Banks’ dividend growth cops a buffering

Wednesday, 14. November 2018

Source: Nomura Reseach, Company Data.Australia’s big banks could face headwinds in sustaining their strong rates of dividend growth, as a result of new rules requiring them to hold billions of dollars more in capital.

Commonwealth Bank, Westpac, National Australia Bank and ANZ must lift their buffers for absorbing losses by an extra 1 percentage point from January 2016, the Australian Prudential Regulation Authority said on Monday.

The regulator will require the extra loss absorbency as part of a global push to make ”too big to fail” banks hold more capital, a response to the economic devastation caused by major bank failures.

In a win for Macquarie, the investment bank will not have to hold the extra capital because it was not deemed a ”domestic systemically important bank”.

Currently, banks must set aside about 4.5 per cent of their assets in high-quality ”tier 1” capital, plus an extra buffer of about 2.5 per cent for times of financial stress, taking the total capital ratio to about 8 per cent.

Under the changes, the extra buffer will be increased, taking the total ratio to about 9 per cent for the big four.

While all of the big four are on track to meet the requirements, analysts said the changes could limit banks’ ability to sustain 10 per cent growth in dividends seen in 2013.

Goldman Sachs analyst Andrew Lyons said the major banks were likely to hold additional capital as a buffer above the regulatory requirement, and this ”could create a headwind for dividends”.

Nomura analyst Victor German said banks would be able to hit the targets by using dividend reinvestment plans to increase capital levels where needed. Further increases in the share of profits paid out to shareholders were also unlikely, he said.

”To some extent the higher dividends that we’ve seen this year have been driven by both higher payout ratios and increased earnings per share. We now think further increases in payout ratios are highly unlikely.”

Morningstar’s David Ellis said current dividends were sustainable, and a bigger risk to dividend growth was a pick-up in credit demand, which would see banks set aside more capital against new loans.

The big four already exceed the capital buffers that are in force today and APRA said it expected them to meet the increased requirement because they were generating large amounts of capital.

National Australia Bank said it expected to meet the requirement through organic capital generation and, if required, through its dividend reinvestment plan.

ANZ said it might modestly increase its buffers.

Westpac, which has the highest capital levels among the big four, said it was ”well placed” to meet the new requirements.

Commonwealth Bank said its capital levels were already above the new requirements.

The changes are designed to reduce the probability of a failure of a big bank, because of the larger impact this would have on the financial system and the economy. Each of the big four holds more than $400 billion in assets in Australia.

Although the rules should make banks safer, APRA stressed this did not make them ”immune from failure”. ”Rather, the designation is intended to ensure that banks perceived to be ‘too big to fail’ are subject to more intense supervisory oversight and have greater capacity to absorb losses, to increase their resilience to failure,” it said.

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Sharemarket extends gains on optimism for US growth

Wednesday, 14. November 2018

The sharemarket closed higher on Monday as the improving growth outlook for the US, and subsequently global demand, continued to bolster confidence in equities.

It was the third consecutive day of gains since the US Federal Reserve said it had decided the US economy was recovering strongly enough to begin reducing its huge stimulus in January.

The benchmark S&P/ASX 200 Index added 26.7 points, or 0.5 per cent, to 5291.9, led by the big four banks and Wesfarmers.

Goldman Sachs broker Richard Coppleson said that now the start of tapering was out of the way, markets were ”free of any bad or negative news for the next three weeks and should rise as the traditional Christmas rally occurs yet again this year”.

The Australian Prudential Regulation Authority said on Monday the big four banks must increase the amount of capital they set aside to absorb losses by 1 percentage point from January 2016. The changes are designed to reduce the risk to the broader Australian economy of failure by a financial institution deemed by the regulator to be ”systemically important”.

NAB, Commonwealth Bank and Westpac each rose 1.1 per cent to $34.62, $76.76 and $31.92 respectively, while ANZ gained 0.5 per cent to $31.95.

Unlike the big retail lenders, Macquarie Group and the regional banks will be exempt from the tougher capital rules. Macquarie Group rose 0.4 per cent to $55, Bank of Queensland added 0.3 per cent to $12.06, and Bendigo and Adelaide Bank rose 1.1 per cent to $11.54.

The best-performing sector was healthcare, up 1.1 per cent, as vaccine exporter CSL rose 1.3 per cent to $68.30.

At the local close, the Australian dollar was buying US89.51¢, up from US88.68¢ at Friday’s close.

Mining stocks were mostly lower amid softening commodity prices.

Alacer Gold was the worst-performing stock, down 7.4 per cent at $2.13, despite the precious metal’s spot price bouncing back to $US1203.46 an ounce.

Mining services company Forge Group was the best-performing stock, up 14.5 per cent to 71¢.

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Star casino in hunt for new boss, again

Wednesday, 14. November 2018

Frederic Luvisutto: has resigned after less than two years in the position.Echo Entertainment is on the hunt for a new boss for flagship casino the Star after its managing director quit to take up a role overseas.

Frederic Luvisutto has resigned after less than two years in the position. It is believed he will take a job at Wynn Macau.

The headhunt comes at a pivotal moment for Echo, which is still reeling after losing a two-year battle with James Packer’s Crown Casino for NSW’s second casino licence.

Mr Luvisutto got the top job at the Star in February last year after running Echo’s other casino, Jupiters on the Gold Coast, since 2011.

He was brought in to replace Sid Vaikunta, who was fired for sexual harassment. The sacking rocked Echo’s relationship with the NSW government, and landed the Star with a $110,00 fine for failing to inform authorities about the move.

Echo said its chief executive John Redmond would be acting managing director while a replacement for Mr Luvisutto was found.

Mr Redmond said Mr Luvisutto oversaw the casino during a period of significant overhaul.

”Frederic has contributed significantly to both Jupiters Gold Coast and the Star during an important period of establishment and transition for the group,” Mr Redmond said.

Echo lost its bid for NSW’s second casino licence last month after the government handed it to Crown Casino.

Crown’s proposed $1.3 billion hotel and VIP-only gaming complex will be at Barangaroo by the harbour. The venue, expected to be completed by 2019, will put pressure on Echo to ramp up the Star against the greater rivalry.

Echo has an exclusive casino licence in NSW until November 2019, and had argued the government should approve a $1.1 billion expansion proposal.

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Retailers make merry as Christmas shoppers set cash registers ringing

Wednesday, 14. November 2018

Sydney fish markets Christmas crowd: The massive crowds are a good sign for retailers. Photo: Dean Sewell

‘Tis the season to be jolly – especially if you’re a retailer.

Shopping this festive season was ”all systems go” as a flurry of buyers – including Nicole Kidman and Keith Urban – joined the throng in the countdown before Christmas Day.

Retailers are expecting more than 1.5 billion transactions on Monday and Tuesday, as the focus shifts from Christmas presents to food, Australian National Retailers Association’s chief executive Margy Osmond said.

On Monday, Sydney Fish Market was doing a roaring trade at its annual 36-hour ”fish market marathon” which began at 5am.

Staff at De Costi Seafoods got a pleasant surprise when Kidman and Urban walked in to buy sashimi, smoked salmon and prawns. ”The whole shop lit up when they walked in,” operations manager Dimitri Hari said.

@NicoleKidman we heard you just popped in to grab your xmas seafood. Enjoy & merry xmas from the team at SFM #SeafoodieXmas— Sydney Fish Market (@SydFishMarket) December 23, 2013

Fishmongers have reported a spike in sales of whole fish – including barramundi, snapper and salmon – saying people were becoming more adventurous.

“It’s become a trend in the last few years,” De Costi Seafoods retail manager Carmelo Lombardo said.

”What I must say what’s actually helped a great deal are the shows on TV, such as your MasterChefs, your Rick Steins, your Jamie Olivers.”

Shoppers who chose to brave Pitt Street Mall were similarly greeted with crowds, packed outlets and blaring Christmas carols.

“I very foolishly decided to come Christmas shopping on the 23rd of December,” said Emma Trowbridge, who was getting some respite on the mall’s benches.

“It is just like feeding time at the zoo, you know like everyone’s jostling around, getting vicious over the last-minute deals,” she said.

But the crowds are a good sign for retailers. They say this is going to be the best Christmas in the past four to five years, Ms Osmond said.

”These two days are pivotal … there is an awful lot of shopping that is happening in the stores,” she said.

Economists have also welcomed a more positive Christmas period for retailers.

”I think it’s probably going to be a better Christmas than in prior years,” CommSec economist Savanth Sebastian said.

”If you look at consumer confidence, it is holding at pretty healthy levels now, we are seeing the rally in the sharemarket and house price gains adding to the ‘wealth effect’ story, and I think that seems to suggest that retail activity should lift,” he said.

Australian Retailers Association executive director Russell Zimmerman said perfumes, cosmetics and aftershaves were the best selling retail items in the final days before Christmas.

”They’re quick gifts that you can put into the stocking,” he said.

A Myer spokeswoman said cosmetics and perfumes had been the biggest sellers across its 67 stores, while the biggest selling brands among toys were Furby Boom, Disney Planes Tilt & Fly and the Barbie digital dress doll.

with Eli Greenblat

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Scotland Island canine race: dog owners stick up for pets in wet adventure

Wednesday, 14. November 2018

In the swim: Zac Wagner-McCullough puts his pet labrador, Bob, through some training for the Scotland Island canine race. Photo: Edwina PicklesParticipants in the annual Scotland Island canine race are told to keep it ”all fun”, but nine-year-old Zac Wagner-McCullough is having none of it.

After an incident last year in which several dogs were distracted by a stick thrown by another owner and went off course, Zac has been putting his pet labrador, Bob, through intense training in preparation for the paddle.

”He has been getting faster,” Zac said.

”We jump in the water and then we swim with him, we throw sticks for him so he’s good at chasing.

”I’m going to paddle next to him and get the stick right in front of his eyes.”

This will be Zac’s second time and Bob’s third in the Christmas Eve race, which has been running since the early 1970s and pits dozens of dogs and their owners in the race to cross the 600-metre stretch of water from Scotland Island to Church Point in Pittwater.

Zac is determined to claim the ”Diesel King Memorial Trophy” – named after a black kelpie that came first 10 years in a row in the late 1990s – after controversy marred the race last year.

”Last year, we basically came first, but the guy who won carried his dog over the finish line,” Zac said. ”It was a small sausage dog. I thought it was a bit unfair.”

The entry fee requires a long-neck bottle of beer and a can of dog food, which is split between the two winners, an overall winner and an ”offshore” winner, the first Scotland Island local over the line.

About 40 canines and their owners are expected to paddle along the stretch of water when the race kicks off at 6pm, although organisers are set to restrict the number of competitors compared with previous years to avoid overcrowding.

”It used to be just island dogs, and then over the last 10 years mainland dogs have been going in as [the race] has been more publicised,” race representative Scott Taylor said.

”Even though we have boats going with the fleet at the same time, some people are not as healthy as their dogs, you might say, and they can’t make the distance.”

While most owners will race alongside their dogs on paddle boards or surfboards, those swimming will be made to wear life jackets for the first time in the event’s history.

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