Christmas comes early for big banks. Yippee, break out the giggle juice and put on the party hats, shareholders and customers in Australia’s banks and other authorised deposit-taking groups have won a big Chrissie bonus from the Australian Prudential Regulation Authority (APRA), which yesterday announced that the banks will not have to add extra capital in 2016 to handle their exposure to Australian customers, especially in the Sydney and Melbourne property markets. APRA (and excuse the banking jargon) said “the countercyclical capital buffer applying to the Australian exposures of authorised deposit-taking institutions (ADIs) from the start of 2016 will be set at zero per cent” (0%). This means the ADIs and especially the big banks won’t have to raise additional capital to hold against their Australian loans (especially property) in 2016, other than what they already have to hold under the new Basel 3 capital requirements, which started in 2013.
APRA head Wayne Byers said in yesterday’s statement, “the decision to set the countercyclical buffer for Australian exposures at zero per cent of risk-weighted assets was made following consultation with the Council of Financial Regulators” — the council also includes the Reserve Bank, Federal Treasury and ASIC. So it was a big deal announcement after a year when the big four banks were forced to raise more than $20 billion in new capital from shareholders and selling unwanted business, and billions from screwing more money from mortgage holders when they lifted lending rates (and doubled the rate rises for investors to more than 0.5%). — Glenn Dyer
One-day wonder. Less than 24 hours — that’s how long the US Federal Reserve’s rate rise boomlet lasted around the world as the relief rally (after the Fed lifted rates at last) ran out of puff when it touched America’s shores for a second day, overnight. Janet Yellen’s first major decision of note at the Fed since assuming the chairmanship from Ben Bernanke resulted in a two-hour surge on Thursday morning (our time), which continued into Asia and Europe. But it hit the wall in the US as commodities fell, led by oil prices, which were helped lower by the rising US dollar (which was expected to happen after the Fed’s decision to lift interest rates for the first time in nine and a half years).
Gold fell US$25 an ounce to around US$1049, joining oil at six-year lows (who wants to hold it when US interest rates are rising and will go on rising?). But the slide in oil has been joined by the slump in US gas prices (more bad news for BHP Billiton). Down they went again, overnight, to US$1.755 per million British Thermal Units, the lowest since 1999. Gas prices have fallen more than 12% in the past week as the warmest US autumn on record for the lower 48 states. This is very bad news for BHP Billiton as it faces the impacts of falling oil, iron ore and copper prices — US shale gas is flooding out of wells and America has more unsold gas than at any time in recent history. And it is so warm across much of the US that there’s every chance few parts of the east of the country (east of the Rockies) will have a white Christmas. And if December’s warmth matches November’s it will be the second warmest year on record (behind 2012) — including the big freeze at the start of the year. Global El Nino, anyone? — Glenn Dyer
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Explaining those fat petrol profit margins. Now who would be surprised that Caltex Australia is poised for a record full-year profit for 2015 thanks to the move out of oil refining, with its strong refining margins, and an increase in marketing profits? After all, Caltex’s update came only two days after the ACCC said petrol retailers were doing well with the fattest profit margins for years. Caltex is one of the biggest retailers in the country and has made a concerted effort to move deeper into this sector by shutting its Kurnell refinery in Sydney and converting it to an import and distribution terminal. In a trading update yesterday Caltex revealed that it was looking for a 29% rise in full-year earnings (to the end of this month) to between $615 million to $635 million, from 2014’s $493 million.
In shutting Kurnell (Australia’s biggest refinery) Caltex slashed costs, got rid of hundreds of staff and looked to maximise earnings from retailing and distribution. Caltex said that earnings before interest and tax in refining and marketing were expected to be about $670 million, or $675 million on an underlying basis, about 5% higher than 2014. The gain comes despite total sales volumes of fuel falling 5%. But the big surprise was the performance of the company’s Lytton refinery in Brisbane. Caltex says the Lytton refinery is expected to deliver a record earnings before interest and tax contribution of approximately $400 million for the 2015 full year. This compares with an EBIT contribution of $218 million for 2014 and a 2015 first-half EBIT of $134 million. Lytton made $266 million or so in the final six months of the year, which was more than all the earnings for 2014. Merry Christmas, everyone! — Glenn Dyer