NAB goes OS: The US and UK are two of the world’s toughest, debt-ridden banking markets and the National Australia Bank has signalled that it knows where it can make money: America and not the UK. At the weekend, the NAB snapped up nearly $US3 billion of assets from a failed US regional bank, and ended a $US2 billion plan to expand its presence in the UK market. The announcement was made in the statement from the FDIC. The two moves came a day after it told the Australian stock market it was trying to rejig its $13 billion deal to buy AXA Asia Pacific and get control of its Australian arm. That deal has been blocked by the competition regulator, but the NAB says it’s trying to sell (before it owns it, mind you) the AXA asset that is apparently blocking the ACCC approval. AXA is all about expanding its position in the Australian funds management business, but the US and UK decisions were about the NAB’s basic business, which is banking.

In the US, the NAB has bought a rival bank in the US Midwest from which it bought some branches last September. Working through its small regional rural lender, Great Western Bank, the NAB bought TierOne Bank in the US state of Nebraska and its $US2.8 billion of assets. The cost is understood to have been about $92 million, plus the extra capital that will have to be allocated to Great Western. TierOne was one of three US banks to fail on Friday and the largest. It took the number of US banks to have failed this year to 81. The two others were tiny local banks in Mississippi and Illinois on Friday night, our time.

TierOne was the fourth-largest bank in Nebraska with approximately $US2.8 billion in assets as of March 31. It lost $US300 million last year on real estate-related loans. As of March 31, TierOne also had $US2.2 billion in total deposits. According to a statement from the lead US regulator, the Federal Deposit Insurance Corporation: “Great Western Bank will pay the FDIC a premium of 1.5 percent to assume all of the deposits of TierOne Bank. In addition to assuming all of the deposits of the failed bank, Great Western Bank agreed to purchase essentially all of the assets. The FDIC and Great Western Bank entered into a loss-share transaction on $1.9 billion of TierOne Bank’s assets. Great Western Bank will share in the losses on the asset pools covered under the loss-share agreement. The loss-share transaction is projected to maximise returns on the assets covered by keeping them in the private sector.”

In September of last year, Great Western Bank announced it would buy 32 TierOne Bank branches in Nebraska and Iowa for $US39 million. The 32 branches brought with them about $US800 million in selected loans and $US1.1 billion in deposits for Great Western. And London reports say the NAB pulled out of the auction of the RBS branches about 10 days before final bids were due. NAB owns the Clydesdale and Yorkshire Banks in the UK and it’s felt the reason to abandon the deal was due to cost, some $US2 billion. RBS is selling 318 branches, most of which are in England, along with a share of its retail and small business customers.

The UK reports say Spain’s Santander bank, which already has a major UK presence through the old Abbey building society and other bits and pieces, is now the favourite to buy the branches, which have to be sold under an agreement with the European Commission’s competition regulators. And other reports claim the NAB is about to exit the UK. The extra capital needed for the TierOne deal, plus pursuing AXA, has meant NAB had to drop something and the expansion in the tough UK market was the easiest thing to do.

China watch: China’s May economic data will be released Friday. Inflation is tipped to have increased to 3% year on year (from 2.8% in April). This will largely reflect the low levels of inflation a year ago and the reported easing in food prices from their highs earlier this year, so May’s figure will look worse than it seems. However, the measure to watch will be producer price inflation, which is running at more than 7% a year. Of equal importance will be data for new bank loans, industrial production, urban investment and property prices. Industrial production has slowed in the past two months and although house prices rose by 12.8% in the year to April, a fall is expected for May as Chinese government attempts to cool demand kick in. Car sales are expected to show a further slowing in their rate of growth as well.

US watch: American first quarter non-farm productivity fell to an annual rate of 2.8%, down sharply from the 3.6% rate reported last month and now under the growth in GDP in the same period. GDP rose an estimated 3% in the March quarter, down from the 3.2% first estimate. The fall in business unit labor costs, (or costs of wages and benefits for each unit of output), also slowed to an annual fall of 1.3% in the quarter, from the first estimate of 1.6%. The slowing could be good news because it can indicate that business has wrung all the benefits out of its existing workforce and needs to start adding more. But not in May as the bad jobs figures showed. From the first quarter of 2009 to the first quarter of 2010, output increased 3% while hours fell 3%, yielding an increase in productivity of 6.1%. This gain in productivity from the same quarter a year ago was the largest since output per hour increased 6.1% over the four-quarter period ending in the first quarter of 2002. So fewer workers, fewer hours worked, higher output and profits. No wonder Wall Street thinks the recovery is happening, far from it if the productivity figures and the jobs numbers are any guide.

Murdoch watch: the consolidation of the UK TV industry has started. Rupert Murdoch’s BSkyB has picked up Virgin Media’s subscription channels for a total cost of £160 million (£105 million up front, the rest when completed) and Virgin1, which is available on the digital terrestrial service in the UK, Freeview. Sky will rename Virgin1 because Murdoch didn’t want to pay the usual fee to Richard Branson for using the Virgin name. In return Virgin Media concentrates on its network and gets long-term rights for wholesale distribution of Sky’s basic subscription channels, including Sky1, Sky News and Sky Arts, and the services it is selling. For an extra fee, Virgin Media will also have the option of carrying any of Sky’s basic HD channels, Sky Sports HD 1 and Sky Sports HD 2, and all Sky Movies HD channels. Content from Sky’s basic and premium channels and the VMTV services will be available through Virgin Media’s on-demand service. Virgin Media will also have access to Sky Sports’ red button interactive coverage and be able to deliver some Sky programming over the internet.

Murdoch watch 2: that ends the speculation that Sky could bid for RTL’s unprofitable Five channel. There is talk that Channel Four, which is also losing money and revenue, could be interested, but UK reports suggest it will take a change of legislation to do that and the new UK government isn’t interested in major media policy changes yet. ITV could be interested with a new chairman and a new CEO. ITV could buy Five in exchange for placing equity with RTL and create a stronger terrestrial free-to-air commercial broadcaster to face up to the BBC. And, by the way, Big Brother, which begins on Channel 4 on Wednesday night, UK time, will be the final series of the show for the channel. Ratings and ad revenues are down and costs are up, the same situation the Ten Network found itself in here. The weak revenue for BB is in contrast to the strong rebound predicted for UK TV revenues, an increase of 12% is now being tipped instead of a fall of 0.2% by Group M, WPP’s media buying arm.

BP watch: a great little story on CNN on Friday showing the amount of money BP was spending in lobbying and PR in the US before the April 20 oil well disaster happened. CNN said that last year BP spent $US16 million on lobbying. Citing figures from the Centre for Responsive Politics, the report said a further $US3.5 million through the end of March. “During the 2008 election cycle, BP spent $531,000, through its corporate political committee and in contributions to candidates. So far this cycle, it has spent $113,000, with most of the money going to Republicans. What do they care about? Last year, BP had more than a dozen lobbyists working on energy legislation, energy jobs bills and derivatives legislation, which impacts the trading of energy futures.” No one lobbying for tougher rules on offshore drilling. What a surprise.

Sneak watch: BP has copped most of the flak from the US government, with the driller, Transocean, only mentioned in a passing fashion. It’s a US company (the biggest offshore oil driller) but is based in the Swiss canton of Zug, which is very tax friendly. Glencore, the big commodities group and its 34% owned offshoot Xstrata are also based in tax-lowering Zug. Transocean has been criticised for sneakily launching legal action in the US for seeking to use an 1851 law to restrict its liability for economic damages to $US26.7 million. (That’s the law the Titanic’s owners used to limit their liability after it sank in 1912). Transocean now claims it wasn’t trying to finesse the law, merely “clarify” it. The US government and others say the Oil Pollution Act of 1990 supersedes the old law. In contrast to Transocean’s sneaky attempt to avoid financial responsibility, BP has said that it will not seek the protection of a cap of $US75 million on economic damages offered by the 1990 Act.

Bank watch: so, no tax or levy on banks, as the US and eager Europeans and UK governments wanted, but they will have to carry more capital and liquidity to withstand a month-long financial crunch. That’s the upshot of the Group of 20 finance ministers meeting in South Korea at the weekend, which effectively killed off the bank tax idea, and went with the higher capital needs. However, the UK and German and French governments look like still pursuing the tax route, for the moment. The result allows nations such as Australia, Canada, China and Brazil, whose banks suffered less during the global financial crisis, to avoid a levy that had been vigorously pushed by Europe, the UK and the US, whose banks caused most of the problems and had to be bailed out.

Bank watch 2: Australian and other banks have been moaning about the tax and holding the higher capital and liquidity. They claim it will mean lower lending and lower economic growth, but the reality is that it will mean smarter lending, no financing of so many dodgy deals (takeovers and buyouts) and lower profits and bonuses for the senior managers and their board mates. The G20 said in its final statement “it is critical that our banking regulators develop capital and liquidity rules tough enough to ensure lenders can withstand further crises. As we agreed, these rules will be phased in as financial conditions improve and economic recovery is assured, with the aim of implementation by end-2012.”

Peter Fray

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