Corporate Strategy Weekly Radar Update

Week ending Friday 13 April 2012

Highlights Financial Services NAB will offer a multicurrency prepaid Mastercard allowing travellers to lock in exchange rates before going overseas and avoid foreign ATM withdrawal charges. NAB says: it will charge its customers zero fees for using ATMs overseas, the NAB Traveller Card will not be linked to personal bank accounts and is chip and PIN protected Yellow Brick Road is launching a new YBR Smarter Money Fund hoping to attract risk-averse investors with a fixed income-style product that promises more stable returns than volatile markets. It taps cash and variable-rate bonds and targets 5.8-6.05% net returns per annum. IAGs Malaysian venture (AmG Insurance) was given regulatory approval to acquire one of the biggest general insurance players in Malaysia, including dominating the country's motor insurance, Kurnia Insurans. The purchase price for the venture is $480m. IAG will contribute 49% or $235 million, in line with its ownership of AmG. Kurnia ranks as a top 4 general insurer in Malaysia and ranks as the largest motor insurer. It has around 3m customers. M&A in Financial Services has been restricted to wealth managers and financial planners in recent times, but could start impacting Mutuals, owned by members rather than traditional shareholders, which are common regional areas alternatives to banks in deposits and lending: The Illawarra Mutual Building Society (IMB) is under pressure from APRA to increase its tier one capital. One option is a demutualisation where IMB would list and trade on the ASX. APRA has urged ME Bank to restructure its operations because of fears over complex ownership structure. Westpac: New head of Westpac retail (incorporating Westpac's flagship personal and business banking units, St George Bank and BT wealth management businesses) Brian Hartzer to commence in mid-June, following announcement in November. Other industries BHP Billiton announced that it would stop production at the Norwich Park coking coal mine, invoking a combination of unprofitability and a 16 month industrial dispute: this will impact $1B in exports and 1,400 staff. Facebook is buying photo blogging platform Instagram for $1Bn Australian Government - Global Australia Budget surplus: o Recent poll by Essential Media find of Australians believe the Federal Govt should hold off on delivering budget surplus for 2012/13. o On the other hand Treasury is using the recent IMF World Economic Outlook to keep arguing for a return to surplus: The IMF is not convinced that commodity prices will stay high and warns that long-term prices are even more unpredictable''. It urges governments to take ''a cautious approach building buffers to address cyclical volatility''. Consumer Confidence is down...: The Westpac/Melbourne Institute index of consumer confidence fell by 1.6% in April to 94.5% (8-month low). Sentiment levels are down 10.3% on a year ago. Roy Morgan consumer confidence is down 4.8% since March, and down 9% on a year ago. ... but Employment is holding strong: The unemployment rate beat forecasts and stayed at 5.2% in March. The European rollercoaster continues: Market nerves about the Spanish economy spread to Italy as its mediumterm borrowing costs spiked: Italy and Spain saw 10-year bond yields increased 23 bps and 21 bps respectively. Consequently 10 year yields in Germany, Sweden, Switzerland and Denmark all fell as investors reallocated toward relatively safer markets. Insights NAB traveller card can be used at more than 1.9 million ATMs (as an element of comparison NAB has around 3000 ATMs domestically). NAB joins ANZ and CBA who already provide pre-paid travel cards that lock in foreign currency rates. Yellow Brick Road. A key selling point of the Smarter Money Fund is its ongoing annual returns compared with traditional savings accounts that offer high honeymoon interest during the introductory period before reverting to lower rates. Whether it will make a material difference on the completion in the savings industry is to be monitored. IAGs move in Malaysia comes after finalising its $106m investment in a Chinese insurer Bohdi Property Insurance. It will contribute to IAG's target of having around 10% of its premium income generated from Asia by 2016. IMB is Australias 5th-largest mutual deposit taker with 180,000 members and $4.8 billion in assets. If IMB demutualised and traded on the ASX it would become a takeover target for banks looking to increase NSW exposure. Analysts have remarked that Bendigo and Adelaide Bank could be interested to beef up its NSW presence, or ANZ. ME banks latest strategy aims to build its deposit base and reduce dependence on securitisation, which created problems during the GFC. Within 4 years the bank had achieved 2% market share in mortgages, equivalent to mid-ranking lenders such as Wizard Home Loans and bigger than BoQ. But moving way from securitsation to lending based on clients saving (eg. By open branches) was difficult due to the young client base (who takes home loans but has low savings). -> Both IMB and ME Bank will need to be monitored to understand eventual changes in the regional sector. IMF and surpluses: Australia was not named explicitly, whereas NZ was. The IMF appears to implicitly support the return to surplus by saying exporting economies should be saving commodityrelated revenue increases during upswings to provide a buffer for when prices inevitably decline. Job numbers are postponing the RBAs decision to cut interest rates: o This pushed AWU Paul Howes and Australian Chamber of Commerce Peter Anderson to call for the RBA to prop up non-resources states with cash rate cuts (and altering its charter). o Critics to Howes are opposing that the RBA is unlikely to cut due to its independent mandate focused on maintaining inflation below 3%, as opposed to take part in specific policies. Europe: Anecdotally, EUREX, the derivatives market, is about to launch futures trading based on long-term French bonds, allowing customers to hedge positions in government debt, which even local traders criticise as an unnecessary source of instability they could do without.

Appendix: IT-Finance anecdote of the week - Apples market capitalisation The market value of Apple is about to overtake that of the almost 500 public companies in Spain, Greece and Portugal, at the center of Europe's sovereign-debt crisis. The total value of the nations public companies in November 2007 was 11 times that of Apples before $1 trillion was wiped off their shares during the GFC. Apples net income during the past 12 months was $33 billion, surpassing the $32 billion of combined earnings reported by companies with a main listing in the three European countries, according to data compiled by Bloomberg. This anecdote combined with Facebook buying photo blogging platform Instagram for $1Bn, leaves the most bearish observers wonder whether we are witnessing another IT bubble...

Source: Bloomberg