Monday, February 13, 2012
Small Businesses Brace For Rate Rises
One week ago, small businesses were expecting lower lending rates, courtesy of another Reserve Bank rate cut. Now, they're being slapped with interest rate rises – on top of SME rates that were already well above those charged for mortgage holders or big business.
There are expectations that Commonwealth Bank and National Australia Bank will raise small business and mortgage rates this week, citing higher costs of funding and sluggish domestic demand.
This follows decisions by ANZ and Westpac on Friday to lift their small business loans and variable home loans by 0.06% and 0.1% respectively.
The rate rises prompted Assistant Treasurer Mark Arbib to note that banks' net interest margins have returned to pre-global financial crisis levels and Treasurer Wayne Swan to call on borrowers to look at alternative lenders.
But small business faces a double whammy: not only is it more cumbersome for it to switch lenders, but its rates are much higher than loans for mortgages and big business.
Recently released Reserve Bank figures show that the big banks' average rates were 8.25% on small business, compared with 6.59% on mortgages and 6.7% for big business. Similarly, margins charged to small business above the cash rate have soared to 6% from 3.45% before the global financial crisis.
Peter Strong, executive director of the Council of Small Business of Australia, says the rate rises from ANZ and Westpac will dint confidence among small business, because they will feel they can't predict the direction of rates.
"They'll wonder if it is worth getting a loan, because you're not sure what it's going to be anymore," Strong says.
This uncertainty is compounded by the widening gap between mortgage lending and small business lending.
Strong says about five years ago the difference was as low as 50 basis points, but it has since soared to 150 basis points or more.
"The banks say it's about the rules on holding more money on reserve for small business loans. APRA and the RBA need to look at that," he says.
Strong says COSBOA is planning to hold a round-table to discuss finance to small business. The forum is expected to be held over the next month or so, with guests including the banks, the Australian Bankers Association, the prudential regulator, the Australian Securities and Investments Commission, the Reserve Bank and finance experts.
He says the forum is designed to discuss how small business finance is working now, and what can be improved.
"We've asked for better information, because we're all in a vacuum when it comes to how many loans have been applied for, how many have been rejected and why," Strong says.
"We find that people aren't applying because they don't think they're going to get a loan, and maybe we can develop a plan to encourage people to apply or apply better."
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Westpac Criticized Over Social Media Policy Following Rate Rise
Westpac has been criticised by social media experts after it was found to have been censoring comments made on its Facebook page by irate customers, after the bank raised mortgage rates despite the RBA keeping the official cash rate on hold.
The incident has once again raised the debate over whether businesses should censor disparaging comments made on their Facebook pages, or allow them to remain in the interests of open discussion.
James Griffin, co-founder of online reputation management company SR7, says while it depends on the context as to whether a business should censor messages, most of the time it's not a good idea.
"It's true that it entirely depends on the situation, and the context in what you're doing and what's going on," he says.
"Obviously most good Facebook pages have fairly well written guidelines, so the usual stuff like profanities need to be deleted, that's fair. But when it's regarding rate rises and so on, that's a more complex issue."
Users of the Westpac Facebook page have noticed some negative comments being deleted within minutes of being posted. Some users have complained these comments were only criticising the decision by the bank to raise interest rates – as of this morning, several negative comments remain.
This comes alongside reports Westpac has introduced a new social media policy that would prevent employees from making negative comments about the bank on platforms such as Facebook or Twitter.
Westpac was contacted this morning for comment, but no reply was received prior to publication.
However, it has told Fairfax the decision was made so that "partisan views" could not affect customers looking to investigate financial products.
Griffin says a situation where a business is the target of massive criticism can be harder to deal with, but it requires excellent internal planning.
"This is a situation where it becomes critical the people looking after the Facebook page need to be communicating with the corporate communications people, along with the risk management team and so on."
"They need to understand what every message is before they delete a comment, or respond, or make any sort of action."
Griffin says although the details of the situation are still up in the air, he believes "it's a bit of a stretch" for Westpac to delete commentary from customers who are simply complaining about the service.
"If you own and operate a Facebook page and you increase rates, then you really just have to be ready to get your message right and explain to your customers what's going on."
For other businesses, Griffin says when accepting criticism, the best strategy is just to accept it and leave it up.
"No one is prepared to acknowledge risks in this sort of thing, yet in the real world, you have to think about how you're going to deal with that all online."
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Plan To Let Businesses “Carry Back” Tax Losses Gains Momentum
The push to allow businesses to carry-back tax losses appears to be gaining momentum, with the Government’s Business Tax Working Group meeting today to look at whether new rules that would effectively allow companies to cash in losses should be targeted at SMEs.
In a statement released yesterday, Treasurer Wayne Swan said the Government was looking at “potential reforms to the tax treatment of losses as a way to encourage investment, particularly in struggling businesses”.
“By removing barriers to investment, the tax system can help provide businesses with a new lease of life.”
Swan added that the working group is looking at potential options and is scheduled to report back to him next month.
The working group, set up at the tax forum in October, has been tasked with “looking at reforms that can increase productivity and deliver tax relief to struggling businesses in our patchwork economy and develop a set of savings options within business tax, such as broadening the base and addressing loopholes or unnecessary concessions.”
An interim report it released last year canvassed three options for the treatment of tax losses:
• Introducing loss carry-back provisions that would allow businesses that have paid tax in past years to partly claw back those payments when they make a loss – which would help during difficult times.
• Indexing tax losses to inflation, in line with the bond rate for Infrastructure Australia projects.
• Reducing restrictions on businesses using tax losses, beyond the current policy covering a change of ownership or principal activity.
While the carry-back idea has widespread support, it seems unlikely the new rules would be put in place quickly.
According to the Australian Financial Review, allowing all companies to carry back losses, indexed to inflation, would be costly, given the $150 billion bank of corporate tax losses.
Deepti Paton, tax counsel at the Tax Institute, says any new ideas presented to the Government need to be revenue neutral – that is, any fall in government revenue would need to be offset by higher taxes in another area.
But she says the carry-back plan would have widespread support.
“There are losses in the economy, from the top end of town down to micro businesses, and micro businesses are funding their losses out of their own pockets.”
A loss carry-back regime was recommended by the Henry Review. Tax experts have previously welcomed the idea, saying it would encourage more entrepreneurial activity and provide relief during difficult economic conditions.
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Australian Equities Market
THIS MORNING
Local market falls amid Greece caution.
OVERNIGHT MARKETS
Stocks were dragged down for their worst one-day loss in about six weeks by tumult over the Greek bailout, disappointing readings on the US economy and a downgrade of nearly three dozen Italian banks.
Stocks fell at the open and meandered almost all day, but ended on a brief rally that brought the Dow's losses back under 100 points. The Dow Jones Industrial Average closed down 89.23 points (0.69%) at 12,801.23. The Standard & Poor's 500-stock index lost 9.31 points (0.69%) to 1,342.64, and the Nasdaq Composite lost 23.35 points (0.8%) to 2,903.88.
The losses were the worst day for the stock market since Dec. 28, interrupting a quiet rally that has brought each of the major indexes up about 20% in the last four months. All 10 of the S&P's sectors were lower, led down by materials and energy. Among blue chips, Alcoa declined 35 cents (3.3%) to $10.29 and Dupont dropped 91 cents (1.7%) to 51.15.
The U.S. trade deficit in December was $48.8bn, slightly wider than the $48.5bn expected by economists. And the University of Michigan's consumer-sentiment survey for February came in at 72.5, weaker than the 75 reading expected by economists.
Stocks gyrated in the afternoon when Standard & Poor's downgraded credit ratings on 34 of the 37 Italian banks it covers, citing its previous downgrade of Italy's sovereign credit and its views on the banking sector there.
In corporate news, United Parcel Service said it was boosting its quarterly dividend 9.6%, to 57 cents a share, saying cash flow in 2012 is expected to be strong. The shipping company's stock rose 12 cents, or 0.2%, to 76.69.
LinkedIn rallied 13.57 (17.8%) to 89.96 after the company reported better-than-expected fourth-quarter earnings and revenue, and provided an upbeat outlook for the current quarter and the year.
True Religion Apparel tumbled 10.13 (27.6%) to 26.61 after the company missed fourth-quarter earnings and revenue estimates, and provided a 2012 outlook that was below projections.
Activision Blizzard was down 34 cents (2.7%) at 12.325 after the games maker reported fourth-quarter results that exceeded expectations, while providing a first-quarter outlook that was below forecasts.
ViewPoint Financial Group rallied 40 cents (2.8%) to 14.50 after Standard & Poor's said the company would replace SonoSite in the S&P SmallCap 600 Index next week. SonoSite is being acquired by Fujifilm Holdings.
NYSE Euronext reported fourth-quarter results that were slightly above estimates, and was upbeat about 2012 despite a challenging near-term outlook for trading volume and currencies. The stock ended the day up 1.25 (4.5%) at 28.94.
YESTERDAY’S MARKET
The local market fell progressively throughout the day as the miners dragged on the market. The All Ordinaries fell 34.5 points on Friday.
The S&P/ASX 200 weakened 37.6 points - finishing the day lower. The materials sector led the market's falls, dropping 1.5 per cent, while financials fell 0.9 per cent. Gold stocks bucked the trend, gaining 0.6 per cent, buoyed by Newcrest's lift in first-half profit. Positive movers for the day were TSE (+$0.235) and MSB (+$0.33). Big losers were WEC (-$0.025) and KZL (-$0.02).
In company news, Australian & New Zealand Banking Group (ANZ -$0.20) has increased its standard variable interest rate by 6 basis points to 7.36% despite no move in Australia's official cash rate earlier this week.; Newcrest Mining (NCM +$0.57), said that continued strengthening of the bullion price helped lift its first-half profit by 50%; James Hardie Industries (JHX -$0.21) emerged triumphant from a long-running dispute with Australian authorities over its tax bill; Ten Network (TEN +$0.01) reported that Lachlan Murdoch, has been appointed chairman of the Australian television and outdoor advertising company; and Transfield Services (TSE +$0.235), which provides project management and maintenance to sectors including mining and transport, said that its annual profit will come in at the bottom end of guidance.
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Friday, February 10, 2012
Xero Scores Investment From Second MYOB Founder
Accounting software group Xero has scored an investment from yet another founder of industry leader MYOB, with Brad Shofer upping his stake in the company following a $NZ18 million investment from Craig Winkler.
The move makes Shofer one of the company's top 20 shareholders, in a transaction that included trades with other firms including Sophrosyne Capital and Matrix Capital Management. It also comes just days after Xero raised a further $15 million.
Shofer left MYOB 20 years after founding it with Winkler, but has been no stranger to investments. Last year he contributed an unspecified amount to taxi mobile app Ingogo.
Xero Australia managing director Chris Ridd told SmartCompany this morning the investments from two founders of the company's major competitor is a "significant" development.
"It's very exciting that we have two founding partners of MYOB, who nurtured that company for quite awhile, and it's just a huge vote of confidence," he says.
"I'm certainly relatively new to the accounting industry, but Craig Winkler is held in great esteem. I think Brad represents the same, and we have these significant entrepreneurs from the early days of the business who are still making an impact."
Shofer said in a statement he's been impressed with what Xero has been able to achieve, and is particularly excited for more global opportunities.
"When I compare the space today with how it was in my MYOB heyday, I see one important difference relating to international expansion."
"At MYOB, we attempted to make an impact in the large markets of the US and UK, however the model was not easily scalable and we had limited success. With the advent of the cloud, this goal is now much more achievable and I think this is where the real opportunity lies. I see a bright future for Xero."
Shofer says the additional funds will be used to help push global expansion, although warns the company is keen to do so at a reasonable pace.
"We want to take more market share, and that's the significant thing. The ability to move forward with this capital really helps us, and not just in Australia or New Zealand."
"The investment just really helps our profile, and validates our strategy. Their attention is directed towards the cloud, and they're prepared to make that investment."
Xero has been active in the investment and acquisition space as well. Last July it acquired a small online payments company, Paycycle, and last week it also raised $15 million from investors and bought New Zealand company Max Solutions.
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