Economy

Sub-prime woes hit Australian mortgages… Export grants scheme needs more money… Labor’s $100 million for SME manufacturers… David Edwards moves on again… Internet news ‘less biased’… Small-cap results roundup… Economy roundup…

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Sub-prime woes hit Australian mortgages

RAMS Home Loans Group has become the second Australian lender to admit that it may have to raise interest rates to deal with the credit squeeze generated by the sub-prime mortgage crisis in the US.

“Given the current level of volatility in the global debt markets, the directors believe that it is premature to determine with certainty the extent of the likely negative financial impact on RAMs for 2007-08,” RAMS told the AAP news agency. “However, if current market conditions continue it is likely to be material.”

The announcement by RAMS follows revelations this morning that Bluestone Group has been forced to increased lending rates to its customers because of instability in international financial markets.

Bluestone told customers yesterday that some interest rates would rise because the cost of borrowing to fund its own operations has increased as international lenders look to reduce their exposure to risk, The Australian reports today.

Another major non-bank lender, Wizard Home Loans, today ruled out having to hike its mortgage lending rates because of the credit squeeze hitting international financial markets.

Another lender with some exposure to the low-doc market in Australia, Suncorp Metway, says it has no plans to raise rates in response to international conditions, but a spokesman says it is “keeping its rates under review”. Asked whether Suncorp was insulated from financial market instability, he responded that “it’s a difficult question to answer without speculating about future events”.

The squeeze has been caused because of uncertainty about which lenders are exposed to losses due to escalating levels of sub-prime mortgage defaults in the US. This in turn has caused banks to increase interbank lending rates to reduce their exposure to risk, thereby increasing costs for the lenders that borrow from them.

– Mike Preston

Export grants scheme needs more money

The effectiveness of the Federal Government’s export grants scheme is being hampered because businesses are uncertain about the level of funding they will receive under the scheme, according to a new parliamentary report.

The $60 million Export Development Grants Scheme is the main government support for exporters and assists thousands of businesses establish and promote products overseas.

But according to a report by a key federal parliamentary economics committee released yesterday, the scheme is being undermined by the fact that businesses don’t know how much of the money they spend on overseas product marketing will be reimbursed until after the money is spent.

“A problem with the EDMG scheme is that even strong applicants are not sure how much they will be reimbursed when they are deciding on promotional spending, which limits the incentive the scheme provides to undertake additional marketing,” the report says.

Part of the problem is that the scheme is funded by the Government from year to year, making it difficult to know what level of funding will be available to pass on to exporters. This has led to criticism that the scheme for a conservative allocation policy that has resulted in some exporters missing out on funds.

The report recommends the EDMG scheme receive additional funding and a move to allow any money not spent in a given year to be rolled over to improve budgeting certainty. Both changes were recommended by the Australian Chamber of Commerce and Industry and the Australian Industry Group in submissions to the committee.

– Mike Preston

Labor’s $100 million for SME manufacturers

Labor has promised to give struggling small and medium businesses in the manufacturing sector a helping hand. It has pledged that a Rudd Government would allocate $100 million over four years for a manufacturing network.

It is expected 1000 SMEs would receive hands-on support from the network. A further 2000 companies are expected to receive advice, attend workshops and participate in networking activities. The networks benchmarking services would be provided for free to SME manufacturing businesses.

All types of manufacturing businesses will eligible to access services, including:

  1. Benchmarking of businesses and manufacturing processes.
  2. Helping to find and adapt the latest business research, technology and organisational knowledge.
  3. Help cut through red tape to access other government programs.

The network will also work with existing organizations, including cooperative research centres, CSIRO and state-based organisations.

– Amanda Gome

David Edwards moves on again

The announcement yesterday that Richard Evans had been appointed executive director of the Australian Retailers Association raises the question of what will happen to acting ARA chief David Edwards.

Controversy surrounded the appointment of Edwards, a well-known Melbourne director, as executive director of the Victorian branch of the ARA last year. There were mixed reports on his leadership at VECCI, CPAs and CEDA, with Edwards claiming he was a change agent and his critics were people who resisted change.

Edwards told SmartCompany that he had done a good job at ARA, accepting the role of change agent at a time the ARA was losing $1 million a year. “It is now restructured and back to profitability,” he says. Edwards says he will take a few weeks off before looking for directorships and consulting roles.

Meanwhile the ARA, which has become a national organsiation, will go head to head with the rival Australian National Retail Association, which has as its members Bunnings, Woolworths and Coles.

– Jacqui Walker and Amanda Gome

Internet news ‘less biased’

Australians have more faith in what they read online than in black and white in newspapers, according to a new telephone survey by Roy Morgan – but even their faith in internet journalists is slipping.

Although 85% believe that newspaper journalists are often biased, only 49% (up 8% since September 2004) believe internet sites are biased. TV journos are more trusted for independence than newspapers, with 74% believing they are often biased, and 69% believing that talkback announcers are often biased.

Newspaper journos also get a bad rap for accuracy: 62% of respondents believe they often get facts wrong, compared to 55% who said TV reporters get things wrong. But TV reporters are the worst for invading privacy unnecessarily: 77%.

– Jacqui Walker

Small-cap results roundup

Consumer electronics retailer JB Hi-Fi says it expects sales to increase by 33% to about $1.7 billion in fiscal 2008. The fast-expanding retailer reported annual net profit of $40.4 million for 2006-07, up 56.5% on the previous year. Revenue was up 35.53% to $1.28 billion.

The company says sales so far in the current financial year had continued the strong momentum experienced towards the end of 2006-07. Consolidated comparable store growth for the first six weeks of trading was 23.4%.

Count Financial Services has also had a good year. It reported a net profit of $22.7 million, a 29% rise for 2006-07. And revenue was up 24%, to $126.27 million. The company said the result was boosted by strong investment markets, robust business growth and slightly reduced expense to income ratio.

– Mike Preston

Economy roundup

Market turbulence in recent weeks has taken a toll on Australian business confidence, according to the NAB monthly business survey released today.

Business surveyed between July 25 and August 2, when the sub-prime wobbles had started to hit, said they were less confident that the previous month, although confidence levels still remain well above the historical average.

In a telling sign of the gap between conditions on the stockmarket and those in the real economy, however, business reported strong growth in trading conditions and profitability.

It appears interest rates will remain a concern, however, with businesses reported capacity utilisation at 83.3% – close to February’s record high of 83.9%. 

International financial woes have also had an impact on the stockmarket this morning, the S&P/ASX 200 down 0.6% to 5977.9 at 12.27 pm, while the Australian dollar was worth US83.94¢, well down from yesterday’s 84.58¢ close.

– Mike Preston

 

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