits and force dividend cuts. Although consumer loans, including car loans, are often overlooked by investors because they account for just 2 per cent of total loans, Deutsche Bank points out these exposures account for 34 per cent of common equity tier-1 capital, while 17 per cent of net profits are exposed to the sector. An increase in late payments could wipe out between 5...

Christian Porter gave ex-adviser $250,000 job on public tribunal Sydney Morning Herald February 25, 2019 11.45pm Michael Koziol   EXCLUSIVE  Attorney-General Christian Porter has appointed one of his own ex-staffers to a plum job on the Administrative Appeals Tribunal just two months after the former adviser left his office. Mr Porter last week appointed William Frost, a lawyer and his former senior adviser, to a seven-year, full-time position on the review tribunal, a position that pays up to $244,520 a year. Among the other 34 new appointments to the tribunal were several former Liberal MPs such as Bob Baldwin, former Senate president Stephen Parry and Joseph Francis, formerly a Liberal minister in Mr Porter's home state of Western Australia. The West Australian revealed on Monday that Mr Francis' Australian Transit Group lent Mr Porter a campaign bus - nicknamed the "Porter Transporter" - on a "complimentary" basis, though Mr Porter said...

Shorten to hit banks with levy for $640m victims compo fund The Australian 12:00am February 25, 2019 Greg Brown   Bill Shorten is set to hit banks and financial institutions with a new levy for a $640 million fund to support victims of misconduct as Labor sharpens its attacks on poor corporate behaviour ahead of the expected May federal election. The opposition will today ­announce a “banking fairness fund” to be imposed in addition to the Coalition’s banking levy and be paid by financial institutions among Australia’s top 100 listed companies, with the amount they pay linked to their market capitalisation. The pre-election pledge would raise $160m in new taxes a year for four years, hitting not only the big four banks — Commonwealth, NAB, Westpac and ANZ — but also Suncorp Group, Bank of Queensland, and the Bendigo and Adelaide banks. ­Financial institutions AMP and Macquarie Group would also pay....

Sluice Gate – money laundering and real estate shape as an election issue michaelwest.com.auFeb 25, 2019 Michael West, Nathan Lynch   “Most Aussies, especially first homebuyers, would be furious to learn they’re competing for houses with people who are trying to wash the proceeds of illicit drug sales, fraud or corruption,” writes financial crime expert Nathan Lynch. Yet incredibly – as global money laundering authorities are increasingly annoyed about Australia’s failure and dithering on compliance – real estate agents, lawyers and accountants still remain free from money laundering laws which were supposed to be introduced 12 years ago. In the story below, Lynch, a financial crime expert from Thomson Reuters, examines how the government has been making cuts to the Australian Federal Police and ASIC as Australia falls further behind the rest of the world on fighting financial crime. Two years ago, this website revealed how the Financial Action Task Force...

  Super funds to halve: Macquarie The Australian 12:00am February 25, 2019 Scott Murdoch   The number of Australian superannuation funds has been predicted to halve and the larger cashed-up “mega” funds are likely become the driving force of corporate activity as they take larger direct investments in Australian com­panies. A new report by Macquarie, the top-ranked mergers and acquisition adviser, obtained by The Australian has showed that superannuation sector consolidation could be greater that initially predicted, following the Hayne royal commission. It said that in 2018 Australian superannuation funds managed $2.7 trillion and the value of the funds under management could shoot as high as $10.5 trillion by 2040. Macquarie said the result of the sector’s consolidation would be fewer but more cashed-up funds that would start to make greater direct equity investments. “Pension funds are managing record capital inflows, resulting in competitive pricing for core assets and a broadening...

Smaller lenders call on APRA to close the big four funding gap The Australian 12:00am February 25, 2019 Joyce Moullakis   The customer-owned banking sector has urged its regulator to use new capital requirements to close the gap on a funding advantage held by the big four, while not allowing the proposals to flood the bond market with new issues. In a submission to the Australian Prudential Regulation Authority, the $116 billion customer-owned bank industry argues the “too big to fail” funding advantage should be addressed to help smaller lenders compete against the big banks. It also urges the regulator to ensure the new reforms don’t “flood the market” with subordinated debt securities, which would disrupt pricing for all banks in that part of the bond market. APRA’s proposed changes — outlined in November — would see banks boost their capital buffers by up to 5 percentage points to limit taxpayer...

The Royal Commission was a sideshow compared to this Daily Reckoning AustraliaFebruary 23, 2019 Nick Hubble   The most important fallout from the Royal Commission began this week. Borrowers have launched a class action lawsuit against Westpac. They argue that Westpac’s usage of the so-called HEM (Household Expenditure Measure) is irresponsible lending. And that entitles the borrowers to hundreds of thousands in compensation each. This could cost Westpac ‘tens of millions of dollars’, according to the ABC. Now, I don’t know who is doing the maths here. The Sydney Morning Herald reported the following figures late in 2018: ‘For about 50,000 of those loans it received, but didn’t use, consumers’ actual expense information that was higher than the HEM and for a similar number of loans with an interest-only period it used the incorrect method of assessing the customers’ capacity to repay the loan at the end of the interest-only period.’...

The Paladin Affair: Follow the money Australian Financial Review Feb 22, 2019 11.45pm Angus Grigg, Jonathan Shapiro, Lisa Murray   In the autumn of 2014, a group of former SAS soldiers gathered at a function centre in Devonport to farewell one of their own. Jerry Rouwhorst had died in London following a decorated military career and a high-octane life after the army in trouble spots like Baghdad and Kabul, before providing close protection for Ginia Rinehart, the daughter of Australia's richest woman. Rouwhorst would be farewelled that morning in a private ceremony on Tasmania's north coast, and among the mourners was his former business partner Craig Thrupp. The pair had worked closely together in Jakarta during the early years of security company Paladin, but had fallen out over money and the firm's direction around 2010. Rouwhorst would tell one friend two years later that Thrupp had "f---ed me over" and that...

Opportunity and threat in post-Hayne world says Platinum's Andrew Clifford Australian Financial Review Feb 22, 2019 4.32pm Vesna Poljak   Platinum Asset Management chief executive Andrew Clifford says conflicts are so embedded in the Australian financial services industry, it is impossible to put a value on any funds potentially at risk under the clean regime he hopes lies ahead. The global equities manager has never paid a dollar in trailing commissions and reiterates that it is in a good position to adjust to a post-royal commission regulatory environment. But it has no way of knowing how the end investor arrives at a particular platform that happens to carry Platinum's managed funds. It is represented on all the main platforms. "When I look at it, I reduce the key message from the royal commission to one line really because some of the recommendations I would have hoped for are not there, but...

'Irresponsible' agents blamed as top end property plunges by 40pc Australian Financial Review Feb 22, 2019 4.09pm Duncan Hughes   Prices for some prestigious properties have fallen by more than 40 per cent as vendors rein in their expectations in response to falling demand, tighter credit and lower prices. Buyers' agents, who represent property buyers, are blaming the reductions on the "irresponsible" and unrealistically high prices set by realtors desperate to win business from sellers. "These price cuts are a result of bad agency practice," said David Morrell, director of buyers' agency Morrell Koren. "Professionals should set realistic values that reflect where the market sits." Mr Morrell said such over-valuations were widespread and were partly driven by real estate agents trying to generate more revenue through advertising campaigns paid for by the vendor, which then generate commissions and other incentives from advertising companies. The higher the forecast price of a property...

IMF says Australia must do more to prepare for next crisis The Australian 12:08pm February 22, 2019 Joyce Moullakis   The International Monetary Fund has called on Australia to better prepare for the risk of a banking crisis, including putting aside $20 billion to draw on in the event of a bank collapse or wider threat. The IMF praised Australia’s financial stability and policy in its 2018 Financial Sector Assessment Program report released yesterday. But it said “more needs to be done” to ensure authorities were prepared for a major bank collapse or crisis in the finance sector. “The $20bn standing budgetary appropriation for financial crisis management processes should be discussed by the CFR (Council of Financial Regulators) and be specified in the legal framework as soon as feasible,” the IMF said. The report also suggested the bank levy announced by the Federal government in the 2017-18 budget could be accrued...

Westpac’s Bill Evans ‘gobsmacked’ by lending drop The Australian 12:00am February 23, 2019 David Rogers   As chief economist of Westpac, Bill Evans has a pretty good bead on the economy. But when he looked at the ­December housing finance data this month, he was shocked. New lending for housing had fallen almost 15 per cent since mid-year, confirming his growing sense of unease about a rapid slowdown in the economy after the end of a record housing boom that was spiked by slowing Chinese demand and a crackdown on risky lending. “I’ve been gobsmacked by the rate at which new lending has ­collapsed,” Mr Evans told The Weekend Australian. “That fall, coming on top of earlier falls, was very surprising.” The Australian dollar dived, bond yields fell and the sharemarket soared this week after the veteran economic forecaster said the Reserve Bank would be forced to cut interest rates in...

Long-term debt pain starting to hit home The Australian 12:00am February 23, 2019 Roger Montgomery   The half-year reporting season on the ASX is well under way and a few themes are emerging that suggest the cautiousness with which we approached 2019 was not misplaced. Indeed, the reason for our caution may have only just begun. By way of background, Australian households have amassed a record level of debt to income, as many countries have, over the past 30 years. The reason is pretty straightforward — declining interest rates, three decades of declines. The difference is that Australia’s rate of increase in the debt-to-income measure has been much steeper. Elsewhere in the world, where the rental yields are more attractive, sophisticated corporate investors own more of the rental stock. Here in Australia, where the net yields are negative, the majority of the rental stock is owned by less sophisticated “households”. The...