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Australia’s Westpac profit drops 12%, falling costs provide reprieve

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© Reuters. FILE PHOTO: A woman exits the ground floor of an office building with Westpac logo amidst the easing of the coronavirus disease (COVID-19) restrictions in the Central Business District of Sydney, Australia, June 3, 2020. Picture taken June 3, 2020. REUTE

By Savyata Mishra

(Reuters) -Australia’s Westpac Banking (NYSE:WBK) Corp on Monday said continued margin pressure from competition in mortgage lending caused its first-half earnings to drop over 12% from a year-ago, but Westpac forecast lower expenses in the second half of the year with its cost reset plan in full swing.

Australia’s “Big Four” banks enjoyed a boom in home lending helped by low interest rates and a pandemic-fuelled shift to remote working that buoyed property markets. But their margins have been hit by competition and by borrowers’ moving to fixed-rate loans.

Westpac said net interest margin, a key profitability indicator, fell 15 basis points to 1.91% in the first half. It booked an impairment charge of A$139 million ($98.1 million) as it set aside more funds to cover bad debts related to recent floods in Australia and broader global uncertainty.

“The first half of 2022 has been challenging for many customers. Floods, the lingering effects of the pandemic and the impact of the war in Ukraine have set many customers back and created uncertainty,” Chief Executive Peter King said.

However, the country’s third-largest bank forecast second-half costs to be flat to 2% lower sequentially, a sign that its bold cost restructuring strategy was beginning to pay off.

Westpac, which is emerging from a costly turnaround to fix outdated software and convoluted procedures, said it cut more than 4,000 jobs in the first half and expenses fell 27% from the 2021 second half, putting it on track for its annual cost target of A$8 billion by fiscal 2024.

Cash earnings fell to A$3.10 billion ($2.19 billion) for the six months ended March 31 from A$3.54 billion reported a year earlier, but beat a Visible Alpha consensus forecast of A$2.83 billion.

Westpac declared an interim dividend of 61 Australian cents per share, compared with 58 Australian cents last year.

Last week, its peers National Australian Bank and Australia and New Zealand Banking Group forecast that their margins would benefit after the country’s central bank hiked rates and signalled more to come.

($1 = 1.4154 Australian dollars)

Economy

Analysis-Alarmed by Solomon Islands-China pact, NZ finds its voice on security

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© Reuters. FILE PHOTO: A car with a New Zealand flag waits for New Zealand Prime Minister Jacinda Ardern outside the Great Hall of the People during her visit in Beijing, China, April 1, 2019. REUTERS/Jason Lee

By Lucy Craymer

WELLINGTON (Reuters) – New Zealand has long been seen as the moderate, even absent, voice on China in the “Five Eyes” western alliance, so much so that its commitment to the group was questioned just 12 months ago.

The recent signing of a security pact between China and nearby Solomon Islands appears to have changed that.

New Zealand’s tone on both security and Beijing’s growing presence in the South Pacific has toughened, a shift analysts say reflects concerns the agreement will give Beijing a strategic foothold and potentially a military presence in the Pacific that could destabilise Western influence.

“It’s a real challenge to New Zealand’s sense of where the Pacific is heading,” said Robert Ayson, Professor of Strategic Studies at Victoria University of Wellington.

Prime Minister Jacinda Ardern described the pact as “gravely concerning” and called on Solomon Islands to discuss it within the Pacific Islands Forum.

“What is really changing around us is the level of assertiveness and aggression we see in the region,” Ardern said later at a United States-New Zealand Business Summit.

New Zealand has previously often shied away from such criticisms, which analysts put down to the country’s heavy trade reliance and close economic relationship with China.

Both China and the Solomon Islands have said the new pact will not undermine peace in the region. Details of the final agreement have not been released but Chinese foreign ministry spokesman Wang Wenbin said the agreement called for China to help the Solomon Islands maintain social order and cope with natural disasters, and did not pose a risk to the United States.

SOFT POWER

But statements by Ardern and Foreign Minister Nanaia Mahuta were a clear signal they shared U.S. and Australian concerns about Chinese security engagement in the Pacific, said Anna Powles from the Centre for Defence and Security Studies at Massey University.

“It also sent a signal to the Pacific that New Zealand supported regional collective security initiatives, and to third parties, specifically China, that regional crises in the Pacific would be managed by the region,” she said.

While small and with limited military capabilities, New Zealand’s soft power in the Pacific is arguably stronger than its allies. It has a large Pacifika population and strong family, business, sporting and cultural ties along with territories in the region.

New Zealand sees itself as a Pacific country and wants stability and prosperity for its neighbours, and needs a free and open Indo-Pacific to protect trade and telecommunication connections.

David Vaeafe, programme manager at non-governmental organisation Pacific Cooperation Foundation, said the relationship with the Pacific was not all about money but about listening and understanding what the region needs.

“New Zealand’s foreign policy towards the Pacific is slowly evolving and engaging from being ‘you shouldn’t do this’ to consulting and being part of that process,” he said.

FIVE EYES CRITICISMS

A year ago, there were questions over Wellington’s commitment to the Five Eyes alliance with Australia, Britain, Canada and the United States, after Mahuta said Wellington was uncomfortable with expanding the role of the group.

There had been criticism after New Zealand opted not to sign joint statements from other Five Eyes members, including one on Hong Kong and another on the origins of COVID-19.

White House Indo-Pacific coordinator Kurt Campbell told a business summit earlier this month that New Zealand’s underestimation of security risks in the past appeared unlikely to be an issue.

“I think there is an understanding that the challenges that are presenting themselves on the global stage are not so distant – they’re closer and they have direct implications,” he said.

Already New Zealand and Japan have announced plans to increase security ties and other moves are afoot.

Mahuta visited Fiji at the end of March and signed an agreement that among things will facilitate information on shared security challenges.

At the start of the month, a partly New Zealand-backed tuna processing plant for the Solomon Islands that is set to create more than 5,500 jobs was announced.

The Ministry of Foreign Affairs and Trade has quietly shuffled more money into Pacific development cooperation budget for 2021-2024, according to changes made on its website. The fund has been increased since December by nearly NZ$120 million ($75 million) to $1.55 billion.

New Zealand’s budget on Thursday will likely give further detail on Pacific spending with New Zealand’s defence minister previously highlighting the region as a priority.

“New Zealand is quite strongly aligned to the United States and Australia,” VUW’s Ayson said. “That doesn’t mean we always see eye-to-eye and it doesn’t mean the we’re as closely aligned as Australia, but New Zealand’s security alliance is quite strong.”

($1 = 1.6038 New Zealand dollars)

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Economy

After delay, U.S. Senate edges toward passing $40 billion Ukraine war aid

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© Reuters. FILE PHOTO: Military aid, delivered as part of the United States’ security assistance to Ukraine, is unloaded from a plane at the Boryspil International Airport outside Kyiv, Ukraine February 13, 2022. REUTERS/Serhiy Takhmazov/File Photo

By Patricia Zengerle

WASHINGTON (Reuters) – The U.S. Senate voted on Monday to advance $40 billion more aid for Ukraine in its war against Russia, setting the stage for a vote on the bill possibly later this week, after the military and humanitarian assistance was delayed due to opposition from one Republican senator.

The tally was 81 to 11 on the first of a potential three procedural votes paving the way for final Senate passage of the funding, requested by President Joe Biden’s administration to keep aid flowing and boost the government in Kyiv nearly three months after the start of the Russian invasion.

All 11 “no” votes were from Republicans.

The House of Representatives approved the aid on May 10. But it stalled in the Senate after Republican Senator Rand Paul refused to allow a quick vote. Biden’s fellow Democrats narrowly control both the House and Senate, but Senate rules require unanimous consent to move quickly to a final vote on most legislation.

Paul said he wanted an inspector general to be appointed to oversee the funds, but declined an offer from Senate leaders to hold an amendment vote on his proposal. Changing the bill would force the House to vote on it again, causing further delay.

There is strong support from both parties for assisting Ukraine. The House passed the measure by 368 to 57, with substantial Republican support, despite all 57 of the “no” votes in the House coming from Republicans.

Mitch McConnell, the top Republican in the U.S. Senate, led a small delegation to Ukraine this weekend. He said on Sunday the Senate could approve the aid on Wednesday.

The Biden administration had said additional money for Ukraine must be approved by Thursday in order to avoid a lapse in U.S. assistance.

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Economy

Dollar slips from 2-decade highs; yuan falls on weak China data

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© Reuters. FILE PHOTO: U.S. dollar banknotes are displayed in this illustration taken, February 14, 2022. REUTERS/Dado Ruvic

By Sinéad Carew

NEW YORK (Reuters) – The U.S. dollar index was lower on Monday after hitting a 20-year peak last week, with the global economy in focus after weak economic data from China highlighted worries about the prospects for a global slowdown.

Creating a risk-off mood on Monday, China’s retail and factory activity fell sharply in April as extensive COVID-19 lockdowns confined workers and consumers to their homes. But Shanghai did set out plans for the return to more normal life from June 1.

Following the release of China’s data, Bipan Rai, North America head of FX Strategy at CIBC Capital Markets, said trading was focused on macro economic data on Monday.

“It’s important to highlight that the risks are towards a stronger dollar and primarily, that’s because if you look at the macro economic climate, the fundamentals don’t look good. From a risk-off perspective that should still support the dollar against most currencies,” Rai said.

But he said the greenback was consolidating after its recent strength and that more range-bound trading sessions were possible: “It makes sense for some period of consolidation before the next leg higher.”

Trading in the dollar may be muted partly because a lot of bad news has already been priced in but also because investors are waiting for events such as the U.S. retail sales data release and a public appearance by Fed Chair Jerome Powell both scheduled for Tuesday, according to Mazen Issa, senior FX strategist at TD Securities. [nL2N2X52F6]

Still Issa said he doesn’t “think we’re in a market where we’re going to see the dollar weaken … It’s going to take a lot to get investors out of the dollar.”

The euro was pulled from its earlier lows after European Central Bank policymaker Francois Villeroy de Galhau said the common currency’s weakness could threaten the ECB’s efforts to steer inflation towards its target.

The Australian dollar, which is highly exposed to the Chinese economy, reversed course as the day wore on and was last up against the dollar after falling as much as 0.9%.

The dollar index was last down 0.37% at 104.16, after briefly crossing the 105 level on Friday – its highest level since December 2002, after six successive weeks of gains. Weekly positioning data showed that investors had built their long dollar bets.

The euro was up 0.26% at $1.0438 but not far from last week’s low of $1.0354, its lowest level since early 2017. Analysts see $1.0340 as a crucial level of euro support.

HSBC strategists expect the euro to fall to parity against the dollar in the coming year. “Much weaker growth and much higher inflation leave the ECB facing one of the toughest policy challenges in G10 (central banks),” they said.

Crypto markets, which trade around the clock, had a quiet weekend after turmoil last week driven by TerraUSD, a so-called stablecoin, which broke its dollar peg. An affiliate of the company behind TerraUSD said it had spent the bulk of its reserves trying to defend its dollar peg and would use the remainder to try to compensate some users who had lost out.

Bitcoin was last trading at around $29,881, down more than 4%, after having dropped to $25,400 on Thursday, its lowest mark since December 2020.

Currency bid prices at 3:03PM (1903 GMT)

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