 The Age |
Card crime jumps, so don't get caught
The Age, Australia - The growth of identity theft has prompted credit bureau Veda Advantage and security group Secure Sentinel to announce last week a $65-a-year service that … |
by Jon Denovan
The reduction in non‑bank lending, reduced commissions, and decreased lending volumes have led to an increase in amalgamations and business sales.
Many brokers embark on a proposed sale or purchase without understanding the significant risks associated with such a transaction.
In this report we look at three key risks:
taxation;
+ default liability;
+ trail forfeiture.
+ Taxation
The purchase price paid for a loan book will generally be a capital expense and will not be deductible against the income derived from the book. Accordingly, if a purchaser pays $300K for a book, at a 50% tax rate, trail income of double that amount, $600K will be required just to break even.
In calculating a suitable price to pay for a book, an appropriate allowance must be made for the cost of money (because the purchase price is paid up front), the amortisation of the book, and the risk of accelerated churn after a change of manager/broker.
Accordingly, paying one years trail will normally mean an expectation of at least three years trail to make a modest profit, ignoring the cost of managing the book.
Last night’s big fall on Wall Street is further confirmation that we have an ugly global situation ahead of us. While I have the utmost respect for Reserve Bank Governor Stevens, his soothing words can’t mask the fact that we are close to the eye of the storm, because both our companies and consumers go into this downturn highly borrowed (Capital is once again king, November 19). Adding to Wall Street, the looming Babcock and Brown asset sell off, which was announced on the same day that the Australian share market officially halved from its peak, will see every board in the country checking their balance sheet asset values and the agreements with their bankers.
If the situation looks bad, then they have no choice but to raise equity at whatever price is required. Whatever today’s price is, it will be lower tomorrow if you have problems. Capital is king.
AUSTRALIA risks sinking into recession early next year after a “very disturbing” slide in expectation for economic growth, according to a report from Westpac.
Interest rates are tipped to fall to historic lows after an index measuring future economic activity showed the biggest monthly drop in more than 20 years.
The Westpac-Melbourne Institute leading index, which measures the likely pace of economic activity three to nine months in the future, shrank to 1.1 per cent in September. The drop from August’s 3.5 per cent pace was the biggest monthly fall since the mid-1980s.
Other data out yesterday showed that Australian vehicle sales had suffered the biggest annual slump in seven years. Yesterdays data showed vehicle sales in the year to October slumped by 10.6 per cent, the biggest seasonally adjusted annual slide since September 2001.
NO-DEPOSIT home loans could disappear next year as the global credit crisis puts the squeeze on banks.
Young professional first-home buyers are expected to be among the hardest hit.
The Commonwealth Bank has told mortgage brokers that from December 1 borrowers would be forced to pay a deposit between 5-20 per cent of the purchase price based on whether they have mortgage insurance.
"Following this week the bank will lend up to 95 per cent of the value of a property," said a Commonwealth spokesman.
No figures are available on exactly how many borrowers have no-deposit loans.