Australian Bank goes into administration

Posted on March 16, 2009 by peter 
Filed under Australia Mortgage and Finance News · Tagged: ,

Babcock & Brown – Australia’s second largest investment bank, has gone into administration after it was unable to deal with its massive debt levels. The former private equity powerhouse, had struggled for more than a year.

Babcock’s downfall was blamed on taking on too much debt – and then being unable to cope in the credit crunch.

At its peak, shares were worth 37 Australian dollars (£17.40; US$24.20) but when suspended about three months ago, were worth just 32.5 cents.

Efforts to avoid administration failed when a group of shareholders rejected a proposed debt restructuring, with Deloitte being appointed as administrators.

Like with Chapter 11 bankruptcy laws in the US, firms entering voluntary administration in Australia can attempt to trade out of financial difficulties.

But administrator David Lombe told the Australian Broadcasting Corporation that it was too early to say whether Babcock could avoid collapse.

While administrators will run the company on behalf of creditors, Babcock said that it would focus on “ensuring that the value of assets and business platforms is preserved during this process and all assets and businesses continue to be managed appropriately”.

Its satellite investment funds, Babcock & Brown Infrastructure – which owns UK port firm PD Ports – said it was unaffected by the administration.

Babcock had been hailed a success, likened to a mini-version of Australia’s most dominant investment bank Macquarie.

Last November, Macquarie announced a sharp fall in profits but said it did not need to raise cash.

‘Staying put’ owners cause house sales crash

Posted on March 16, 2009 by peter 
Filed under Australia Real Estate News · Tagged:

House sales have crashed on a national level as middle and high-end owners avoid listing their properties as the financial turmoil continues.

While property clearance rates – the proportion of auctioned properties being sold – continued to improve in the southern capitals over the weekend, property volumes reveal a grimmer story.

In Sydney the auction clearance rate was 63 per cent, up from 47 per cent the same weekend last year. But the number of properties sold slumped from 229 last year to just 127 at the weekend.

In Melbourne the auction clearance rate remained steady – at 66 per cent – but the number of properties listed for sale crashed from 1265 the same weekend last year to just 396.

In Brisbane and Adelaide, markets dominated by private-treaty sales, the cupboard had almost been stripped bare, with clearance rates and property volumes both taking a dive.

In Adelaide only 25 properties were put up for auction compared with 108 for the corresponding weekend in 2008, and with eight auction results yet to be reported, 17 properties had already been passed in.

Only 38 properties were placed on the market in Brisbane compared with 115 for the same weekend last year.

Real Estate Institute of Victoria head Enzo Raimondo said it was the decline in properties available for sale that had driven the recovery in clearance rates. “We’ve seen a decrease in transactions right across the board,” Mr Raimondo said.

He said home owners had become unwilling to sell unless they were forced to. “While we’re seeing a lot of increased activity in the lower end of the market, the median to higher end where most of the action usually takes place has slowed down to a whimper,” he said.

SQM Research managing director Louis Christopher said first-home buyers had buoyed lower-end sales, but he cautioned them not to rush into the market because prices were likely to fall.

“Buying a property because of the increase to the first-home buyer’s grant is like having a baby because of the baby bonus,” Mr Christopher said. “It’s not a wise move.”

But despite the slowdown in sales, research from the Market Intelligence Strategy Centre found the “real” home lending market had proved far more robust than official data suggested.

According to MISC, the value of new mortgage settlements rose 18.5 per cent to $46 billion in the December quarter, which it attributed to the Reserve Bank’s three rate cuts during the quarter, totally 2.75 percentage points.

MISC cuts its figures from actual mortgage settlements derived from state governments’ stamp duty data. This method differs from that of the Australian Bureau of Statistics, which uses mortgage commitment data provided by selected lenders.

The ABS data showed a 20 per cent fall in December-quarter residential building approvals, seasonally adjusted, while the value of owner-occupied housing finance rose 3.49 per cent.

Mr Raimondo said if the unemployment rate steadied and confidence was restored into the economy, the market would see an upturn in the spring quarter. “(But) if the financial crisis worsens and unemployment rises then it’s going to put a real damper on the market.”

Australian economy contracts 0.5%

Posted on March 10, 2009 by peter 
Filed under Australia Mortgage and Finance News · Tagged:

Australia’s economy has suffered ‘negative growth’ for the first time in eight years, raising fears that the country may be heading for a recession.

The economy contracted by 0.5% in the last three months of 2008 from the previous quarter, the government said.

Economists had been expecting it to grow by 0.2%.

If Australia’s economy shrinks again the current quarter, it will enter recession, usually defined as two consecutive quarters of contraction.

Australia’s resource-based economy has been hit hard by the decline in commodity prices, but it has fared better than others.

The country’s mining firms are cutting back on spending, slashing staff numbers, and shelving projects.

“Our economy did contract in the December quarter, but by far less than other developed economies,” said Treasurer Wayne Swan.

“This is a sobering but unsurprising outcome, because I think it does illustrate the full impact of the magnitude of the global recession and how it’s impacting on this country.”

Japan’s GDP dropped 3.3% in the final quarter of 2008, the US saw a 1.6% drop and the UK contracted by 1.5%

British pound on the slide again

Posted on March 10, 2009 by peter 
Filed under UK Mortgage and Finance News · Tagged: ,

pound-dollar

Thebritish pound has dropped back below $1.40 to a 6 week low, as confidence in the UK economy took yet another knock following falls in bank shares.

The pound was down almost four cents at $1.3776. Sterling touched its lowest levels in 24 years in mid-January, nearing $1.35.

UK financial shares fell in Monday trading after the government increased its stake in Lloyds Banking Group.

Against the euro, the pound was down over two cents at 1.0927 euros.

Shares in Lloyds fell more than 10%, before recovering during afternoon trading to end the day up 4.1%.

Barclays lost 13% before bouncing to end down 5.3%.

Other banking stocks among the day’s biggest losers included HSBC, down 3.3%, and RBS, which fell 4%.

“What’s going on in UK shares at the moment is putting pressure on sterling,” said Geraldine Concagh at AIB Group Treasury.

She added that the Bank of England’s programme of quantitative easing will put further downward pressure on sterling.

The taxpayer will soon own 65% of Lloyds Banking Group – up from

Big uptake in first homeowner grants in Australia

Posted on March 10, 2009 by peter 
Filed under Australia Mortgage and Finance News · Tagged: ,

FIRST-time home buyers are rushing to take advantage of a one-off a boost in the Federal Government’s housing grant before it ends in three months time, the nation’s largest mortgage broker says.

Australian Finance Group (AFG) says the number of loans arranged by the firm rose by 36.8 per cent in February to 7673 loans, valued at $2.67 billion.

Of those more than a quarter, or 26.1 per cent, were taken out by first home buyers, up from 25.8 per cent in January.

That compared to February 2008, when the number of loans AFG sold totalled 7574, with only 11.5 per cent going to first home buyers.

However, AFG general manager of sales and operations Mark Hewitt warned that if the Government grant top-up was not extended, the market may be looking over cliff by the June 30 deadline.

“The dramatic increase we’ve seen in first home buyers over the past four months is a double edged sword,” he said.

“It’s positive in that it underpins the future recovery of mid-level property markets by getting significant numbers of people onto the property ladder.

“But we’re concerned that if the government doesn’t announce an extension to the grants fairly soon, we’ll continue to pull demand forward, and will be left staring over a cliff come the end of June.”

In mid-October, the Federal Government doubled the first home owners grant to $14,000 for established dwellings and tripled it to $21,000 for newly built properties.

AFG’s figures also showed NSW had the highest concentration of first home buyers, at 34.5 per cent, in February, followed by Victoria on 26.8 per cent.

Borrowers also continued to shun fixed-rate loans, with the number of new fixed mortgages falling to 2.5 per cent in February, after peaking at 27.3 per cent in November 2007.

Standard variable rates were the mostly popular, making up 48.8 per cent of loans.

Taxpayers set for majority stake in Lloyds

Posted on March 7, 2009 by peter 
Filed under UK Mortgage and Finance News · Tagged:

The government is set to take a majority stake in the recently-created Lloyds Banking Group.

Under an agreement with the Treasury, the government’s stake will increase from 43% to between 60% and 65%.

Some £260bn of toxic loans will be insured, and Lloyds will be required to lend more to households and companies.

The deal was agreed on Friday night, but there are some legal formalities to be concluded. It is understood it will be formally announced on Saturday.

Reports said Lloyds had been unhappy to give the government a majority stake.

Hugh Pym, BBC chief economics correspondent, said the government’s voting stake could rise as high as 65% – although with other types of share taken into account, its interest will, in effect, be 75%.

Our correspondent added that the deal would be “very awkward” for the Lloyds chief executive Eric Daniels and chairman Victor Blank.

They have come increasingly under fire from shareholders for their decision to buy rival HBOS.

It was the January takeover of HBOS – a move that was supported by the government – that has caused the problems at Lloyds.

Lloyds was forced to announced last week that HBOS made a pre-tax loss of £10.8bn in 2008, which it has had to absorb.

By contrast, Lloyds, or Lloyds TSB as it was then known, made a profit of £807m last year, albeit an 80% fall on 2007.

George Osborne, the shadow chancellor, said the government’s latest move was proof that the first bailout had failed, and the test of it would be whether credit began flowing into the economy again.

“It is also clear that the takeover of HBOS, which the prime minister helped orchestrate, is responsible for dragging Lloyds into majority public ownership,” Mr Osborne added.

The £260bn insurance deal is part of the Treasury’s taxpayer-backed Asset Protection Scheme to insure banks’ riskiest assets against further losses.

It was put forward by Chancellor Alistair Darling in a bid to restore confidence in the banking sector.

Royal Bank of Scotland was the first bank to sign up, announcing last month that it would ask the government to insure £325bn worth of so-called toxic assets, which are difficult to value and currently cannot be sold.

Home buyers forced to purchase in outer Melbourne suburbs

Posted on March 7, 2009 by peter 
Filed under Australia Real Estate News · Tagged:

First time home buyers are being being forced to buy a record distance from the city as low interest rates and higher first homeowner grants push up prices in once affordable suburbs.

Only 316 of Melbourne’s 2720 suburbs and towns have a median price below the average first home buyer’s budget of $277,000, new figures released by home seeker website Our Home Sweet Home.

“It is driving up prices and pushing many first-time buyers out of the market.”

Many traditional first home buyer suburbs have moved out of reach, including Derrimut, Caroline Springs, Bacchus Marsh, East Geelong, Sunshine North and West, St Albans, Hallam, Dandenong South and Campbellfield.

The median price in Caroline Springs, for example, rose 16.4 per cent to $324,500 last year while in Derrimut it rose 7 per cent to $365,500.

Mr Boehm said many first-time buyers were being forced to look farther out to find a home they could afford.

Many were being forced to buy up to 40km from the city in places such as Cranbourne, Frankston North and Melton.

The figures show that between the September and December quarters last year 46 Victorian suburbs or towns moved out of reach of the average first home buyer despite across-the-board affordability improvements. Only 19 new areas became affordable.

“It is a bit of a surprise that more suburbs are coming off the list than coming on to it,” Mr Boehm said.

He expected strong buying by first home buyers to continue to push up prices in their favoured areas as long as interest rates remained low.

“Interest in properties in the $250,000 to $350,000 bracket is intense, with demand often outstripping supply, fuelling bidding wars in some areas,” said the firm’s chief executive, Peter Boehm.