Banking’s bad debt, bad news. At the end of the December half- and full-year reporting season, one thing is clear: it wasn’t as bad as expected outside resources, especially oil and gas. But, unusually, we have been left with four industrial companies on the sick list — one of which has already gone under (guess who?) — so fraught are their financial situations. The four are Slater & Gordon, Arrium (the steelmaker), Dick Smith, which went under before we had the chance to see the financial damage, and McAleese (a small Sydney-based transport company). McAleese said yesterday that it could not release its interim results until next Monday at the earliest while it negotiations a restructuring and refinancing with its banks. Dick Smith’s losses are unknown, but look like being north of $200 million.

Yesterday, the second-biggest problem company of the season, Slater & Gordon, owned up to a loss of almost $1 billion, write-downs on a UK deal of $814 million, the loss of the chairman John Skippen, and the grim news that the company’s debt jumped $118 million in six months to $841 million. It has to put up a plan to its banks, led by Westpac and NAB, by the end of this month for refinancing and staying alive, and that has to be agreed on by the end of April. And if it isn’t, then the existing debt’s maturity gets accelerated to March next year — and with no sign of Slater & Gordon being able to repay it, it looks like receivership or administration mid-year. And that will be bad news for NAB and Westpac.  — Glenn Dyer

Housing trickery? Is Prime Minister Malcolm Turnbull cursed? There he is desperate to revive the ghost of Malcolm Fraser with his scare campaign against the ALP’s proposed changes to negative gearing and claims it will flatten the housing sector and home prices, and there, before his very eyes, is clear evidence that the banks, overseen by the key financial regulators, APRA and the Reserve Bank, have been busy undermining the investor boom for months with the aim of bringing it under control. Reserve Bank credit figures yesterday for January showed a solid 0.5% rise in housing credit — 7.3% for the year to January. Lending to owner-occupiers rose 0.6% in January and 6.9% in the year to January (the strongest annual rise since late 2010). But the RBA figures also reveal problems for the banks. The slowdown in investor lending is continuing with just a 0.3% rise in investor lending in January (0.8% a year ago), for an annual rate of 7.9% — well under the 10% target range for the regulators, and down from the 10.5% annual rate a year ago.

In its release the RBA had a simple reason for the changes — the introduction last year of a two-tired housing mortgage rate for investors (higher) and owner occupiers (lower).

“Following the introduction of an interest rate differential between housing loans to investors and owner-occupiers in mid-2015, a number of borrowers have changed the purpose of their existing loan; the net value of switching of loan purpose from investor to owner-occupier is estimated to have been $35.3 billion over the period of July 2015 to January 2016 of which $1.4 billion occurred in January. These changes are reflected in the level of owner-occupier and investor credit outstanding. However, growth rates for these series have been adjusted to remove the effect of loan purpose changes.”

— Glenn Dyer

Home loans rorts? Now, far be it for me to be cynical, but it does seem rather good timing that as soon as investor loans start costing more, that we see tens of thousands of borrowers change their minds and tell their banks they are going to live in the houses they were borrowing to buy as investments. That is an amazing co-incidence — a $35 billion coincidence. So did the type of loan change from interest only (that investors prefer) to principal and interest payments (that the banks prefer owner occupiers to have these days?). Years ago, in the days of the fat first-home owner grants, the clever folk would buy a house or home unit with borrowed money, live in it for six months or a year, then move out and become an investor by claiming the interest payments and other costs via negative gearing. I wonder how many of these borrowers are attempting a fiddle in this fashion by getting an owner-occupier loan, and then renting the house out and trying to negatively gear it on the quiet? Will the banks check, or do we have to wait until someone does an investigation next year? — Glenn Dyer

Peter Fray

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