Hive News Wednesday: Some news about Hive News; RBNZ cautious on DTI; Stiassny unloads on EQC; OECD points to inequality

Hive News publisher Bernard Hickey speaks with Finance Minister Bill English. Copyright Lynn Grieveson / Hive News

Just a quick note to say to regular readers that after three years of daily emails I am planning to make some changes next year to include Hive News in a bigger, better and more sustainable news venture.

It has been challenging to build up the number of subscribers for the daily Hive News email to a level to make it sustainable as a standalone venture in the long run and am planning to include my work in a new larger venture with former NZ Herald Editor in Chief Tim Murphy and former Head of Mediaworks News Mark Jennings.

We plan to cover the things that matter in a way that other media companies are pulling back from and to build a substantial group of reporters and editors into an organisation with a strong and profitable future. We think there is an unmet need for independent, non-partisan, useful news and analysis about the issues that matter for our society and economy.

This new venture will build on the Newsroom platform to provide news for the public for free and a more specialised set of news and analysis for corporate subscribers called Newsroom Pro. We plan to launch in the first quarter of 2017. I will offer subsriptions for the new Newsroom Pro to Hive News subscribers and hope you can continue to follow my work in this larger and better venture. There's more information on the plans for Newsroom in this private presentation that was (surprisingly) included in the NZME/Fairfax NZ submission to the Commerce Commission yesterday. Here's Tim Murphy talking about the plans in this piece on StopPress.co.nz

I welcome any feedback you have and will keep you updated in the months ahead. I will continue to publish Hive News until this new venture starts. As as has been the case for the last three years, I will not be publishing over the last week of December and the first three weeks of January. I'm very proud not to have missed publishing the email on any one day over those three years and have enjoyed putting it together with my wonderful editor Lynn Grieveson, but it's time to work on producing something bigger and better with a larger group of great people.

RBNZ won't use DTI 'at this time'

The Reserve Bank has just published its twice-yearly Financial Stability Report, and has repeated its warning that the financial system continues to face housing and dairy debt risks, although it remains highly profitable, sound and strong.

Graeme Wheeler said housing imbalances remained in the economy, even though house price inflation in Auckland had softened in recent months.

Wheeler confirmed he had asked Bill English to include a tool to limit Debt To Income multiples in the bank's Macro-Prudential tool kit, but that the bank would not use the tool "at this time."

"House price to income ratios in the (Auckland) region remain among the highest in the world and prices are continuing to rise rapidly in the rest of the country. There is a significant risk of further upward pressure on house prices so long as the imbalance between housing demand and supply remains," Wheeler said.

“The Reserve Bank has asked the Minister of Finance to agree to add a Debt to Income (DTI) tool to the Memorandum of Understanding on macro-prudential policy. While the Bank is not proposing use of such a tool at this time, financial stability risks can build up quickly and restrictions on high-DTI lending could be warranted if housing market imbalances were to deteriorate further,” Wheeler said.

Wheeler is due to hold a news conference at 11 am and appear before the Finance and Expenditure Select Committee this afternoon. I'll have more detail coverage of the document and reaction in tomorrow's email.

'Watch the wholesale funding'

Elsewhere, Grant Spencer said the Reserve Bank's new 40% deposit requirement for rental property investors from October 1 had increased the resilience of bank balance sheets to a housing market downturn.

“However, the share of bank mortgage lending to customers with high DTI ratios has been increasing and this could increase the rate of loan defaults during a housing downturn," Spencer said.

“The banking system has strong capital and funding buffers and profitability remains high. Despite being relatively concentrated, New Zealand’s banking system also appears to be operating efficiently from an international perspective based on metrics such as the cost-to-income ratio and the spread between lending and deposit rates," he said.

“However the banking system’s reliance on offshore wholesale funding is beginning to increase due to a widening gap between credit and deposit growth. Banks could become more susceptible to increased funding costs and reduced access to funding in the event of heightened financial market volatility."

Spencer noted the insurance sector was well positioned to cope with claims from the 7.8 earthquake in Kaikoura on November 14.

Stiassny unloads on EQC

Tower Chairman and one of corporate New Zealand's most prominent and connected figures, Michael Stiassny, was unusually critical of EQC and the Government's review of EQC in comments yesterday with the release of Tower's financial result.

Stiassny had to announce NZ$25.3 million of losses from Tower's insurance portfolio in Canterbury after EQC handed over over 300 claims that were unexpectedly over the NZ$100,000 cap. He criticised the length of time it was taking to change EQC's structure and warned that reinsurers such as Swiss Re had told the Government the repeated delays with the EQC review created the risk of increased reinsurance premia for New Zealand as a whole.

"The industry model is broken with claims inflation continued unabated, construction far slower than anticipated and little effective coordination between the EQC and insurers. These are all symptoms of a system that can no longer do right by the people, communities and insurers it is supposed to serve," Stiassny said.

OECD eyes inequalities and exclusion...

The OECD forecast in its November update that New Zealand's economic growth would moderate to less than 3% by 2018. It shared the Reserve Bank's view that fiscal stimulus was not necessary at the moment, although it noted the Government's fiscal stance was currently neutral to mildly contractionary. It did push for more infrastructure funding though.

"The government has substantial fiscal space, but immediate fiscal stimulus would risk overheating the economy," the OECD said.

"To the extent that the resources used in the Canterbury earthquake rebuild are freed up in the course of 2017 and beyond, the government should fund infrastructure and increase funding to meet the challenges posed by inequalities and exclusion," it said.

Bill English welcomed the report as confirming the economy was on the right track.

In other economic and financial news...

NZIER said in its December quarter predictions it expected GDP growth to average over 3% over the next five years.

The High Court ordered the LJ Hooker franchisee in Palmerston North, Manawatu Ltd, to pay a penalty of NZ$1.25 million after it admitted in a settlement with the Commerce Commission to price fixing. The penalty was part of the Commerce Commission's investigation into price fixing by three Manawatu real estate agencies over their decision to pass on the full cost of Trade Me advertising to vendors. The incident followed Trade Me's late 2013 decision to change its prices for smaller agencies, which they protested by forcing vendors to pay the cost of Trade Me and directing them to Realestate.co.nz. See more background in this Hive News article from February 2014.

In other political news...

National MP for Whanganui, Chester Borrows, announced he would not stand again in the 2017 General Election. He won the seat off Labour in 2005 and said he had always thought four terms was an ideal tenure.

Have a great day.

cheers

Bernard