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Category Archives: liquidity crisis

Jacob Saulwick
June 11, 2009

THE average first-home loan in NSW has risen more than $50,000 in just over a year, climbing to $300,000 on the back of low interest rates and generous government grants.

The success of the boosted first-home owner grant in stimulating the market has drawn applause from the Government, but experts warned of the potential danger of a housing bubble as young couples take on loans they will struggle to maintain.

First-home buyers are taking out a record 28 per cent of the value of all home loans, Bureau of Statistics figures released yesterday showed.

But the surge in borrowing runs the risk of overinflating the lower end of the housing market. “We have just got to make sure that we don’t get a recovery on the back of over-extended young couples,” said Julian Disney, an affordable housing expert from the University of NSW.

The Reserve Bank Governor, Glenn Stevens, cited similar concerns last week, saying it would be counterproductive if low interest rates encouraged marginal borrowers to take on large debts. Yesterday’s release came alongside a rise in consumer confidence, attributed to the resilience of the economy amid global recession.

When the Government doubled the first-home owner grant in October as part of its response to the financial crisis, the average loan to new buyers was lower than that taken out by non-first-home buyers.

Since then, the average loan for first-home buyers across the country has increased $50,000 to $283,000 – about $25,000 more than loans to buyers who already have a foothold in the market.

For NSW home buyers, the average first mortgage is $299,000, against $276,000 for existing home owners. Before October, there had been little increase in the average first mortgage for about four years.

Asked if the the market had been inflated by grants, the Treasurer, Wayne Swan, said yesterday’s figures showed the benefits of the Government’s economic stimulus packages.

“It has played a very important role in supporting employment in the Australian housing and construction industry.”

Professor Disney, the director of the social justice project at the University of NSW, supported the supersized grant as an economic emergency measure. But he said the Government should consider winding back the original $7000 grant to prevent a new housing bubble.

“Every month the risk of inveigling people into a dangerous situation increases,” he said.

Loans to owner-occupiers increased for the seventh consecutive month in April, after falling in each of the eight months before the grant was doubled. Overall, the value of housing finance rose 0.9 per cent in April.

Banks have already responded to a crush of demand from first-home buyers by making it more difficult to get a loan. The big banks are only writing loans up to 90 per cent of the value of the property, and insisting on at least 5 per cent genuine savings for a deposit. Borrowers are complaining of waiting up to a month to get a loan approved from the big banks.

But Mark Haron, the principal at the mortgage broker aggregation group Connective, said the market had quietened in the past couple of weeks.

There remained plenty of enthusiasm among first-home buyers, Mr Haron said, but they were having to spend longer looking for houses because prices kept going up.

In October, the $14,000 grant for existing homes will fall to $10,500, before dropping to $7000 in January. The $21,000 grant for new properties will drop to $14,000 in October, and $7000 next year.

Bill Evans, the chief economist at Westpac, which published the consumer confidence index, called this month’s increase a “truly remarkable result”.

“It is the second largest recorded increase in the index since the survey began in 1974,” said Mr Evans, adding it was likely due to the small increase in economic growth figures released last week.

Unemployment figures released today are expected to show an increase in the jobless rate.

http://business.smh.com.au/business/housing-fears-as-loans-hit-new-high-20090610-c3mh.html?sssdmh=dm16.381331

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Barry FitzGerald
June 11, 2009
OZ MINERALS will proceed with a shareholder vote today on its controversial $1.5 billion refinancing deal with China’s Minmetals after a last-minute $1.4 billion alternative proposed by Macquarie Group last night fell over in embarrassing fashion.

Macquarie told OZ it could not deliver the “degree of certainty” its board would have required to support the proposal. It is believed that Macquarie was unable to secure sub-underwriting support from a market yet to be fully convinced that recent commodity price strength will stick.

OZ said that without the necessary guarantees in the Macquarie proposal, it would have been faced with the same dire consequences it would have faced if the Minmetals deal had collapsed – the prospect of its banking syndicate forcing a move into administration.

But OZ’s chairman, Barry Cusack, faces a tough assignment in herding shareholders towards the Minmetals vote. This is likely to prompt a heated debate at today’s meeting in Melbourne on OZ’s dismissal of Macquarie’s initial alternative proposal, and a $1.5 billion recapitalisation proposal put forward by the RFC Group and the Royal Bank of Canada.

OZ said earlier this week it was convinced the Minmetals deal remained the best solution to its debt woes following a “scrupulous” assessment of competing recapitalisation plans. The deal involves OZ selling all its assets to Minmetals with the exception of its new Prominent Hill copper and gold mine in South Australia.

OZ said that while the board considered Macquarie’s original equity recapitalisation proposal to be better than the RFC-RBC proposal, neither was superior to the Minmetals deal.

Like Rio Tinto’s now aborted $US19.5 billion refinancing deal with China’s Chinalco, the OZ deal with Minmetals was struck in February when the cloud over commodity prices from the global economic crisis was at its darkest.

Commodity prices have since rebounded, convincing Rio to refinance itself through a heavily discounted rights issue and an iron ore joint venture in the Pilbara with BHP Billiton.

But OZ’s refinancing needs have been more pressing than Rio’s, with the company raising the prospect of having to go into administration if it could not deal with the $1.1 billion debt repayment demands of its banking syndicate.

An early deadline was recently extended to June 30 to allow time for the Minmetals deal to happen.

An independent expert has previously valued the assets to be sold to Minmetals at up to $2 billion, $500 million more than on offer from Minmetals. But the expert said that the deal was in the best interests of shareholders. OZ shares closed down 2c at 89c yesterday.

By Kevin Hepworth
The Daily Telegraph
June 06, 2009 12:01am
Text size

INDEPENDENT car yard owners are being forced to put millions of their own dollars at risk to keep sales moving as traditional finance streams dry up. With industry finance suppliers such as GE Money and GMAC walking away and banks tightening lending criteria or concentrating on home loans, many used car dealers are turning to self-financing to keep the wheels turning.

In the same week the giant General Motors corporation filed for Chapter 11 bankruptcy protection and handed 60 per cent of its ownership to the US Government, those at the coalface selling the world’s automotive products – both new and used – are still feeling the pressure of the economic crisis.

Mark Rosano, whose family has run the Family Car Centre at Chester Hill for the past 35 years, said that keeping sales ticking over was proving a daunting challenge for independent operators, The Daily Telegraph reports.

“It’s pretty tough. With GE (Finance) out of the market the other finance suppliers have tightened up and they are not buying (contracts) like they did 12 months ago,” he said.

“We are effectively self-financing for a lot of our deals or relying heavily on those customers who are paying cash for the cars with pre-arranged finance.

“At the moment I would probably have 60 customers out there who we have financed into the cars ourselves. That is very high risk.”

New car dealers are also offering special deals this month in the run-up to the end of the financial year.

Kia will take back cars from buyers who lose their job in the first 12 months after purchasing their car.

Buyers need to have bought the car on a recognised vehicle finance scheme and still be paying it off.

If they become unemployed and return the car, the company will pay the difference between the assessed value of the car when they return it and their loan balance up to $7500.

The free scheme effectively covers the depreciating value of the car and lifts the burden of loan repayments.

New car sales figures released this week show signs the market may have bottomed out with hopes the reorganisation of the global car industry will lift buyer confidence.

http://www.news.com.au/business/story/0,27753,25595707-462,00.html?referrer=email&source=eDM_newspulse

Eric Johnston
May 7, 2009

WESTPAC’S chief executive, Gail Kelly, has warned that the economy will deteriorate further into next year and recovery from recession is likely to be a “slow haul”.

But she believed households were holding up better than previously feared and low interest rates would help the housing sector to lead the recovery.

Yesterday Westpac became the latest of the major banks to cut its dividend as it sought to conserve cash and protect its balance sheet from the rising tide of bad debts.

The country’s largest bank by sharemarket capitalisation reported a 6 per cent decline in first half cash earnings to $2.29 billion.

The result, which includes the first full six-month earnings contribution from St George, was in line with expectations and underscored the impact the economic downturn is having on the sector.

In the past week NAB handed down a 9.4 per cent drop in first half earnings, while ANZ’s interim profit slumped 43 per cent.

Westpac’s result took the total cash profits earned by the big four banks to $7 billion since Commonwealth Bank kicked off the latest reporting season in February. They remain on target to turn in combined full year earnings of $15 billion for 2009.

Westpac’s interim dividend payout will be cut 20 per cent to 56c a share.

Analysts described the result as higher quality than the other bank profits handed down in the past fortnight. “We would regard this as the strongest result this bank reporting season,” said Credit Suisse’s James Ellis.

Westpac remains vulnerable to rising losses across its substantial exposure to commercial property, which accounts for nearly 10 per cent of its loans book.

Ms Kelly was more cautious about the prospect of a rapid recovery. She said lending losses were starting to spread from corporates to small- to mid-sized businesses and consumers.

“When the recovery comes, it is likely to be a slow,” she said.

After a slow start to the first half, St George delivered a 6 per cent increase in cash earnings to $529 million for the first half. Earnings across Westpac’s flagship retail business jumped 17 per cent, while earnings from its institutional operations slumped 62 per cent.

Westpac’s net interest margin expanded to 2.24 per cent from 2 per cent in the previous half, but it included an increase of about 10 basis points associated with trading and treasury operations.

Bad debt charges of $1.61 billion were more than three times the $541 million in the first half a year ago.

The latest provisions include $700 million from the collapsed corporate “bad boys” such as Allco Finance, ABC Learning and Babcock & Brown.

The bank also had a bigger than expected jump in losses across its margin lending book, which was hit with $156 million in losses across just three large trading accounts.

Westpac’s total provisioning now stands at $4.5 billion and the bank is among the best prepared to take shocks to its balance sheet.

The shares rose 46c to $19.96 yesterday.

http://business.smh.com.au/business/westpac-sees-slow-exit-from-recession-20090506-avdo.html?sssdmh=dm16.375214

Barry Fitzgerald
May 6, 2009

FORMER high-flyer OZ Minerals is to undergo wholesale board and management change to better reflect its greatly reduced size following the forced asset sales required to rid itself of its debt refinancing woes.

Five of the eight-member board, including chairman Barry Cusack and managing director Andrew Michelmore, plan to ride off elsewhere, but won’t be able to forget their time at OZ in a hurry.

Shareholders’ litigant IMF Australia plans to make sure of that, saying yesterday a $1 billion class action claim being handled by legal firm Maurice Blackburn on behalf of “hundreds” of OZ shareholders remains in the pipeline.

The potential class action was first flagged in December, but nothing has been heard since, and as of yesterday OZ had not received any statement of claim or other documents from IMF or Maurice Blackburn.

IMF would not reveal the proposed timing of the class action but it is believed to want to see OZ complete its $US1.2 billion ($A1.6 billion) in asset sales to China’s Minmetals. The deal is subject to a shareholder vote on June 11. Without the deal, OZ faced the prospect of administration.

OZ was created by the friendly merger of Oxiana and Zinifex last year, implemented by an Oxiana scrip offer for Zinifex.

IMF’s proposed class action involves alleged misleading and deceptive conduct and alleged breaches by OZ of its continuous disclosure obligations between February 28 and December 3 last year. OZ has continued to strongly refute the allegations and plans to vigorously defend itself against any legal action proposed by IMF.

Announcing its board changes yesterday, OZ said director Tony Larkin had submitted his resignation on Monday. Another director, Ronnie Beevor, will not seek re-election at the June 11 meeting.

Assuming the Minmetals deal proceeds, Mr Michelmore will resign and take up a senior executive role with the Chinese group. A search for a replacement managing director is now under way.

Mr Cusack and another director, Peter Mansell, plan to resign from the board once the new managing director is appointed. The slimmed-down OZ would then seek to appoint two replacements, who will face shareholders at OZ’s 2010 annual meeting for election.

The result is that OZ will end up with a board of six, down from the current eight. OZ shares closed 2.5¢ higher at 82¢.

The reporter owns OZ shares and is not party to any class action.

http://business.theage.com.au/business/ceo-and-others-to-go-as-oz-minerals-slims-down-20090505-atyh.html

Anne Davies, Washington
April 28, 2009 – 6:50AM

Holden Australia has been dealt a blow with parent General Motors confirming that it will scrap the Pontiac brand including the Pontiac G8 which is built in the Elizabeth plant near Adelaide.

Sold as the VE Commodore in Australia, Holden arm had planned to export 30,000 of the high performance cars to the US.

The move, part of sweeping cuts contained in GM’s second viability plan, will mean the loss of nearly $1 billion in exports for Holden, which had invested $77 million to gear up for the shipments.

The cuts are the latest bid by GM to avoid bankruptcy as the car maker struggles to cope with a drop of almost half in its US sales, and other markets retreat. It has already received $US15.4 billion ($21.4 billion) in loans from the US Government.

GM’s plan, the result of pressure from the Obama Administration to further trim GM’s operations, will mean another 7000 to 8,000 jobs to go on top of the 23,000 already announced.

GM also plans to close 43% of its dealerships by 2010 and shutter another 13 of its existing 47 plants which will have a big impact across American towns .

The plan also involves converting lenders’ interests into equity, which could result in the US Government owning as much as 50% of the company and the United Auto Workers union holding 39%.

The bond holders have been offered 22 cents in the dollar to convert their GM debt into equity, but it is uncertain whether they will accept the offer. If not, bankruptcy is still an option and a filing with the Securities and Exchange Commission outlined plans for this eventuality.

Speaking to reporters, GM chief executive, Fritz Henderson expressed sadness in the demise of the 90-year old Pontiac brand by no later than 2010.

”This is a brand which has a considerable heritage in our company, and this is an intensely personal decision in many ways,” he said.

There had been talk that Holden’s G8/VE Commodore may be sold as a stand-alone Pontiac performance model at other GM dealerships to keep the division’s name alive but that idea did not survive the latest round of pruning.

http://business.brisbanetimes.com.au/business/holden-hit-by-gms-cutbacks-20090428-akva.html

Patrick Walters
The Australian
April 25, 2009 12:01am

Military boost … Australia faces a challenging and uncertain security outlook in Asia over the next two decades

KEVIN Rudd is set to announce Australia’s biggest military build-up since World War II, led by a multi-billion-dollar investment in maritime defence, including 100 new F-35 fighters, a doubling of the submarine fleet, and powerful new surface warships.

The new defence white paper will outline plans for a fundamental shake-up of Australia’s defence organisation to ensure that the nation can meet what the Prime Minister sees as a far more challenging and uncertain security outlook in Asia over the next two decades.

China’s steadily growing military might and the prospect of sharper strategic competition among Asia’s great powers are driving the maritime build-up, which will see new-generation submarines and warships equipped with cruise missiles, and a big new investment in anti-submarine warfare and electronic warfare platforms, including new naval helicopters.

The white paper will consider the emerging non-traditional threats to Australia, including cyber security, climate change and its associated risk of large uncontrolled people movements, The Australian reports.

Senior government sources say Mr Rudd has insisted that defence spending remain largely insulated from the Government’s budget difficulties, but the Defence Department will still have to find at least $15 billion of internal savings over the next decade to help pay for the $100 billion-plus long-term equipment plan.

Mr Rudd said yesterday the delivery of the white paper was proving “acutely challenging as we work to defend ourselves from the global economic storm”.

“It is the most difficult environment to frame the Australian budget in modern economic history. It is also the most difficult environment to frame our long-term defence planning in modern economic history as well,” he told the Australia-Israel Chamber of Commerce.

“Nevertheless the Government will not resile even in the difficult times from the requirement for long-term coherence of our defence planning for the long-term security of our nation. This is core business for government.

“That is why we have forged ahead in our preparation of the defence white paper because national security needs do not disappear because of the global recession. If anything, those needs become more acute.”

Funding pressures will mean the navy will not get a fourth air warfare destroyer, and the delivery of the first batch of the RAAF’s F-35 joint strike fighters will slip by at least one year to 2014-15.

The huge cost of paying for the next-generation defence force, due to be detailed in the white paper and the forthcoming 10-year defence capability plan, will have little impact on the defence budget over the the next four years.

Apart from the air warfare destroyers and the F-35 fighters, most of the planned defence purchases will not have to be paid for until well into the next decade and beyond.

Mr Rudd and Defence Minister Joel Fitzgibbon are expected to release the long-awaited white paper as early as next week, with the more detailed 10-year defence capability plan due to published by mid-year.

The naval build-up will be led by a planned 12-strong submarine fleet expected to replace the Collins-class boats from 2025.

It will enable the RAN to deploy up to seven boats to protect Australia’s northern approaches, including key maritime straits running through the Indonesian archipelago, at times of high threat.

The white paper will outline the requirement for a new class of eight 7000-tonne warships equipped with ballistic missile defence systems similar to the three air warfare destroyers already on order that will eventually replace the Anzac frigates.

A new class of 1500-tonne corvette-size patrol boats able to take a helicopter is slated to replace the Armidale-class vessels from the mid-2020s.

JESSICA LEO
April 23, 2009 12:01am

THE state’s job shortage could ease in as little as 10 months, says the president of a career development body.

Dr Peter Carey, president of the Career Development Association of Australia says anecdotal evidence and growing business confidence points to South Australia going back to a skills shortage in less than a year.

“There’s an underlying skills shortage that will come back to bite in as little as 10 months,” Dr Carey told The Advertiser.

Speaking in the wake of CDAA’s national conference, Dr Carey said the onus was on businesses and individuals to invest in their training and development in preparation for the upswing.

Careerone: Thousands of jobs online.
“We’re trying to engage business people to take on board career development,” he said.

“It’s a win, win for businesses – happy people are productive people.”

In the interim, Dr Carey suggested an agreement be reached between businesses, employees and government to keep workplaces buoyant during lean economic times.

“We need to look at more flexible work arrangements and they (businesses) also need to be talking to government, to work out an agreement that might support some of their initiatives,” he said.

Despite the economic downturn several Adelaide companies are taking measures to invest in their staff.

One company, HPS Pharmacies, already provides a solid career pathway for its young professionals, offering a new tiered entry partner scheme.

http://www.news.com.au/adelaidenow/story/0,22606,25371648-2682,00.html

22 April 2009 6:33pm

The recruitment industry might not have hit bottom yet, but there are still “glimmers of opportunity”, say recession-surviving executives.

First, the bad news: the signs that precede a recovery are not evident yet, says Aquent international CEO, Greg Savage.

The most the industry can hope for at the moment, he says, is that “we’re now bouncing along the bottom, but I’m not even a hundred per cent convinced of that… I don’t think any signs in Australia of a meaningful recovery have been seen yet.

“I think it’s really bad; I think it’s worse than 1991. Perm is a complete comp case; temp is still here but even that’s lower than I expected it to be. The best you could hope for is that… things will improve in the second half of the year. I don’t see any meaningful benchmarks that it’s about to turn, but I’d love to be wrong!”

Scott Recruitment Services MD Rosemary Scott, however, says there are some signs that things are picking up: “there’s some things happening in China that are fairly positive in regards to their requirements for aluminium… so that will help our mining industry”.

She and Olivier Recruitment’s Helen Olivier agree that there are “glimmers of opportunity in the market” but they stop short of declaring that the industry has hit the bottom just yet.

According to Norris and Partners director Lisa Norris, some recruitment companies appear to be on round nine of their redundancies while others are making their first cuts and “this would indicate we have a little way to go”.

The signs
If Australia’s employment market were on the upturn, “we would stop seeing people being laid off; we would stop seeing people’s hours being cut; we would start seeing an increase in advertising volumes on the websites and in the press. We would start to see better candidates being hired; we would start to see clients being prepared to pay full fees. And none of those things are happening,” Savage points out.

Scott says recruiters should monitor what the stock market is doing and what’s happening overseas, “because generally we tend to follow the trends happening in the UK and US. The US seems to be showing some signs [of recovery] so that’s positive.”

According to Lisa Norris, most recruiters know that one indicator to watch is when temp demand increases, because this usually follows “bloodletting” redundancies.

But, she says, “the indicators most recruitment leaders would use to gauge where we are on the ‘bell curve’ are not that clear this time”. In other recessions after redundancies were made there was a “period of pain” while the reduced team was expected to cover the workload, followed by a need for temps, but “the workforce cycle that previously has been a good indicator of potential market growth may not play a part in this recession”.

Scott says there are some recruitment companies taking advantage of the good talent available and gearing up for more buoyant times, but Norris expects many will be reluctant to take on new staff in the last quarter of the financial year, preferring instead to put as much money to their bottom line as they can.

Norris adds that the imminent announcement of the NSW Government C100 contract is likely to have the next big impact on the recruitment industry, with agencies that weren’t successful shedding their consultants into the market.

What to do
This is the time to build relationships with organisations, “because when those companies do want to recruit again, they will be coming to those people who they have relationships with”, Scott says.

Olivier agrees, saying: “The key is to manage people well. Whether you are a recruitment organisation, or a talent manager or account manager, you need to be managing relationships in all areas really well. I think that in the good times, people have a habit of not developing their candidate relationships, and I think the key to actually making a very promising living in the recruitment industry, is to look after people on all levels.”

She adds that to survive the downturn, all recruiters and organisations must be “prepared to change, and to be flexible, and not be limited by your own horizons, and work with people closely”.

And when the worst is over, “I don’t think you do anything different except a massive ‘thankyou’ to all of your supporters”.

How are you lifting spirits around you?
Olivier notes it’s vital to “bring the fun in during these tough times”.

She suggested that Recruiter Daily compile a list of what recruiters are doing to have fun in their workplaces, and we’re more than happy to do so. Send us an email by clicking here and we’ll publish the list next week.

http://www.recruiterdaily.com.au/nl06_news_selected.php?act=2&nav=1&selkey=39328

By David Uren
The Australian
April 22, 2009 12:00am

THE International Monetary Fund has dashed hopes of an early world economic recovery, warning that the credit crunch will be deep and long-lasting, with the worst yet to come.
With the IMF set to issue today a formal forecast that Australia faces recession this year, Kevin Rudd confirmed yesterday that next month’s Budget would contain a third stimulus package to cushion the worst impact of the downturn.

And Reserve Bank governor Glenn Stevens yesterday echoed the Prime Minister’s admission the nation was already in recession.

The IMF believes the financial crisis is entering a dangerous new phase, with massive government budget deficits making it impossible for banks and companies to raise money, The Australian reports.

This will particularly affect countries such as Australia that depend on international capital markets to finance the banking system.

The fund’s review of world financial stability released last night said nations relying on wholesale financial markets risked “more rapid, disorderly deleveraging” in which bank lending could be abruptly slashed.

However, Mr Stevens yesterday expressed confidence that Australia would ride out the recession with its banks and government finances in good shape.

“There are rather few countries that have the potential to offer so attractive a proposition to international capital, and to their own citizens, over the years ahead,” he said.

But Mr Stevens told a business conference in Adelaide that any reasonable person looking at the Australian economy “would come to the conclusion that the Australian economy, too, is in recession”.

However, he said there were “accumulating signs” that China, along with several other economies, were at a turning point that would support Australian commodity markets.

He said one of the reasons Australia’s downturn was less severe than those of other countries was that the huge commodity price gains of the past five years had not all been reversed, with Australia’s terms of trade still 40per cent above its long-term average.

However, the IMF believes the downturn will last for years, saying the weakness of lending in the US and Europe resembled that in Japan, where there was no growth for a decade.

The IMF will hold its twice-yearly members meeting in Washington this weekend.

Yesterday’s review of financial stability will be followed by the release of an updated world economic outlook today.

The IMF believes the financial crisis will result in bad debts of $US4.1 trillion, ($5.7 trillion), of which $US2.8 trillion would hit the banks.

Only one-third of those losses have so far been recognised. In a damning assessment of the solvency of the world banking system, the IMF says:

“If banks were to bring forward to today loss provisions for the next two years before expected earnings, the

US and European banks in aggregate would have tangible equity close to zero.”

The IMF estimates the banks will have to raise at least $US875 billion in additional capital, and possibly as much as $US1.7 billion, if they are to resume lending.

However, raising funds is becoming increasingly difficult, despite some recent improvement in interbank markets.

Read more at The Australian.
http://www.news.com.au/business/story/0,27753,25367789-462,00.html?referrer=email&source=eDM_newspulse