market update john flavell general manager, nab broker
TRANSCRIPT
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Market Update
John FlavellGeneral Manager, NAB Broker
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China’s investment in Australia cut in half
Australian, Oct 2012
Australian property riding on China’s back AFR, Nov 2012
Europe delays, US ‘fiscal cliff’ threatens growth: G20
AFR Nov 12
Britain on the brink of ‘triple-dip’ recession
AFR, Jan 2013
Congress votes to extend US debt limit
BBC News, Jan 2013
Lenders face off on out-of-cycle rate cuts
Australian Broker Feb 2013
Japan posts record trade deficit BBC News, Feb 2013
Aussie John sells to which bank?
AFR Dec 12
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Financial markets have turned surprisingly optimistic. Equity markets up, fear index down.
0
10
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50
60
06/06/2011 29/08/2011 21/11/2011 13/02/2012 07/05/2012 30/07/2012 22/10/2012 14/01/2013
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65
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75
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Australian share market
Share markets in major developed economies
VIX index of market volatility LHS)
FINANCIAL MARKET INDICATORS
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European sentiment may be bottoming but not their economy
European Economic (Consumer and Business) Sentiment- Measured as Deviation in European Sentiment From Long Run Average
-35
-30
-25
-20
-15
-10
-5
0
5
10
15
Mar
-07
Sep-
07
Mar
-08
Sep-
08
Mar
-09
Sep-
09
Mar
-10
Sep-
10
Mar
-11
Sep-
11
Mar
-12
Sep-
12
• European confidence still at historic lows
• But might have bottomed – re ECB and Fed
• Delaying Basel 3 liquidity will help further
• But can’t say the same about their economy
-5.00
-4.00
-3.00
-2.00
-1.00
0.00
1.00
2.00
Jan-
06
Jul-0
6
Jan-
07
Jul-0
7
Jan-
08
Jul-0
8
Jan-
09
Jul-0
9
Jan-
10
Jul-1
0
Jan-
11
Jul-1
1
Jan-
12
Jul-1
2
GDP
BUSINESS CLIMATE INDICATOR
EUROPEAN GDP AND BUSINESS CLIMATE INDICATOR
(F)
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Our forecast suggests moderate on-going US growth
Model based on: Real interest rates, House prices, Equity prices, Oil prices, TWI (currency), Commodity prices, Credit rationing and lags.
US Quarterly GDP v Nab Mini Model
-3
-2.5
-2
-1.5
-1
-0.5
0
0.5
1
1.5
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China Growth outlook: We expect further acceleration of growth to around 8 ¼% in 2013 – with policy helping
China - Monetary Policy ResponsePercentage points of GDP growth
0.0
0.1
0.2
0.3
0 1 2 3 4 5
0.0
0.1
0.2
0.3
Ppts Ppts
Source: NAB Research
50bp cut to interest rate
50bp cut to reserve requirement ratio
Quarters
China Real GDP GrowthYear-ended percentage change
0
2
4
6
8
10
12
14
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
0
2
4
6
8
10
12
14
% %
NAB Fcst
SFM
Source: CEIC, NAB
Economic Forecasts
2012 2013 2011 2012 2013 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Real GDP 9.3 7.8 8.2 8.1 7.8 7.7 7.9 8.2 8.4 8.2 8.0Exchange Rate (USD/CNY) 6.3 6.3 6.2 6.3 6.3 6.3 6.2 6.2 6.2 6.1 6.1Monetary Policy (end of period)
Benchmark Lending Rate 6.56 6.00 6.5 6.56 6.31 6.00 6.00 6.00 6.00 6.25 6.5
Reserve Ratio Requirement* 21.0 19.5 19.5 20.5 20.0 20.0 20.0 19.5 19.5 19.5 19.5 Sources: CEIC; NAB Group Economics* For large depository institutions
Year Average Chng % Year-ended Chng %
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World still very multi speedDeveloped v Developing
80
90
100
110
120
130
140
150
160
Dec-05 Dec-07 Dec-09 Dec-11 Dec-05 Dec-07 Dec-09 Dec-11
US Japan Euro areaUK China IndiaBrazil
Gross domestic productSep qtr 2007 = 100
Developed world Emerging world
Sources: OECD Main Economic Indicators, CEIC, NAB
Globa l liquidity crisis Globa l liquidity crisis
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AUD a proxy for global risk appetite and commodities. And of course China
Model driven by: commodity prices; USD/EURO – as measure of USD weakness; long and short run rates; relative unemployment; relative equity markets and VIX.
Model AUD and Forecasts v Actuals
0.4
0.5
0.6
0.7
0.8
0.9
1
1.1
1.2
Fe
b-8
5
Fe
b-8
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Fe
b-8
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Fe
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Fe
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Fe
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Fe
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Fe
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3
ACTUAL
Plus X2 Std Dev
Less X2 Std Dev
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Saving ratio remains around GFC levels in trend terms
Deposit inflow both by consumer and (especially) business strong
Near- term Australian growth also constrained by consumer caution.
Personal (credit card) and business credit currently around flat to negative
Home loans at 5% a 30 year low
Key System Credit Aggregrates3 mths at annual rate - saar
-15
-10
-5
0
5
10
15
20
25
Jul-0
6
Jul-0
7
Jul-0
8
Jul-0
9
Jul-1
0
Jul-1
1
Jul-1
2
BUSINESS
%
HOUSING
PERSONAL
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Flattish house prices not helping perceptions of wealth. May be turning now but don’t expect much going forward
House price expectations at end 2012 have turned slightly positive
Very different by state – WA still strong: SA and VIC less so.
Over the medium term our model wants moderate growth.
Accelerating in near term but then flattens out by end 2013 as unemployment rises
Australian House Prices - 12 Mth %
-15
-10
-5
0
5
10
15
20
25
30
35
40
45
50
Sep-
87
Dec
-89
Mar
-92
Jun-
94
Sep-
96
Dec
-98
Mar
-01
Jun-
03
Sep-
05
Dec
-07
Mar
-10
Jun-
12
Sep-
14
% o
ya
-15%
-10%
-5%
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
Actual / Forecasts
Model
Property Survey - House Price Expectations
-6.0
-4.0
-2.0
0.0
2.0
4.0
6.0
Q1'11 Q3'11 Q1'12 Q3'12 Q1'13 Q3'13 Q1'14 Q3'14
Australia Victoria NSW Qld SA/NT WA
%
Expectations
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Interest rates
• Our expectation RBA will cut by 75bps in 2013 to 2.25%
• First cut probably May
• As unemployment rises to 5.75% by mid-late 2013, RBA will need to respond again
• We expect a final cut in late 2013 as mining phasing heralds further labour market weakness (say November)
• Forecasts imply a bottom in rates between 2 and 2.5% depending on extent of the slow down
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Australian economic forecasts
2012-13 2013-14 2012 2013 2014
GDP 2.3 2.8 3.5 2.0 3.3
Employment** 0.5 1.5 0.8 1.1 1.3
Unemployment rate* 5.6 5.7 5.2 5.6 5.8
CPI underlying **
(includes carbon)2.8 2.9 2.5 2.7 2.9
RBA cash rate* 2. 5 2.25 3.0 2.25 2.75
$US/$A* 0.97 0.99 1.03 .97 0.95
* at end of period; ** through-year growth
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Customer deposits
^Represents advertised term deposit rates, used here as a peer comparison. These make up less than 15% of total term deposit costs.
Source: NAB Weekly Advertised Term Deposit Rates since 2007
0%
1%
2%
3%
4%
5%
6%
7%
8%
Oct 07 Feb 08 Jun 08 Oct 08 Feb 09 Jun 09 Oct 09 Feb 10 May 10 Sep 10 Jan 11 May 11 Sep 11 Jan 12 May 12 Sep 12 Jan 13
Average 3-12 Mth Blackboard Rate and BBSW
Average BBSW Average Blackboard Rate
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Term Wholesale Funding
* Includes Covered Bonds Source: NAB Treasury
0
20
40
60
80
100
120
140
160
180
200
220
Cost of Wholesale Term Funding
6m Avg Monthly Issuance Margin
Cumulative Weighted Average Margin
Cost(bps)
Bear Sterns Collapse(Mar/Apr 08)
Lehman Brothers Collapse -Introduction of 70bps Govt
Guarantee
Start of Credit Crises (Jul-
Aug 07)
European Sovereign Crisis
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Short-term Wholesale Funding
Source: Bloomberg
-
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
0.9
1.0
%
90d Rolling Avg Spot
Pre-Crisis Spread of 7bps
Bear Sterns Collapse
Lehman Brothers Collapse
European Sovereign Crisis
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0
20
40
60
80
100
120
140
160
180
Pre-Crisis Dec 07 Jun 08 Dec 08 Jun 09 Dec 09 Jun 10 Dec 10 Jun 11 Dec 11 Jun 12 Dec 12
Change in Cost of Funding a Variable Rate Mortgage
Liquidity & Other Wholesale Funding
Term Funding
Customer Deposits
Bank Bill / Overnight Index Swap Spread
Overall funding cost picture
Source: NAB Treasury & Bloomberg
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In summary
• Environment will remain volatile both globally and domestically
• Confidence running ahead of the fundamentals
• Domestic downturn in growth post peak of mining boom
• Property prices sideways
• Credit growth slow
• Cash rate down
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Get to grips with Gen Y or lose out, say brokers
Broker News, July 2012
Social media a missed opportunity for brokers The Adviser, May 12
Small firms say LinkedIn works, Twitter doesn’t
Wall St Journal, Jan 2013
New App promotes brokers to borrowers
The Adviser, Nov 12
5 tips for engaging clients on Facebook
Australian Broker Jan 13
Your choice: Embrace social media or bustAustralian Broker,
Jan 2013
Twitter move to Australia ‘imminent’ AFR, Jan 2013
MFAA uses social media to promote brokers
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NAB Broker Update
John FlavellGeneral Manager, NAB Broker
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Our view is the broker channel will continue to grow
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2010 + 5 Years + 10 Years
40% 40-45% 45-55%
7%15-20%
20-30%
53% 40-45% 30-35%
Broker Online Branch
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Broker Satisfaction
37%47%
39%
56%66%
76%83%
77% 79%
55%
70%
Implementation of Single Document Pack
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The basics…where are we today ?
At Market
+
−
CommissionCommissionCreditCreditServiceService Product & Price
Product & Price PeoplePeople
Our Ramped Trail commission structure increasing broker profits on a daily basis.
We are at market with our credit policy
Service. Our objective is to deliver consistency. We have made good progress…with more enhancements to come
Product. Simple yet feature rich. Price for Risk. Continues to lead the market
Our people are regarded the best in the industry
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Service…what have we delivered
• State-based teams
• Outbound calls, we pick up the phone and talk to you when there is an question
• Embedded DCAs in production team
• Construction Lending case management
• Customer on-boarding program
• Single Document Pack
• New NAB Broker website
NAB Broker/HomesideMajor Lender of the Year 2012
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Product
• Homeplus package
− Bundled NAB Classic Banking (deposit offset) and Credit Card
• Homeside brand refresh
− New customer website (homeside.com.au)
− New broker to customer tools
• 3 Year Anniversary Homeside Price for Risk
Homeside HomeplusBest Product 2012
Homeside HomeplusCanstar Cannex 5 star rating
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Our people
• Largest broker distribution team in the market
• Recently expanded with 10 new positions to provide greater levels of support and advice
• Realigned BDM panels to give you access to knowledgeable experienced staff in person, over the phone and online
• Tailored and flexible support
− Field-based
− Office-based
− Broker Support Specialist
− Lending Specialist
− Aggregator alignment
Nick MurrayBest Bank BDM 2012
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0.00%
0.10%
0.20%
0.30%
0.40%
0.50%
0.60%
0.70%
Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 +
Upfront Trail
CommissionA win-win approach
Ramped trail benefits
• Longer customer relationships
• Increased revenue and book value for brokers
0.15%
0.20%
0.25%
0.30%
0.35%
0.65%
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0.00%
0.10%
0.20%
0.30%
0.40%
0.50%
0.60%
0.70%
0.80%
0.90%
1.00%
1.10%
Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 +
Upfront Trail
Rewarding customer life vs loan lifeExample scenario
0.35% 0.35% 0.35% 0.35% 0.35%
1.00% • Existing Homeside client of 7 years wants to buy and investment property
• They take out an additional Homeside loan
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In Summary
• Uncertain economic conditions
• Opportunity for broker channel to continue to grow
• NAB Broker will continue to grow our share
• Keynote - Digital marketing
• We will continue to focus and invest in:
− Compelling proposition for the end customer
− Our service proposition
− Compelling partnership proposition
− Our people