• David Hargreaves crunches some numbers on the growing proportion of first home buyers in an uncertain housing market

    By David Hargreaves

    If would-be first home buyers are worried at all about the immediate future of the New Zealand housing market, their actions aren’t showing that.

    The FHBs are continuing by the month to get a bigger share of the mortgage monies advanced as the investors now take more of a back seat.

    I opined similarly on this topic last year, and the trend of the FHBs climbing in has continued and expanded since.

    In January the FHBs, with $700 million borrowed, accounted for 17.3% of the mortgage money advanced, which is the highest proportion for that grouping since the Reserve Bank started publishing such figures in mid-2014.

    The FHBs are individually borrowing more than others too. According to the January figures there were 1771 FHB borrowers, accounting for 9.4% of the total 18,774 borrowers in the month.

    So, yes, that’s 9.4% of the borrowers by number accounting for 17.3% of the money borrowed.

    New rules

    January was the first month in which the new rules relaxing the affecting the permitted levels of high loan to value ratio (LVR) loans took effect and this is somewhat visible in the new figures.

    Of the $700 million borrowed by FHBs, some $280 million was for mortgages where the deposit made up less than 20% of the value of the house being bought. 

    That means 40% of the money the FHBs borrowed in January was for high LVR loans. That’s the highest such ratio since the figures began being compiled in 2014.

    Now, yes, given the LVR restrictions have been with us since 2013 and they originally permitted banks to advance only 10% of their new lending on high LVR mortgages, it’s not too surprising to see the FHBs hitting a new high in terms of the proportion of high LVR borrowing – now that the banks can advance up to 20% of new lending (since January) for high LVR mortgages.

    So, it’s understandable, but nevertheless a bit disconcerting to see the FHBs piling in with large mortgages relative to their deposits at a time when certainly Auckland is looking a bit wobbly. Much of the rest of the country is still experiencing fairly buoyant conditions – but remember, Auckland did have at least about a two-year lead on the rest of the market when it came to the bull conditions we saw earlier this decade. Where Auckland goes, the rest of the country’s housing market will probably go eventually.

    Everything counts 

    In terms of what the FHBs are borrowing for individual mortgages, dividing the $700 million advance to the FHBs in January by the number of loans taken – 1771 – gives an average-sized mortgage of $395,000.

    Believe it or not, that’s actually down a little on the average-sized FHB mortgage as of January 2018, which worked out at about $403,500. Given the ratio of high LVR loans is higher this year, one would have to suspect that there’s an ‘Auckland effect’ in there, in that there are presumably fewer Auckland mortgages. And Auckland mortgages of course are by the nature of Auckland’s median price that much bigger than in the rest of the country.

    But, still. A mortgage of $395,000 for a first home buyer is not something to be contemplated without a few deep breathes. And remember, that’s an average, so, a fair few people will have borrow MORE than that, while others will have borrowed less.

    Where are people finding the money from for deposits?

    A glance at the Inland Revenue Department’s KiwiSaver Statistics gives a reasonable clue.

    As you can see, the chart above is for the June year, but the upward trend has continued since June 2018, with the January 2019 first home withdrawals up 6.5% compared with the same month a year ago to $59.4 million.

    For the year to June 2018 there was $769 million withdrawn for first homes. In the seven months since a total of $544.6 million has been withdrawn for first homes and if that overall pattern continues then we would be heading towards $1 billion being withdrawn in the year to June 2019.

    So, the KiwiSavers are digging into their retirement money in order to then buy houses with large mortgages.  

    That such sizes of mortgage can be contemplated is down to the persistently low interest rates. But it is to be hoped that people taking out these mortgages do their own ‘sensitivity analysis’ and have a look at the consequences if interest rates did turn. I did a little quick checking on interest.co.nz’s mortgage calculator.

    Bills, bills, bills

    These things are a bit arbitrary, and of course many people will be able to fix mortgages for a period up front. But for illustrative purposes, let’s suppose someone took out a $395,000 mortgage for 30 years, paying monthly, at what the RBNZ gives as the current average floating mortgage rate, namely 5.85%.

    This would cost $2330 a month ($27,960 a year), which works out at $537.69 a week.

    The good news is, nobody expects interest rates to go up in the foreseeable future. So, anybody who can manage that now can keep managing in future.

    But what if the global sky falls in and rates take an unexpected hike?

    If floating mortgages went up by one percentage point to 6.85% a $395,000 mortgage would be costing $2,588 a month, $31,056 a year, or $597.23 a week.

    Amp up the volume more with a two percentage point rise, to 7.85% and a $395,000 mortgage would cost $2,857 a month, $34,284 a year, or $659.31.

    Put another way, a one percentage rate increase would increase mortgage servicing costs by 11.1%, while a two percentage point rise would increase the annual mortgage bill by a whopping 22.6%.

    So, a “2% rise in interest rates” as such things are always inaccurately described would in fact increase servicing costs by damn near a quarter, which would be a worry.

    Now, I don’t want to scare anybody, but it is worth remembering that average floating rates were over 6.7% less than four years ago, while in and around the Global Financial Crisis of 2008 they were close to 11%.

    Anything goes

    Just because there’s currently no reason at all to believe that interest rates won’t go up (and indeed, our largest bank, ANZ, thinks the next move will be down) doesn’t mean there’s no chance at all they never would go up.

    That’s one thing to worry about.

    The other is the dreaded negative equity. Obviously the bigger the deposit a buyer has, the more leeway they have if house prices come down. Anyone borrowing say 90% wouldn’t have to see too much of a downturn to see their equity being eroded.

    Now, negative equity is not a huge problem per se, providing everybody keeps their jobs and doesn’t have to renegotiate the mortgage – IE they can keep servicing the mortgage.

    But that brings us to the prospect of a general slowdown in the economy and rise in joblessness. That could also be a killer. 

    Essentially in New Zealand we need three things:

    • Interest rates have got to stay flat (or even drop!)
    • The economy’s got to stay reasonable with ongoing low levels of unemployment
    • House prices have not got to start seriously falling (and a fall of say 10% would start to become problematic for high LVR people)

    Putting on my rosy coloured spectacles, I would say, fingers crossed, there’s a fair chance all three of those things will come to pass, which would be wonderful. But they might not. Such is uncertainty when you live in a small island country totally exposed to global volatility. 

    The risky time for someone with a big mortgage is in the first few years. After that, even if there isn’t much or any capital appreciation, they should hopefully be building some equity through repayments.

    After all that has been said though, this is a risky period we are going through right now. And we just have to hope that the FHBs won’t end up on the wrong end of that risk. Because that would be bad for our country.

    source https://www.interest.co.nz/opinion/98443/david-hargreaves-crunches-some-numbers-growing-proportion-first-home-buyers-uncertain


  • US construction spending weak; Wall Street down; trade talk resolution closer; China suppresses World Bank report; tariff impacts; Fonterra outlook downgraded; UST 10yr 2.73; oil stable and gold drops; NZ$1 = 68.1 USc; TWI-5 = 72.7

    Here’s our summary of key events overnight that affect New Zealand, with news all about tariffs and their real impact.

    But first, American construction spending unexpectedly fell in December from the prior month as investment in both private and public projects dropped. A small rise was expected. Year-on-year there was a rise but it is the lowest in seven years. Many observers now expect that to lower the Q4-GDP growth rate from the initial +2.6% estimate already made. Forecasts for Q1-2019 are now under 2.0%.

    Maybe Wall Street is noting this sort of data. In mid-day trade today it is down -1.1% and dropping. The prospect of a bad trade deal between China and the US is also turning them off. China sees “important progress” being made in those talks.

    Yesterday however, Asian equities were up strongly with Tokyo up +1.0%, Hong Kong up +0.5%, and Shanghai up +1.1%. Following them, European markets were up about +0.6%. But Wall Street isn’t following today.

    China talks up its current process of market ‘reform’ – but it is holding up a report on its economy, written in conjunction with the World Bank, as it tries to tone down recommendations about reforming its SOEs and allow more market-led principles to reign. The report, titled “New Drivers of Growth in China,” has been ready for a year, but Chinese authorities have not permitted its release.

    The American tariff war against its trading partners, particularly China and the EU, cost American companies and consumers US$4.4 bln a month in 2018, according to researchers from the New York Federal Reserve, Princeton and Columbia universities. They concluded that those who were exposed to the duties overseas “paid none of the bill”.

    Locally, ratings agency Fitch has lower the Outlook on Fonterra from Stable to Negative. It didn’t change the rating of ‘A’. This follows last weeks profit downgrade and Fitch now says Fonterra has “structural issues that it needs to address to retain the defensive traits that have underscored its historically strong business profile”.

    The UST 10yr yield has slipped -3 bps today to 2.73%. Their 2-10 curve is back to +18 bps while their negative 1-5 curve has almost vanished. The Aussie Govt 10yr is up +1 bp to 2.18%, the China Govt 10yr is up a similar amount to 3.21%, while the NZ Govt 10 yr is up +3 bps to 2.23%. Local swap rates rose marginally, although more so at the long end.

    Gold has fallen again, down to another -US$6 to US$1,287/oz. Recall, this price was at US$1,344 two weeks ago so it has tumbled -4.2% since then.

    US oil prices are little-changed today at US$56/bbl while the Brent benchmark is just on US$65/bbl.

    The Kiwi dollar is at 68.1 USc and little-changed from yesterday. On the cross rates we also little changed at 96.1 AUc. Against the euro we are marginally firmer at 60.1 euro cents. The TWI-5 is now at 72.7.

    Bitcoin is softer at just under US$3,700 and a drop of about -2.5% since this time yesterday. This rate is charted in the exchange rate set below.

    The easiest place to stay up with event risk today is by following our Economic Calendar here ».

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    Source: CoinDesk

    source https://www.interest.co.nz/news/98454/us-construction-spending-weak-wall-street-down-trade-talk-resolution-closer-china


  • A resurrection; How Etana Custody Ltd, a company whose CEO & major shareholder has never been to New Zealand, got kicked off NZ’s financial service providers’ register and then got itself back on

    Etana Custody’s website.

    By Gareth Vaughan

    A company controlled by someone who has never been to New Zealand giving its address as that of a virtual office provider in downtown Auckland, is removed by NZ authorities from this country’s problematic financial service providers’ register (FSPR).

    That, you might think, is the end of this particular story. But in the case of Etana Custody Limited you’d be wrong. Kicked off the FSPR on July 18, 2017, Etana was able to re-register on June 14 last year.

    Now, a New Zealander has contacted interest.co.nz about Etana having had the firm recommended to him by a cryptocurrency exchange he uses and being surprised at what he found.

    “What is being allowed to happen here beggars belief. There appears to be a primarily Bulgarian-based online custodial service, controlled by an American-based British sounding individual, through an unlicensed, unregulated non-AML [anti-money laundering] compliant NZ shell company, providing among other things custodial services to clients of one of the most established and trusted cryptocurrency exchanges in the world,” the New Zealander, who interest.co.nz has agreed not to name, says.

    But Brandon Russell (pictured), Etana’s Colorado-based CEO, director and 97% shareholder, says; “The business is legitimate, there’s no question on that.” 

    Asked why Etana chose NZ, Russell says it did so for a number of reasons.

    “First of all New Zealand is considered a western jurisdiction that is friendly to global markets, there is the ability to employ people at a reasonable rate, [and] the reputation of the country as a whole is good,” says Russell.

    Links to Ian Taylor

    In 2017 Registrar of Financial Service Providers Ross van der Schyff kicked Etana, and three other companies, off the FSPR having found no evidence the four were providing the financial services listed in their registrations on the FSPR. Van der Schyff’s action came after interest.co.nz revealed Etana and a series of other NZ registered companies were using ECS Ltd as their registered office and address for service in Companies Office records. ECS Ltd, in turn, gave its address as a Regus Business Centre in downtown Auckland, which provides office space and virtual office services including a business address, mail handling, telephone answering and free business lounge access. 

    Following interest.co.nz’s story, the Department of Internal Affairs issued a formal warning under the Anti-Money Laundering and Countering Financing of Terrorism Act (AML/CFT Act) to ECS Ltd, whose sole director and shareholder was Denis Petrov.

    Petrov is an associate of infamous company incorporator Ian Taylor. Etana had Taya Burnett, Taylor’s wife, as a director. Taylor, along with his father Geoffrey, is a notorious company agent. NZ police have received more than 350 criminal investigation enquiries from overseas relating to companies established by the Taylors.

    But although Etana was removed from the FSPR, it was able to remain a NZ registered company, which it was incorporated as on May 30, 2014. Shareholder consent forms were in the names of SFX Markets LLC, Russell and Joel Gibson Kinney. All provided US addresses. According to its website, SFX Markets is the trading name of SFX Global Ltd, a St Vincent and the Grenadines foreign exchange trading company.

    Director consent forms were filed by Russell and Brian Walter Johnson, an American living in Auckland at the time who was associated with a series of NZ registered, overseas operating unregulated foreign exchange, or forex, companies. These include FX United, the trading name of United Global Holdings Ltd, allegedly behind a Ponzi scheme that fleeced more than 70,000 Malaysian investors out of more than 1 billion ringgit (about NZ$359 million). 

    Johnson stepped down as an Etana director in May 2015, with Burnett becoming a director in September 2015. Burnett provides a Gold Coast address. By law all NZ companies must have at least one NZ or Australian based director. In September 2017 Burnett was replaced as an Etana director by Grant Gibson, who was head of finance at Westpac NZ between 2001 and 2006. And in October 2017 Etana’s registered office address and address for service was changed to Innov8HQ Ltd, a Dunedin company offering serviced and virtual office services.

    ‘We moved to have Ms Burnett replaced immediately’

    Russell says Etana did not work with Taylor and nor did he meet him or have any correspondence with him. The firm’s previous registered agent, Johnson, appointed Burnett, he says.

    “Upon discovery, which your article highlighted, we moved to have Ms Burnett replaced immediately and sought the appointment of a reputable, local director. Hence Mr Gibson,” says Russell. “We terminated our relationship with Brian Johnson around the same time we terminated Ms Burnett.”

    Etana first registered on the FSPR on June 20, 2014. It was registered to provide a broking service, including a custodial service in both FSPR registrations. According to its website, Etana offers services to brokers, traders, introducing brokers and exchanges. Russell says Etana is not a Bulgarian operation. 

    “We have sought and gained a legal opinion from a law firm in NZ [Turner Hopkins] validating our operation and model in addition to satisfying the FSP office.”

    What the FSPR is & its related problems

    The FSPR is like a phone directory for the financial services sector. A company being registered on it doesn’t mean it’s actually regulated or licensed in NZ.

    Anyone providing a financial service such as insurers, banks, fund managers and financial advisers, must be registered on the FSPR, which is operated by the Ministry of Business, Innovation & Employment ‘s Companies Office. The FSPR records the name, address and financial dispute resolution service membership of the provider, along with the services it’s registered to provide and any licences it may have.

    Trouble is the FSPR is open to exploitation by overseas based people with nefarious intentions. That’s because a company can register on the FSPR if it has a place of business in NZ, regardless of where in the world its financial services are targeted or provided. This means entities can, and have, set up superficial operations in NZ through virtual offices, or by leasing an office and perhaps employing a person to provide back-office services.

    These firms typically register to provide financial services that don’t require licensing in NZ, such as foreign exchange, or forex, services. There’s no pre-vetting by a NZ regulator, and they usually don’t tend to offer financial services within NZ. These entities can, however, use their NZ registration overseas to give a false impression that they are actually regulated in NZ and trade off this country’s good name.

    In 2017 the Financial Markets Authority (FMA) told interest.co.nz it had received enquiries about NZ financial service providers from 83 countries, with 340 misconduct reports received from overseas about companies registered on the FSPR. The FMA now publishes online resources about the FSPR in Chinese, Malay and Arabic as these languages reflect the regions of the world representing the biggest number of complaints received from overseas by the FMA.

    The Government is planning reforms to the FSPR through the Financial Services Legislation Amendment Bill currently working its way through Parliament. 

    “Some mainly offshore-controlled entities have been ‘free-riding’ off New Zealand’s reputation for sound financial markets regulation by using their registration to imply that they are actively regulated in New Zealand when that is not the case,” Commerce and Consumer Affairs Minister Kris Faafoi said when the Government issued a consultation paper in April last year. (My dissection of the Government’s plan is here).

    ‘Our business is not going to have a physical footprint’

    Russell says Etana is legitimate and it has NZ clients.

    “I’m assuming that the reason that you’ve reached out to us again is because somebody complained or had a suspicion that there was something illegitimate about it. And that specific client is a mutual client of one of our clients that we do custody for. And they were providing them the option of custodian [services for] their assets with us, and using that as a method of distribution for their digital facing business they do,” says Russell.

    “Clearly we are doing business with New Zealand clients just based on that alone, and we do have other New Zealand clients as well. We are very much a fintech company which is the reason why our licence, or our registration sorry, was reinstated. Because we showed them [the FMA] over a six month period that we had spent over $400,000 on tech development and that the reason we weren’t active previously was because we were still in the beta phase. We’re no longer in a beta phase, we are actually operational now. We do take on New Zealand clients and we’re still heavily fintech driven, which means that our business is not going to have a physical footprint, which is not unusual for technology companies at all,” Russell says.

     A broker or custodian offering services to the NZ public does not have to be licensed by the FMA.

    ‘The FMA must have a legal basis for refusing permission to register on the FSPR’

    So what do the Companies Office and FMA say about Etana being allowed bank on the FSPR after been removed from it?

    A Companies Office spokeswoman says when a new application for registration was received from Etana on February 1 last year, it was assessed with van der Schyff forming the view that it was desirable for the FMA to consider whether Etana should be registered and to thus direct van der Schyff.

    This, the spokeswoman says, is the appropriate course for van der Schyff as Registrar to take when he considers the registration of a financial services provider has, will have, or is likely to have the effect of;

    (a) creating, or causing the creation of, a false or misleading appearance with respect to the extent to which it;

    (i)            provides, or will provide, financial services in New Zealand; or

    (ii)           provides, or will provide, financial services from a place of business in New Zealand; or

    (iii)          is, or will be, regulated by New Zealand law in relation to a financial service; or

    (b) otherwise damaging the integrity or reputation of –

    (i)            New Zealand’s financial markets; or

    (ii)           New Zealand’s law or regulatory arrangements for regulating those markets.

    “After considering the application the FMA decided to not use their powers to prevent registering the new application of Etana on the FSPR, and the Registrar therefore had no grounds to prevent the financial service provider from registering and the application proceeded to registration on 14 June 2018,” the Companies Office spokeswoman says.

    “We suggest that any further queries regarding [to] the registration of Etana be referred to the FMA for response.”

    An FMA spokesman says when an application is referred to the FMA, it engages with applicants extensively, requesting further information to help FMA staff understand the applicant’s business and why they should be registered.

    “Our FSPR report published in 2017 noted that businesses or individuals are dedicating more resources to the process and seeking more legal advice, providing far more detailed information about their prospective operations and the individuals involved. The process has become more in-depth,” the FMA spokesman says.

    “The FMA must have a legal basis for refusing permission to register on the FSPR. Where there are no legal grounds for refusal, the FMA cannot prevent registration.”

    “The FMA continues to aim to prevent businesses and individuals damaging the integrity and reputation of New Zealand’s financial markets. Two cases involving the New Zealand based directors of FSPR registered businesses remain before the courts,” the FMA spokesman adds.

    No oversight under NZ’s AML/CFT Act

    Asked whether Etana is a reporting entity supervised under the AML/CFT Act or not, the FMA spokesman says; “Currently the AML/CFT supervisors are considering how virtual asset service providers, which may include companies such as Etana, fit within the AML/CFT framework. We are also considering Etana’s status, as a reporting entity and who the appropriate supervisor is.

    NZ’s AML/CFT Act supervisors are the FMA, Department of Internal Affairs and Reserve Bank.

    The New Zealander who contacted interest.co.nz about Etana says the firm was recommended to him by the US-based cryptocurrency exchange Kraken as an option for transferring money to NZ after Kraken disabled SWIFT for international clients.

    “On the basis of Kraken’s recommendation, and my presumptions that Etana had been properly vetted by Kraken, I proceeded to sign up with Etana and went through their KYC [know your customer] and AML process and was verified. But consequent interaction with support staff when setting my bank account details caused me to question the professionalism of the people I was dealing with. Consequently I proceeded to do my own due diligence,” the New Zealander says.

    “It became clear that Etana was being run out of their Bulgarian office. I directly asked Etana through their website interface whether Etana was licensed and registered. I was given a reply by the vice president of operations Miroslav Ivanov [pictured], whose LinkedIn profile indicates that he is based in Bulgaria. His reply [was] that Etana was regulated and licensed. I contacted the FMA who confirmed via email that Etana was not licensed, nor regulated.”

    Kraken has not responded to requests for comment. Etana is also listed as a strategic partner by Singapore cryptocurrency trading platform COSS.IO.

    Outsourcing services to Bulgaria

    Russell says Etana has three staff in Denver, Colorado and outsources compliance and account management to Bulgaria, where its technology was initially also provided from. He also says Etana partners with Thomson Reuters to provide AML and KYC services.

    “If there’s no [regulatory] box for you to fall into what are you meant to do? If I could get guidance from any regulatory body that said ‘hey can you register [as a NZ AML/CFT reporting entity] with us right now’ I would do it in a heartbeat. I’ve just not got that,” Russell says.

    Russell, who says he grew up in Cape Town and has one South African and one British parent, acknowledges he has never been to NZ. However he says he’s coming in late March to interview candidates for a sales position, compliance position, a “management type” position as he seeks a director to succeed Gibson. Russell says he’ll also be speaking to an auditing company Etana plans to work with, and a local bank it’s seeking a relationship with.

    How did Westpac’s ex-head of finance become involved?

    Gibson says he became involved with Etana after being contacted by a close personal friend who had been approached to become a director of Etana himself by a friend from London. 

    “He felt my skillset was a better matched than his, being involved in a fast growing tech business, with a SaaS [software as a service] model, and my financial background through working previously with Westpac,” says Gibson.

    “I agreed to become director after phone meetings with the CEO Brandon Russell and associates, and investigating the business concept and people behind the idea. The model is interesting, and does provide a significant opportunity for growth as the custodian/brokering sector changes as new technology becomes available. I received comfort that there was a real intention of establishing a New Zealand processing, management, customer base as part of the growth phase when the software was developed, and able to be rolled out. I believe this has a big opportunity to be a sizeable successful company.”

    Gibson says when he became involved, Etana’s platform was still being developed, and there were no paying customers or transactions.

    “To provide myself a base, Innov8HQ was selected to provide office and meeting facilities. This was close to my current location of home and work.  At present, there are no employees in New Zealand.”

    Gibson quits

    Gibson says Etana was re-registered on the FSPR “after an extensive review of the operations by the authorities.” 

    “This included full disclosure of the proposed business model, technology and people involved. I am comfortable that the approach taken by the regulators was full and complete, and provided me comfort in my continued relationship with Etana as a company. The disclosure was full and open, and the investigation was thorough,” he says.

    “As with technology companies, there have been delays and changes with the business model and technology, and Etana is still at the early stages of product release.  However these changes, as it further understands the markets and pivots to make the best opportunity of these, have resulted in changes to the original concept, which is moving further from my expertise.  As a result, I indicated my intention to resign as director to the CEO [Russell] on the 15th of February,” says Gibson.

    Gibson says he doesn’t have any concerns that Etana might be using NZ as a flag of convenience to get a registration, from which it can then piggyback off the country’s good reputation overseas where it can operate unregulated.

    “What has given me confidence and comfort is the involvement I’ve had with Brandon all the way through and the technology, understanding where we’re heading. The regulator’s have spent a lot of time reviewing the business model. Everything has been open and above board. It is a different model than what has traditionally been in the market, but I think it’s exciting and the way of the future. And I think there’s a good opportunity for New Zealand to be involved in it. And that’s the intention, that’s why I got involved in it,” says Gibson.

    Russell says Etana is interviewing three potential candidates to replace Gibson.

    Confusion over ‘registration’ and ‘licence’

    Despite incorporating as a NZ company as long ago as 2014 Russell still describes the company as a start-up. He says it spent three years building its technology.

    “We weren’t going to build our business on the assumption that we could get some kind of licencing without actually getting it. We got our licencing first and lay dormant while we built everything out.”

    Here, as in other responses when speaking to interest.co.nz Russell describes Etana as having a licence or being licensed. This isn’t the case. As noted above the company is registered on the FSPR. It doesn’t have any NZ licence. Russell acknowledges this, corrects himself on a couple of occasions, and says he does understand the difference between a mere FSPR registration and being licensed and formally regulated.

    He says Etana has “applications for other regulatory jurisdictions that are in play at the moment but have not been approved yet.” He won’t name where these are. Nor will he name what he describes as “tier one banks” Etana works with, saying they don’t want to be named.

    Ivanov does not appear to understand the difference between being registered on the FSPR and actually being licensed and regulated, based on the exchange below provided by the New Zealander who contacted interest.co.nz about Etana.

    The SFX Markets link

    In terms of  SFX Markets, Russell says it was meant to be an early Etana investor.

    “But they never put up capital and so they were exited. SFX were the ones who recommended we use Brian Johnson.” 

    Russell says he is Etana’s main beneficial owner and his working background is with FX, or foreign exchange companies. This includes working with retail FX brokers, “bridge companies” providing a link between broker platforms and liquidity providers, and traditional capital market liquidity providers. Many of these were “essentially retail FX brokers” setting up in jurisdictions like NZ, Vanuatu, the Cayman Islands and Panama.

    “Basically anywhere that you could set up an FX brokerage, get regulation light and start running an FX business.”

    *This article was first published in our email for paying subscribers early on Monday morning. See here for more details and how to subscribe.

    source https://www.interest.co.nz/business/98363/resurrection-how-etana-custody-ltd-company-whose-ceo-major-shareholder-has-never-been


  • Jenny Shipley to retire from position as China Construction Bank NZ Chair to deal with ‘personal and legal matters related to the Mainzeal case’

    Jenny Shipley.

    Former Prime Minister Jenny Shipley will “retire” from her position as Chair of China Construction Bank New Zealand at the end of the month.

    The announcement follows the High Court last week upholding claims of reckless trading against Shipley and other former directors of Mainzeal, which went into liquidation in 2013.

    Shipley was ordered to pay creditors $6 million, having allowed the company to trade while insolvent.

    A statement from China Construction Bank New Zealand said Shipley believed it was “in the best interests of the company” that she retires as of March 31, the end of the current reporting cycle.

    The statement said: “After stepping down from this Board Dame Jenny intends to put her energy into dealing with personal and legal matters related to the Mainzeal case and to spending more time on her private business and philanthropic interests and to speaking here and offshore on a wide range of topics…

    “Dame Jenny said she was extremely proud to have served on the Board of CCBNZ since its establishment 5 years ago and of its many achievements including the recent securing of a Branch banking licence,” the statement said.

    “Dame Jenny served as a director of the Hong Kong and Shanghai listed China Construction Bank global board for six years from 2007 to 2013 at a crucial time in its development.

    “Today China Construction Bank is the 5th largest bank in the world by market cap.”

    source https://www.interest.co.nz/banking/98453/jenny-shipley-retire-position-china-construction-bank-nz-chair-deal-personal-and-legal


  • New Auckland Council and government working group to address housing and urban growth issues gets ready for action

    A new joint Auckland Council and government working group to tackle Auckland’s housing and urban development issues is close to sign off.

    In September last year Mayor Phil Goff, Deputy Mayor Cashmore and councillor Chris Darby met with Housing Minister Phil Twyford and Economic Development Minister David Parker to discuss greater collaboration on housing and urban development in Auckland.

    They agreed to create a formalised arrangement with a set programme that would be overseen by a working group.

    The Auckland Council’s Planning Committee is expected to sign off the terms of reference for the group this week which will include Goff, Cashmore, Darby and chairwoman of the council’s Environment and Community Committee Penny Hulse. While on the government side it will include Twyford, Parker, Minister for Building and Construction Jenny Salesa and Local Government Minister Nanaia Mahuta. The group is expected to meet quarterly.

    Some of the issues it will have to look at include the Auckland Development Programme, affordable housing, the funding and financing of infrastructure, spatial planning, the government’s Housing and Urban Development Authority (HUD) and removing the barriers to the efficient delivery of housing.

    The council’s Planning Committee agenda for this week’s meeting says that a lot of the work the group will look at is already underway, but it will allow greater co-operation between central and local government. It states:

    “By formalising the arrangements, the programme will ensure a more coordinated effort where officials believe “greatest value add” can be achieved by working collaboratively to remove blockages/enable faster delivery of private and public projects in multiple locations where planning is already well advanced, focus on areas where Council and Crown agencies are strongly aligned, avoid spreading Council and Government resources too widely.”

    Auckland Council Planning Committee Chairman Chris Darby says the new working group has a major task ahead of it in trying to address the super city’s housing and urban growth problems.

    “One of the key things is partnering up with the government so we’re not running off on different tangents,” he says.

    Darby admits the council and central government have often been working at cross purposes in the past.

    “There hasn’t been a lot of genuine collaboration. In the past there’s been a lot of packaging with little substance. But now we’ve got a phenomenal challenge in front of us and that’s to accommodate Auckland’s need for more homes.”

    Figures released by Statistics NZ in the 12 months to the end of January showed the growth in building consents for new homes had been particularly strong in Auckland, where 1128 new homes were consented in January, up 57% compared to a year ago.

     “We weren’t expecting those numbers to be so high, but while they might look rosy and it’s the best they’ve been in 20 years, we’re not taking our eye off the ball.”

    Darby says Auckland still has a housing shortage of 46,000 homes.

    He says after this week’s meeting the next step will be for the terms of reference to be signed off by cabinet and he says he expects the group to have its first meeting shortly after that.

    Darby’s keen to emphasise that there’s always been ongoing communication between the government and the Auckland Council, but establishing this new body formalises it.

    “It’s not like we’re just waiting for this to happen.”

    He says the new body will also allow the council to work more closely with the government’s Housing and Urban Development Authority (HUD), which the government announced in November last year.

    The new authority will be responsible for leading the government’s large-scale urban development projects and act as state housing landlord. It will bring together the three existing agencies that build homes – Housing New Zealand, its subsidiary HLC, and the KiwiBuild Unit.

    Twyford said it would have wide-ranging powers to transform suburbs and cut through any roadblocks to large-scale development. Housing New Zealand’s role as a state housing landlord will become part of the authority.

    Darby says the Housing and Urban Development Authority will have a major role to play in the future of Auckland’s housing and the local authority is keen to work with the government as gets it up and running.

    “That has a very big mandate and I think it’s fair to say that it’s still in gestation and the council needs input into that as it’s established.”

    source https://www.interest.co.nz/property/98452/central-and-local-government-get-set-join-forces-address-aucklands-housing-and-growth


  • Treasury surveys the risks to our economy of a hard Brexit and finds little likely impact, other than a rise in immigration and a stronger Kiwi dollar

    This is a Special Topic from Treasury’s Monthly Economic Indicators report for February 2019.

    The United Kingdom parliament continues to debate the terms of the UK’s departure from the European Union (EU) (the departure is called ‘Brexit’). One possibility is that the UK leaves without a withdrawal agreement and transition plan. This Special Topic discusses the economic impacts of a ‘no deal Brexit’ on the UK and the implications for New Zealand.

    The impacts of Brexit depend on the terms…

    Most studies conclude that Brexit will reduce the UK’s economic output owing to frictions that reduce trade and investment. These effects may be larger or smaller depending on the terms under which the UK exits.

    Brexit has already had negative consequences for the UK economy. Leaving the EU abruptly, without a withdrawal agreement and transition plan would amplify these effects. Growth in the EU would also be lower, particularly in the latter scenario. In contrast, scenarios where the UK maintains current arrangements over a transition period to a future state that has few new barriers to trade have relatively benign impacts on the UK and its trading partners.

    The consensus view among economic forecasters is that the UK will avoid a no deal scenario, although the shape of the deal is uncertain and both no deal and no Brexit are still possible. The ‘no deal’ scenario, which could cause a serious economic shock in the UK, is the most likely to have significant implications for New Zealand.

    …a no deal Brexit may have small negative impacts on economic activity in New Zealand

    Should it occur, our judgement is that a no deal Brexit would be likely to have a modest overall negative impact on economic activity in New Zealand. There are three main reasons for this assessment:

    • Total trade with the UK is a small proportion of total trade and New Zealand’s direct investment in the UK is also relatively small (see Table 2).

    • Some goods exports would likely be diverted to other markets eventually, although they may receive a lower price.

    • New Zealand businesses and the government have taken steps to mitigate adverse impacts.

    Nonetheless, some specific New Zealand businesses and industries may experience particular disruption. Inbound UK tourism may fall sharply as real UK incomes fall. Goods exports may be delayed at the UK border, and it may not be possible to find alternative markets in the short term, causing hardship for some exporters. Some importers may encounter supply disruptions from the UK and returns to some investors may be reduced by weaker UK conditions.

    The medium-term impacts also depend on the nature of future trade arrangements New Zealand is able to agree with the UK and the EU.

    Table 2: New Zealand/UK trade and investment
    ($billion and shares as a percentage of New Zealand’s total goods exports, and imports, total services exports, and imports, and stocks of total inward, and outward investment, year ended September 2018)

    Activity in the UK could fall markedly…

    The Bank of England finds that a “no deal” Brexit could generate a contraction in GDP of comparable magnitude to the global financial crisis. That is, GDP could be 3% to 8% lower than baseline where the UK remains in the EU1. The unemployment rate could rise to around 6% from below 4% at present.

    In the no deal scenarios, the combination of immediate logistical and regulatory impairment to imports of goods and services, and associated behavioural responses, reduce economic activity. The estimates are largest where lower trade, investment and migration have a permanent effect on UK growth. Conversely, when the UK is able to negotiate free trade access with the EU and with other countries, the impacts are smaller.

    …with a lesser contraction in EU activity

    The EU’s exports of goods and services to the UK, scaled relative to the GDP, are around a quarter of those running in the other direction. Given that the direct systemic consequences for the EU of “no deal” would be less than for the UK, an upper bound of the “no deal” hit to EU/euro area GDP might be 25% of that seen in the UK, that is, in the range of -0.5% to -2%. In the context of the recent loss of euro area growth momentum, the impact may be large enough to push the region as a whole back into recession.

    New Zealand trade may be disrupted…

    In the short-term, disruptions to trade with the UK can be anticipated owing to logistical issues. UK border inspection and approval services may struggle to cope with the increased volume of physical and regulatory checks and certifications required to move goods. Some transport routes may be disrupted. These issues may lead to exporters facing delays in receiving payment for goods.

    A no deal Brexit could lead to tariffs on UK agricultural exports and imports which could lead to large shifts in trade flows. For example, tariffs on UK lamb exports to the EU may lead to more product on the domestic market, driving down prices. Similarly, EU exporters of dairy and beef to the UK may divert produce to their home markets, putting pressure on exports from third markets, including New Zealand.

    …and the New Zealand dollar appreciate …

    The UK exchange rate may depreciate sharply, increasing the cost of New Zealand goods to UK buyers, and increasing the cost of UK residents taking holidays in New Zealand. The Bank of England study assumed the UK exchange rate would fall 25%. Under this scenario, the NZD/GBP, which has averaged around NZD$0.52 over the past year, could rise to NZD$0.65.2

    …while export demand eases…

    Slower growth in incomes across the EU more broadly may also depress demand for New Zealand goods and services. In the short to medium term, this is likely to feed into lower prices, but overall export volumes may be less affected if it proves possible to divert these to other markets. It is difficult to judge the magnitude of the impacts, but it is worth noting that movements in New Zealand’s export values of around NZ$600 million per quarter – around 40% of the annual value of goods exports to the UK – are not unusual.3

    However, slower income growth in the UK and the EU may put downward pressure on goods prices and slow demand growth in services exports, particularly tourism. Figure 14 shows UK visitor arrivals have been variable in recent years, although it is unclear how big the Brexit impact might be.

    Figure 14: Net migration to the UK and UK visitor arrivals

    Source: Stats NZ

    On the other hand, net migration from the UK and EU to New Zealand may increase, as worsening UK economic conditions lead to fewer New Zealand resident departures to the UK and more UK resident arrivals in New Zealand4. In the context of an economy operating at full capacity, this may be a positive development.

    …and risks to investment in the UK rise

    The UK has a large presence in New Zealand’s financial markets, particularly in the area of portfolio investment, reflecting its role as a major financial services provider. The UK is also a significant source of foreign direct investment in New Zealand. Whether these investments are affected depends on the details of the individual investments, but in general, Brexit does not appear to pose any immediate threats to investment in New Zealand.5 However, New Zealand investments in the UK, which are valued at $1.4 billion, may not realise the return previously expected.

    New Zealand’s preparations for Brexit and beyond

    The New Zealand government has taken steps to ensure continuity in key regulatory arrangements underpinning trade with the UK. These include agreements to maintain all relevant aspects of the current EU-NZ Veterinary Agreement governing the export of animals and animal products and the EUNZ mutual recognition agreement (MRA) on conformity assessment. The MRA allows for continued recognition of each other’s testing and certification in respect of seven areas of manufactured goods.

    The UK is also prioritising a new free trade agreement with New Zealand after it leaves the EU as well as potential accession to the trans-Pacific trading bloc, CPTPP, which counts New Zealand as one of its members.

    Negotiations towards an EU-NZ free trade agreement will continue without the UK after it leaves the EU. New Zealand launched these negotiations in June 2018 and negotiators met for a third round recently in Brussels.

    Free trade deals with the UK and the EU would be expected to have positive impacts on New Zealand’s economic activity through increased trade and investment.


    Notes:

    1. EU withdrawal scenarios and monetary and financial stability: A response to the House of Commons Treasury Committee, Bank of England November 2018

    2. The BNZ provide a range of possible currency movements under different Brexit scenarios (BNZ currency research)

    3. That is, quarterly goods exports (seasonally adjusted) have a standard deviation of almost $600 million.

    4. During the global financial crisis, a fall in departures to the UK drove an increase in net UK migration of around 2,000 people. NZ goods exports to the UK rose during the GFC as the NZD fell.

    5. An appreciation in the NZD/GBP might raise returns for investment in NZ.

    source https://www.interest.co.nz/business/98451/treasury-surveys-risks-our-economy-hard-brexit-and-finds-little-likely-impact-other


  • Winston Peters has spent decades gaming MMP to keep himself in the position of king (or queen) maker. Asks Danyl Mclauchlan, are we really going to make it even easier for politicians like him?

    Winston Peters, by Jacky Carpenter.

    By Danyl Mclauchlan, The Spinoff*

    The Green Party has put forward a members bill which, among other things, advocates lowering the MMP threshold from 5% to 4%. Let us set aside the terrible, terrible optics of a political party that is part of the government, and hovering just above the 5% threshold in the recent round of polls – and which routinely under-performs the polls on election day – attempting to alter the electoral system to its own advantage and consider the 5% threshold itself.

    It is obviously unfair and distortionary. A party that gets 5% of the vote gets six seats in parliament, while a party that gets 4.9% gets zero. Why should 131,508 voters (5% of the turnout in the 2017 election) have their votes translated into seats into Parliament, and a slightly smaller number have their votes nullified? And the threshold distorts the decision making process around who to vote for if their favoured party is in that danger zone. Does a Green voter vote Green, with the risk that their vote will get wiped out, or switch to Labour, who they support less but whose vote carries essentially zero risk?

    A 4% threshold still has these problems, but because the threshold is lower the unfairness and distortion are reduced. Why not lower it to 1%? Or whatever percentage is enough to capture a single seat in parliament (this number shifts around, depending on various factors). The assumption is that this would lead to a proliferation of weird minor parties and lead to the instability we see in, for example, Israeli politics.

    But New Zealand seems to be heading in the opposite direction, drifting back towards the two party system MMP was designed to prevent, and the 5% threshold seems to play a key role in this. It’s just too high for aspiring new parties to breach and it’s endangering both the current minor parties. So lowering the threshold to 4% seems like a moderate step to address this. And prior to the last election I was a strong advocate of a 4% threshold for all the reasons I just described. Now I’m not so sure.

    A few years ago I was arguing with the recently departed and much missed political commentator Rob Hosking and he told me the parable of Chesterton’s Fence. The conservative essayist and novelist G K Chesterton wrote about two farmers walking down a trail. They come across a fence blocking their way. The first farmer suggests they get rid of it; the second farmer replies, “First let’s figure out why the fence is here. Then we can decide whether we should get rid of it.” This is a very flattering way for conservatives to think about their role in politics: silly old progressives keep trying to abolish customs and traditions without understanding them, while conservatives patiently prevent them from hurting themselves and everyone else.

    But it seems relevant with regard to the 5% threshold. Our version of MMP was copied from the German system and the threshold was there to prevent the rise of extremist political parties, something that nation was apprehensive about for obvious reasons. That didn’t seem like a realistic fear for New Zealand so copying such a high threshold seemed unjustifiable. But now that we’re seeing a global rise of extremist parties, a fascist government in Brazil, etc, it no longer seems like such an abstract fear.

    But my main problem with lowering the threshold is that it will also probably save New Zealand First, and it will make the New Zealand First model of politics so much more viable.

    This is a model in which you fundraise from exploitative, extractive industries (fishing, forestry), campaign on populist issues (Peters’ flagship policies in 2017 were lower immigration, a referendum to ditch the Māori seats and to remove GST on fruit and vegetables), ditch all of your policies and issues as soon as the election is over, and use your position in the political centre to maximise your personal power.

    It means Peters gets to operate as a de facto co-prime minister, he gets to veto any attempts to regulate his corporate donors, he gets to unilaterally change our long-standing foreign policy towards China without bothering to tell the actual prime minister, let alone the Cabinet, his deputy gets given three billion dollars to just give away to whoever he wants, and none of this has any mandate from the public whatsoever. Nobody wanted or voted for any of this, not even New Zealand First’s voters, but here we all are.

    The 5% threshold hasn’t saved us from Peters but this is because he’s one of the most brilliant politicians the country has ever seen. His model is a very successful hack of the MMP system, but you have to be Peters to pull it off – otherwise everyone would do it: after all, you get near total political power with virtually no votes.

    But Peters was kicked out of parliament after his last shambolic tenure in government and, based on the current polls, he’ll be wiped out at the next election, so it is (hopefully) not a sustainable model, even for him. The 5% threshold is what protects us from countless imitators reproducing the hack and wrecking our government. That is what the fence is protecting us from. We’d be fools to lower it.


    *This article first ran on The Spinoff here and is used with permission. Danyl Mclauchlan is a contributing writer for The Spinoff.

    source https://www.interest.co.nz/opinion/98450/winston-peters-has-spent-decades-gaming-mmp-keep-himself-position-king-or-queen-maker


  • A review of things you need to know before you go home on Monday; more TD rate cuts; Barfoot sales slump; TPP now a big deal; Dashboard updated, swaps rise; NZD stable, & more

    Here are the main things you need to know before you leave work today.

    LANGUAGE RATE CHANGES

    no changes to be reported today.

    TERMINAL DEPOSIT RATE CHANGES

    Kiwibank today reduced some term deposit fees. You can follow all the many recent movements here. February sales fell in AUCKLAND Barfoot & Thomson’s sales in February fell -29% compared to the same month last year. In 474, its sales volumes were the lowest we have seen in February and the lowest of any month since December 2008. (Our record goes back to 2001.) Average prices fell -3.2% in relation to January and average selling prices fell -1%. Sales volume was lower in February than January in five of the past six years and this year is no exception. Sales volumes in March are generally about + 70% higher than the average for January and February. So this sets a test for March 2019 in 960. If it reaches that level, it will be the lowest month in March in nine years. The March average over the past decade is a sales level of 1,210 transactions across the Barfoots residential network.

    TPP NOW A BIG DEAL FOR OUR TRADE

    Statsitcs NZ today pointed out that bidirectional trade with TPP countries represents almost a third of trade and is almost touching $ 50 billion / year. By comparison, China, our single largest non-TPP trading partner, accounts for only 20% of our total two-way trade. New Zealand’s three main trading partners – China, Australia and the EU – accounted for almost half of total trade with the rest of the world. Total exports of goods and services were $ 82.3 billion, an increase of + 6.8% over 2017, while total imports were of $ 80.8 billion, an increase of + 11.6% compared to 2017. Also interesting is that 70% of our trade with the EU is with countries other than the United Kingdom. (We will discuss more about this separately, soon.) PANEL UPDATE Now, we’ve updated the data for the RBNZ Panel on our Key Bank Metrics tool, now covering four quarters of 2018.

    TRUMP BUMP?

    The stock markets opened today today strongly.

    New Zealand and Australia are up about +0.7% while they are also enthusiastic in Hong Kong (up +0.2% in early trade), Tokyo (+0.8%) and Shanghai (+1.3%). Expectations are high that the US President will cave in his trade negotiations with China, accept a deal from China to buy more soybeans, and declare victory.

    FALLING AWAY
    We all know that Aussie building approvals are declining and that is because of a slump in the apartment market. January data out today shows that in the year to January, apartment building approvals are down -18% and more than -50% on a January-2019 vs January 2018 basis. But also worrying for them is that house approvals are starting to slip as well and now taking 12-month-on-12-month data into negative territory too. For all that, the industry in Australia saw green shoots in the data, noting it wasn’t as bad as for December. Good luck with that.

    SWAP RATES FIRM
    Local swap rates are firmer today by about +1 bps, except at the long end where they are up +4 bps. The UST 10yr yield is up +3 bps at 2.72%. Their 2-10 curve is higher at +20 bps while their 1-5 curve remains inverted at -3 bps. The Aussie Govt 10yr is up +4 bps to 2.15%, the China Govt 10yr is up +2 bps at 3.21%, while the NZ Govt 10 yr is up +1 bp so far today to 2.21%. The 90 day bank bill rate is unchanged at 1.89%.

    BITCOIN UNCHANGED
    The bitcoin price is unchanged from this time on Friday at US$3,802.

    NZD LITTLE CHANGED
    The NZD remains at 68.1 USc. And we are little-changed against the Aussie at 96.1 AUc, and at 59.9 euro cents. That leaves the TWI-5 at 72.6.

    This chart is animated here. For previous users, the animation process has been updated and works better now.


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