COAG's report card for national electronic conveyancing

22. A National Electronic Conveyancing System A single electronic system for completing real property transactions and lodging land title dealings for registration in Australia

COAG’s Business Regulation and Competition Working Group has published its 2009 Annual Report Card on progress towards a "seamless national economy".

• COAG to agree the form of the new legal entity for an e-conveyancing system by mid-2010. 
  
• Subject to States and Territories settling funding, new entity to be established and new Board appointed by September 2010. 
  
• Nationally uniform business processes to be agreed by September 2010. Any legislative changes to be enacted and all related transitional arrangements completed by early 2011. 
  
• New electronic conveyancing system to commence by end-2011.
  

Economic Appraisal of Electronic Conveyancing in NSW

National Electronic Conveyancing System

Under current arrangements, every State and Territory has its own unique property conveyancing system with different processes and procedures, based on an antiquated system of paper-shuffling. A single national electronic conveyancing system will mean consumers across the country can benefit from one system to settle property transactions, reducing costs and increasing efficiency in the property market.

Lands has been working with industry groups and other jurisdictions to develop and implement a National Electronic Conveyancing System (NECS) since 2005. NECS will provide an efficient online national platform to electronically:

• Prepare and sign instruments;
  
• Settle property transactions;
  
• Lodge instruments with land registries; and
  
• Meet associated duty and tax obligations.
  

The Council of Australian Governments (COAG) is overseeing the implementation of NECS - see the media release at http://www.pm.gov.au/media/release/2008/media_release_0339.cfm

Economic Appraisal of implementation of NECS in NSW – In mid-2008 Lands contracted KPMG to conduct an

Economic Appraisal of implementation of NECS in NSW, and specifically to:

• familiarise with the conveyancing industry, engage with the key industry stakeholders, understand how the current conveyancing arrangements operate, and confirm the potential impacts of an electronic business environment and how best to apply the required methodologies
  
•  identify the information required and accountable sources of information necessary to carry out the economic appraisal according to the required methodologies
  
• research identified sources, obtain and analyse the information required for the appraisals
  
• prepare financial and economic appraisals of the NSW implementation of electronic conveyancing using NECS in a manner that can be shared with key stakeholders
  

KPMG completed their investigations and analysis in late 2008, concluding the implementation of NECS in NSW provides

• process efficiencies to industry including reduced data entry and document preparation, settlement and lodgment savings, courier and bank cheque savings and less process administration cost generally
  
• a ‘mature year’ saving of $49.8M in NECS-related conveyancing costs in NSW*
  
• an average saving of $170 per conveyancing case (i.e. per property sale or refinance)
  
• positive Net Present Value of $164.1M over the period to 2020 for the NSW proportion of costs to commission
  
• and operate NECS compatible systems for industry, government and NECS
  
• stakeholders generally consider that electronic conveyancing will result in considerable industry cost savings
  

* a ‘mature year’ is from 2020 when take-up of NECS to 70% of NSW land dealings is achieved, quantified in 2008 $ and volumes.

Based on the study, operation of NECS in NSW is expected to achieve savings of $49.8 million each year in

conveyancing costs to the NSW economy.

The NSW economy can attain the greatest benefit from electronic conveyancing where NSW is ready for implementation of NECS as soon as an acceptable system is ready. A significant part of “being ready” entails thorough consultation with stakeholders in NSW addressing business practices, risk management arrangements, supporting legislation and system and information service requirements during 2009.

The KPMG Economic Appraisal of Electronic Conveyancing in NSW report is available on the Department of Lands web site at 

http://www.lands.nsw.gov.au/_media/lands/pdf/necs/other/NECS_KPMG_final_report_Jan_2009.pdf

Source lands nsw newsletter

Please note

This newsletter is issued by NSW Department of Lands’ Land and Property Information Division (LPI). The information in this newsletter is correct at time of publication but may change as the NECS project develops. It reflects current thinking to generate discussion and is not a substitute for publication of Lands Circulars announcing policy changes.

Conveying the buck

THE delay to the planned national e-conveyancing system will prevent big cost savings being passed on to homebuyers nationally but, in Victoria, there will be some more pleasant side effects for the state government.

The delay to the national system looks like extending the financial windfall that is currently being enjoyed by the government.

That windfall is the result of increased charges for traditional paper-based conveyancing that were imposed by the Government to drive traffic to its state-based e-conveyancing system. That system, known as ECV, has a fee regime that is lower than the fees for paper-based conveyancing.

Nevertheless, it has been used for just one property settlement because it does not meet the fundamental requirements of its main customers -- banks and solicitors.

As a result, ECV is being boycotted by the banks -- which favour a national approach -- and by solicitors, who fear it will expose them to greater liability.

So while ECV is barely used, its existence is indirectly responsible for a revenue rip-off by the state Government.

If the states ever get around to establishing the organisation that will run the national system, the Council of Australian Governments has already decided one of its first responsibilities will be to have a good look at ECV.

The aim will be to decide whether any parts of the software underpinning the Victorian system can be used in the much larger national system.

For those who authorised the expenditure of $40 million on ECV, that process is unlikely to have a happy outcome.

Even if the new organisation decides to recycle 75 per cent of ECV's software, there will be no place for a state-based e-conveyancing system once the national system is rolled out.

Crucially, COAG has endorsed a single national system, not a federation of state systems.

If the new national system is indeed national, it is unlikely to be boycotted by the banks and if the nation's governments build a system that meets the minimum requirements of solicitors, they will have no reason to stay away.

That means the end of Victoria's revenue boom. Worse, it also means someone will need to explain to Victorian taxpayers why $40 million of their money was spent on a little-used system that is about to be scrapped.

Then again, all that unpleasantness will only happen in the most unlikely of circumstances.

It would first require all the state governments to break with tradition and take a national approach to e-conveyancing.

Now that the federal Government has decided to take a back seat on this issue, the one centre of power that is obliged to act for all of the nation is unlikely to cause much trouble.

Even if the states do nothing about e-conveyancing, the federal Government has signed on to a COAG deal that means the states could still be in line to pocket every dollar of a $550 million reward payment for reforming the national economy.

So if nothing changes there is a strong chance that harmony will continue to prevail in Victoria and conveyancing will continue to be a relatively expensive paper-based pursuit.

There is, however, an alternative.

To date, the record of the states on e-conveyancing is appalling. They have shown little interest in moving quickly to pass on cost savings to businesses and consumers.

They continue to treat this issue as a low priority, despite the fact that Kevin Rudd says e-conveyancing can cut the cost of buying a home by hundreds of dollars.

So how long will it be before the banks wash their hands of this mess and team up with solicitors and licensed conveyancers to establish a private sector e-conveyancing network? This would not, of necessity, extend to the state land titles offices. ...

It would still, however, cut the cost of property transactions and lead to savings that could be shared between banks, conveyancers and homebuyers.

It would also have the added benefit of insulating the private sector from the massive waste of time and money that is the hallmark of the states' handling of e-conveyancing.



PREJUDICE: Chris Merritt | March 20, 2009

Article from: The Australian

Costly delay on e-conveyancing

Chris Merritt, Legal affairs editor | March 20, 2009

Article from: The Australian

FEDERAL and state governments have decided to delay the national rollout of electronic conveyancing in a move that is set to wipe out cost savings for homebuyers worth hundreds of millions of dollars.

The decision, which follows eight months of inaction by state governments, will put back the start date for e-conveyancing by almost two years.

Instead of introducing e-conveyancing nationally by March next year, all governments have decided that the new system should now be made available by the end of 2011.

The delay of up to 21 months means governments have abandoned the schedule announced last July by Kevin Rudd and Finance Minister Lindsay Tanner.

At the time, the Prime Minister and Mr Tanner said the annual cost savings associated with e-conveyancing had been estimated by industry groups to be worth $250 million.

Based on that figure, a delay of 21 months could wipe out $437.5 million worth of cost savings on property transactions.

In November, Mr Rudd said e-conveyancing could save homebuyers hundreds of dollars on every house they purchase.

The delay, which is understood to have been caused by the states, has triggered urgent talks between Mr Tanner and representatives of the Law Council and the Australian Bankers Association.

Solicitors and bankers, along with non-lawyer conveyancers, are the key players in most property transactions.

Mr Tanner put pressure on the states last week to move faster on e-conveyancing. "I have recently met both the Australian Bankers Association and the Law Council of Australia and both have expressed a strong desire for more rapid implementation of electronic conveyancing," Mr Tanner said.

"I have just written to state and territory treasurers asking them to consider the possibility of earlier implementation and asking for advice as to whether that would be feasible in their jurisdiction."

Law Council president John Corcoran said the e-conveyancing project had been plagued by setbacks and the latest delay meant "we are back to square one".

The Australian Bankers Association warned the new plan meant there would be an 18-month hiatus before the states created the organisation that will run the national e-conveyancing system. "If we lose momentum in the current environment, it might be very difficult to get key stakeholders back into the process," said Ian Gilbert, the ABA's director of retail regulatory policy.

Details of the delay are contained in an implementation plan for the reform of 27 key areas of the economy that has just been made public by officials of the Council of Australian Governments.

The original timetable, which was published after last July's COAG meeting, had required the states to take five key decisions before the end of this month about the organisation that will run the national e-conveyancing system. None of those decisions have been taken.

In July, the states failed to meet their commitment to agree during that month on the form that the new organisation would take.

In October they failed to meet a commitment to settle and sign a governance agreement that month concerning the new entity. They also failed to agree on how the new entity would be funded.

In December, they failed to meet a commitment to establish the new organisation and appoint its board.

This month they failed to reach agreement on nationally uniform business processes for the new entity.

Under the revised timetable, these decisions are now due to be taken between the middle of 2010 and September of that year.

But concerns have already emerged that the delay in establishing the new organisation -- and a lack of seed funding -- might make it difficult to meet the revised start date of late 2011.

The development of a national system has now been incorporated into a broader COAG project for the development of a "seamless national economy".

The states are to receive up to $550 million from the federal Government for introducing reforms in 27 areas covered by the agreement. Most of this will be paid to the states after they make the reforms. But $100 million will be made available as a "facilitation" payment this financial year.

Because the e-conveyancing body is not due to be established until September 2010, it will be too late to gain access to the Government's $100 million.

The COAG agreement provides a strong financial incentive for the states to make progress on 10 priority areas listed in the agreement.

E-conveyancing is not among them.

If the states again fail to meet their commitments on the e-conveyancing project, they could still receive their full reward payments from the commonwealth so long as they make progress in the other areas covered by the agreement.

The ABA's Mr Gilbert said creating the new organisation by September 2010 and giving it 12 months to introduce the new network "is an extremely ambitious thing -- particularly where there has been little work done in the interim".

He was also concerned the federal Government had decided not to provide any "seed money" for the new organisation and was leaving its funding to the states.

"Seed funding is absolutely essential," Mr Gilbert said.

"You cannot set up a company and have it conduct business, including hiring contractors and remunerating staff, unless it is absolutely certain of its funding sources.

"If this was addressed now by the commonwealth putting in the seed funding, there would be no reason why the steps to set up the entity could not be expedited.

"We could see that entity in place in a matter of months, rather than 18 months," Mr Gilbert said. The Law Council's Mr Corcoran said the most alarming aspect of the new approach was the requirement that funding for the new organisation would depend on the states reaching agreement.

"This is exactly where we were in 2005," he said. "We see this as a very backward step."

The COAG agreement also shows that federal ministers are to have less responsibility for overseeing the introduction of e-conveyancing.

Last July, all governments had agreed that responsibility for overseeing the implementation of the new system should be vested with COAG's business regulation and competition working group.

This group is co-chaired by Mr Tanner and Small Business Minister Craig Emerson.

But the latest COAG agreement makes the introduction of e-conveyancing a state responsibility.

The agreement says the states and territories will have responsibility for working with each other and the commonwealth to implement a co-ordinated national approach on e-conveyancing and several other areas.

Those areas that are commonwealth responsibilities are listed separately.

However, Mr Tanner and the BRCWG are expected to continue to have a role in checking the timetable is carried out.

Australian

Caveats Online

Victoria follows Tasmania's lead.

From April 2009, subscribers will be able to lodge caveats in Victoria using the Electronic Conveyancing (EC) system. 

Requirements for client identification and representation agreements have been streamlined for caveat transactions and these are reflected in the updated Registrar’s Requirements. The Registrar has not specified how you should identify your client nor requires a standard representation agreement to be entered into with your client in relation to the caveat transaction. 

What types of caveat can be processed through EC?

Initially, caveats expressing the following grounds of claim can be processed using the EC system:

• contract from the registered proprietor(s)
• mortgage from the registered proprietor(s)
• charge from the registered proprietor(s)
• charge contained in an agreement from the registered proprietor(s)
• charge contained in a mortgage from the registered proprietor(s)
• charge contained in a building agreement from the registered proprietor(s).


It is intended that additional types of caveats will be introduced at a later date.

Identity

The identity of the client must be verified but this should be no more onerous than the process for paper caveats.

Source EC Brochure Caveats Online

ANZ slashes jobs

Chris Zappone

March 13, 2009 - 10:32AM

ANZ Bank will dump 500 back-office staff in Australia and shift the jobs to India by the end of the year.

An ANZ spokeswoman this morning confirmed that most of the jobs about to be scrapped were in Melbourne.

"In 2008, the size of the operation in Bangalore grew by around 500 people and it is reasonable to expect there will be some further growth in 2009," said an ANZ spokeswoman in a statement.

Go to BusinessDay's Jobs in Jeopardy index for the latest news on job cuts. 

However, call centres will remain in Australia and New Zealand, the bank said. 
 
The confirmation follows reports in the The Age last year that the bank had been advised by consultants to cut 620 jobs between January and September 2009, with 870 jobs identified for "offshore migration." At the time, the bank refused to quantify any local cuts.
 
The move will allow ANZ to focus more on its Asian business and confirmed the latest round of cuts in Australia would boost the 3000-strong workforce it already has in Bangalore.

Centralising the processing centre in Indian is part of the ANZ's plan to grow into a super-regional bank in Asia, as outlined by chief executive Mike Smith.

Late last year, the bank moved 500 back-office jobs to India as part of the transition. The jobs are separate from the 800 retrenchments ANZ announced in December affecting local employees.

Austock banking analyst John Buonaccorsi said ANZ's Mr Smith was "more aggressive" and "less sentimental" about moving back office jobs than his predecessors, as the bank moved to centralise its processing centre ahead of regional growth.

Mr Buonaccorsi said that typically, when a bank moved jobs to India, more positions were created overseas in the process because of the lower productivity of workers relative to their Australian counterparts.

Rod Masson, policy director at the Finance Sector Union, described the cuts "scurrilous".

"It shows contempt for the Australian community and in a more targeted sense for Australian workers and finance workers."

He called on the Government to address the issue of off-shoring by banks.

The Federal Government needs "to lay some conditions on the continued taxpayer support that’s being used to underwrite the risks to these businesses," he said.

Major banks often tried to hide the extent of processing happening outside Australia, he said, with local employees instructed not to reveal to customers what duties are being performed overseas.

"Fundamentally the banks are actually embarrassed they have to do this," he said.

"They’re quite happy to take the cost savings. But they’re embarrassed and understand there will be a public backlash should it be revealed."

czappone@fairfax.com.au
BusinessDay

Comment: my understanding is ANZ residential mortgages is being affected as follows

1. Mortgage and security preparation is effectively being offshored to Bangalore; and

2. Settlements are outsourced to an outside Australian company

SAI Global fail to take over Espreon

SAI Global has failed to compulsorily acquire information services provider Espreon, managing to secure only a little more than two-thirds of the company in its recent takeover bid.

The takeover offer closed yesterday at 7pm, at which point SAI Global, an applied information services company specialising in risk management and compliance, had secured a 61.23 per cent relevant interest, well short of the required interest of more than 90 per cent for a compulsory acquisition. In addition, over 1 million shares (1.28 per cent) were the result of acceptances of the takeover offer made by SAI to Espreon shareholders.

Espreon today reported that SAI Global had secured 62.5 per cent relevant interest at the conclusion of the bid.

SAI chief executive Tony Scotton and chief financial officer Geoff Richardson have been nominated to join Espreon’s board, an intended move set out in the SAI Bidder’s Statement. Effective today, they have been appointed directors of the company following the Espreon board’s approval of the nominations.

Espreon’s board has experienced further changes with the resignation of three members, the retirement of two members and the appointment of a new company secretary.

Reported by Money Management : 12 March 2009 | by Amal Awad

Re: Outcome of SAI Global and Vectis off market bids for Espreon

As you may be aware, Espreon has been the subject of two off market takeover offers, one from SAI Global Limited (SAI) and one from Vectis Group Pty Limited (Vectis).  These offers have now both concluded and SAI has secured a controlling 62.5% of Espreon’s shares.

Espreon Announcement

National Electronic Conveyancing – COAG implementation timetable

COAG have posted on their website the timetable for a National electronic conveyancing system A single electronic system for completing real property transactions and lodging land title dealings and registration in Australia. 

2009-2010

All jurisdictions: COAG to agree the form of the new legal entity for an e-conveyancing system by mid 2010

States and Territories: agree governance arrangements for new entity by mid 2010

2010 - 2011

States and Territories:

• subject to States and Territories settling funding, establish new entity and appoint Board by Sept 2010
  
• agree nationally uniform business processes by Sept 2010
  
• enact any necessary legislative changes and complete all related transitional arrangements by early 2011
  

  

2011 - 2012

States and Territories: commence the new e-conveyancing system by end 2011

The conditions on funding are quite complicated and tied in with the States reaching key milestones on reforms in 27 specific areas, not just electronic conveyancing. Quite a task

Link to funding document National Partnership to deliver a seamless national economy

Comment:

The government's proposed national electronic conveyancing system has just taken a couple of crazy left turns.

There is now a new timetable, with the commencement of the new e-conveyancing system by end 2011, being nearly 3 years from now.

Implementation of the new e-conveyancing system is still the responsibility of the states and territories, so that hasn't changed. However, e-conveyancing has just been tossed into the bed with 26 other State regulatory reforms such as nationally consistent uniform occupational health and safety laws; environmental assessment and approvals; payroll tax; rail safety regulation; food regulation; mine safety; maritime safety; wine labelling; etc (and I have only quoted 8 other reforms) all of which are dependent on electronic conveyancing reform and vice verca.

I can see you asking the question what has e-conveyancing got to do with wine labelling? Well not a lot but its all to do with the funding.

If any government stalls on any of the reforms in any of the 27 areas, Commonwwalth funding can be and probably will be withheld. This is classic school teacher / pupil relations of old. If the recalcitrant student doesn't own up all students will be punished and stay back for detention.

The first agenda items for the States and territories are -

• settling funding, establish new entity and appoint Board by Sept 2010
  
• agree nationally uniform business processes by Sept 2010
  
• enact any necessary legislative changes and complete all related transitional arrangements by early 2011
  

Where does that leave NECS? My guess is NECS and NECO will continue the co-operative work with the states and industry until the new entity is established. We will just wait to see whether this is sooner or later and whether COAG's novel approach to funding will actually work. The agreement is the States will get some upfront funding and then nothing until years 4 & 5 when the reward funding kicks in.

Approval times blow out at CBA

The CBA's fax machines are being clogged.

It may be Commonwealth Bank’s turn to aggravate mortgage brokers and take weeks to handle their loan applications.   

Mortgage Choice told the Herald Sun that CBA was taking up to 20 days to process loan documents, a major irritant at a time of a revival in demand for new home loans.

CBA's head of retail products, Michael Cant, told the newspaper the bank's first home buyer volumes had more than doubled since the increase in the grant from the federal government was announced in October, while aggregate home loan volume was up 40 per cent since the middle of February.

"The volumes have been extraordinary in the last month - they have hit a record high," Cant said.

On the other hand Cant said reports of 20-day waits on approvals were rare.

Westpac had even worse delays in processing applications lodged through brokers late last year and early this year, though the bank had managed to catch up as of a month ago.
 
Mortgage Choice chief executive Paul Lahiff told the Herald Sun, “we are experiencing incredible growth in activity.”

Lahiff said his company record growth throughout February, with more than 25 per cent of all brokered loans being for new homes.

heraldsun

Another reason to pursue eMortgage

For years now, mortgage technologists have been offering electronic mortgage technology, basically digital docs that Fannie Mae or Freddie Mac will accept in the place of paper documentation, to mortgage lenders who really weren't that interested. OriginatingeMortgages would involve changing the way lenders worked with closing agents and borrowers. It might be more confusing for borrowers, despite the fact that they use a similar keypad to buy just about anything from Home Depot, Best Buy, Wal-Mart or Staples. It might involve additional software or hardware that could be expensive or difficult to implement. Some of these excuses may have been actual reasons a few years ago, but they aren't today.

Today, eMortgage technology is affordable, easy to install, understood by closing agents and borrowers and readily accepted by secondary market investors, at least the ones that are still in the market. And here's another reason to go all-electronic now:

According to a story in the Honululu Advertiser, homeowners there are finding a handy way to stall the foreclosure process. They simply ask to see the original paper documentation.

"During the real estate frenzy of the past decade, mortgageswere sold and resold, bundled into securities and peddled to investors. In many cases, the original note signed by the homeowner was lost, stored away in a distant warehouse or destroyed."

As the "victim" of possible foreclosure points out in the story:

"I'm going to hang on for dear life until they can prove to me it belongs to them," said Lovelace, a 50-year-old divorced mother who owns a $200,000 home in Zephyrhills, near Tampa. "I'll try everything I can because it's all I have left."

It's probably time now for lenders to get rid of the paper once and for all.

Rick's Notebook blog

Perfect storm hits Fairfax as rivers flow online

Terry McCrann

February 24, 2009 12:00am

Hera;d Sun

WILL there be Fairfax broadsheets for Costello or indeed anyone else to write in, much further into the future?

The most stunning revelation in Fairfax Media's numbers was that it earned more from its online operations than from the two 'rivers of classified gold' - its two broadsheets, The Age and theSydney Morning Herald.

Even more tellingly, the single biggest component of the online profit has precious little to do with media in anything remotely like the traditional sense, far less journalism. And even less to do with Australia - it was the New Zealand Trade Me online advertising business.

Talk about climate change, in the half the two rivers ran about as full and fast as the Murray - generating just $47 million in profit before interest and tax (EBIT). In contrast, online generated $51 million, with around half that coming from Trade Me.

In the December 2007 period, the two broadsheets contributed $70 million or nearly double the $45 million that came then from the online businesses.

The broadsheets have been hit by two perfect storms with any realistic assessment suggesting they will only get worse this year and longer-term.

The first is the traditional reality that costs are locked-in, so what happens to revenue tends to flow straight through to the bottom line.

In the good times that's been fantastic. In the latest half though, a $21 million drop in revenue was matched dollar-for-dollar by a $21 million drop in EBITDA (earnings before interest, tax depreciation and amortisation).

Because of a rise in depreciation, it was even worse at the EBIT level - profit dropped by $23 million.

Online is less cost-inflexible and less capital-intensive. So depreciation took just $5 million of online's $56 million EBITDA, as against $23 million or nearly a third of the broadsheet's EBITDA.

The second storm is, of course, that fundamental erosion of print's classified base. The 'climate change' that the occasional 'flood' in a property boom is not going to prevent.

But nothing could more explicitly demonstrate the basic insoluble problem: that while the ads might be migrating to the online space, whether or not Fairfax keeps them, the profits don't flow with them.

Take out Trade Me across the ditch, and Fairfax made precious little online in Australia. But those revenues came with substantial costs.

But at last they are growing. Albeit mostly in NZ. Revenues in every other division were down, and in every case operating profit fell by more than the revenue drop.

And this, when the Australian economy was still in reasonable shape. At least, compared with what might come.

Fairfax will be praying - in the non-religious sense of course, that is de riguer these days and was on display again last Sunday - that the government's stimulus packages will work and quickly.

Fairfax, and its lenders. It has $2.5 billion of net debt and is uncomfortably close to its debt covenant limits.

Shareholders are merely bystanders in all this. There is no way Fairfax is going to go to them for fresh capital.

Big Four squeezing non-banks into mergers

The Australian

Adele Ferguson | February 23, 2009

WHEN the Bank of Queensland appointed corporate advisers in December to review acquisitions, strategic partnerships, mergers and possible takeover offers, it sent a clear message that any rival outside the Big Four banks needed a new set of tricks to compete.

Bank of Queensland chief executive David Liddy told shareholders: "To compete with the big banks, smaller banks such as BoQ, as well as credit unions and building societies, have been merging and will continue to do so."

Two weeks later, on December 24, Wizard Home Loans was sold to Commonwealth Bank and Aussie Home Loans for $26million. The remaining non-bank lenders, Resi Mortgage Corp, First Mac, Pepper Home Loans, Better Choice Home Loans, Beat Home Loans and a few others are expected to either close down or merge as credit conditions worsen.

In the regional banking sector, Suncorp and Bendigo Bank are tipped as takeover targets as the dislocation in capital markets, falling asset prices and pressure to re-capitalise make it increasingly difficult to compete with the bigger banks.

On the mutual side, more credit unions and building societies are considering merging to compete with the bigger players, at a time when falling interest rates are crunching their margins and more rigorous regulation is pushing up their costs.

There are 130 credit unions and building societies in Australia, representing $65billion worth of assets, 3.4million members, and 6 per cent of the home loan market.

It is in this market that the Big Four banks are monstering competitors. To put it into perspective, they have doubled their market share in the home loan market from 45 per cent in 2007 to about 90 per cent at the end of November 2008.

For customers, the diminished competition means that banks have regained pricing power over savings accounts, credit cards and -- most significantly -- home loans.

Lenders that have reduced their presence or exited include Majestic Mortgages, Macquarie, Bluestone Mortgages and Virgin Money. For credit unions, their real competitive advantage is in the deposit market, where they capture 12 per cent of all deposits, making them the third largest holder of deposits from the household sector, putting them ahead of ANZ and National Australia Bank.

Commonwealth Bank controls 28 per cent of the market, following its acquisition of BankWest last year, and Westpac has 20 per cent following its merger with St George last year.

In the case of Australia's credit unions and building societies, five are in merger discussions, and at least another 15 are expected to join forces within the next 12 months.

Since the start of this year, HMC Staff Credit Union has announced a merger with NSW Police CU, Regional One has announced it is in merger talks with mecu, CSR has merged with Select Credit Union and Dnister Ukrainian Credit Union is in talks with Karpaty Credit Union but its members are yet to be notified. 

Consolidation of the 118 credit unions is based on using economies of scale to compete with the banks in a falling interest rate environment. 

Some mergers are likely to have the gentle hand of the industry's self-regulator, Credit Union Financial Support System and the financial regulator APRA, pushing them together. 

Such matchmaking is expected after June 30, when a few credit unions, that have indulged in risky practices are expected to report low profits or losses for the year. 

"When this happens, there could be a negative reaction from members, such as rapid deposit withdrawal, and the Australian Prudential Regulation Authority will want to avoid this," another source said. 

The Australian understands that before the government guarantee was imposed in October, APRA had put at least 10 credit unions on day watch to ensure liquidity levels and forward cashflows were sufficient to withstand the stresses and strains of the global financial crisis. 

It now has one on day watch, and is making weekly phone calls to most credit unions to check on liquidity and profits, according to CUFSS chief executive Gary Eggert. 

The majority of Australia's credit unions were strong, with liquidity above 18 per cent and sound profit, Mr Eggert said. If anything went wrong, CUFSS had the financial firepower to come to the rescue. 

One hundred of Australia's 118 credit unions are members of CUFSS, providing it with 3.2 per cent of their balance sheet. This adds up to $1billion that can be drawn upon to bail out potential blow-ups or liquidity problems. 

"In 10 years this fund has been invoked only once and it resulted in a merger with another credit union, and no one lost any funds," Mr Eggert said. 

CUFSS can decide whether the support is in the form of a market-rate loan, a concessional loan or a permanent loan (the latter category would be provided only if a credit union was to merge or transfer). 

Louise Petschler, chief executive of Abacus, the peak body for Australia's credit unions and building societies, said the tough environment could be the making of the industry. 

"Credit unions were born in tough times, and they will continue to do well in this difficult environment," she said. 

Nevertheless, as in any industry, a few credit unions wandered outside of their core business, grew too fast, expanded into risky areas and allowed their cost structures to get out of control. 

APRA's mission is weed out the weaklings by putting them on close watch, forcing the entire industry to increase its liquidity from the required 9 per cent to 15 per cent, and demanding all provide board-approved funding plans. 

These funding plans require each credit union to provide various funding options, assess the impact of various stress scenarios and set out a contingency plan if the credit union loses a significant funding source. Any funding plans not up to scratch are sent back. 

As the chairman of APRA John Laker said at a recent conference for the industry: "In the current environment, APRA will not accept a funding strategy based crudely on turning the loan tap off if funds cannot be raised. Easy to do if the ADI (deposit-taking institutions) is writing personal loans; much less easy for mortgage loans where there may be a gap of up to two months between approval and funding, and where the timing of redraws against existing facilities is unpredictable." 

Brian Bennett, who has been running the 55-year-old Encompass Credit Union in Sydney for almost four years, said in the past few months there had been a surge in deposits, mainly from self-funded retirees. 

"The government guarantee certainly helped ease any concerns about deposit lending institutions and helps explain the 10 to 15 per cent increase in deposits in the past few months," he said. 

Mr Bennett estimates Encompass's tier-one capital is 22.93 per cent, compared with the average of the banks at 8 per cent, and its liquidity is 27 per cent. 

"Credit unions are a good alternative to the banks because they are mutuals, and that means they are more personal and friendly, charge less in fees and are less risky because we didn't get involved in commercial lending, toxic assets or commercial property or development," he said. 

Victoria's largest credit union, mecu, is in talks with RegionalOne to create one of the nation's largest, with assets of more than $2billion. Mecu, with assets of about $1.8billion and 112,000 members, and RegionalOne Credit Union, with more than $270million and 20,000 members, aim to have the deal approved by members in June. 

Mecu chief executive Phylip Doughty said both credit unions had annualised growth rates exceeding 20 per cent because of increased deposits, a spike in refinancing and strong demand for loans from first home buyers. 

Mr Doughty said consolidation across the sector would accelerate, particularly as interest rates continued to come down and compliance costs rose. 

"The shakeout in the banking sector has been astounding and the Big Four now dominate. This will give credit unions an opportunity to step into the breach where the second tier banks were, and non-bank lenders such as Wizard were," he said. 

As the global financial crisis continues to take victims in Europe and the US, Australia to date has managed to navigate its way out of the mess relatively unscathed. 

The banks, non-banks and mutuals all have their own demons to contend with, but if credit unions can successfully merge to create a few mega credit unions, curb their costs and find alternatives to deposits for funding, they could well emerge as the new force in banking.

Will SAI play hardball?

The finish line is getting closer with SAI Global announcing that it holds 49.38 per cent of voting power in Espreon, the business services company it has made an all-scrip offer for.

SAI will announce today either an extension of the offer or the status of their conditions, revealing whether they will use an alleged breach in their bid conditions to scupper the deal.

The breach was an ACCC investigation into the proposed acquisition started on January 14. Although it has been going on for over a month now, SAI only made note of the breach on Wednesday (see Hopes dashed by SAI, February 18).

If the breach is declared, SAI can either walk away or cancel a sweetener of offering one SAI share for every 4.4 Espreon shares.

However, SAI is unlikely to walk because based on the company's closing price yesterday the value of their scrip offer is less than the lower end of Espreon's 48.5 cents a share valuation, according to independent experts Lonergan Edwards & Associates.

It appears then, that SAI may enter hard-ball phase. Originally the company was seen as something of a white knight for Espreon, fighting off a hostile bid from former competitor Vectis, a private company owned by Melbourne businessmen Alan Schwartz and Jacob Weinmann. However, Espreon shareholders are now likely to rue the day they refused Vectis's original offer of 65 cents a share in June of last year.

SAI is being advised by Macquarie Capital and lawyers Gilbert + Tobin. Advising Espreon are TC Corporate and Baker & McKenzie on the legals. Vectis is being advised by Grant Samuel and Mallesons Stephen Jaques. 

Business Spectator

After announcing it had crossed the 50.1 per cent threshold in its takeover of business services provider Espreon, SAI Global has redeclared its offer as unconditional – allowing Espreon shareholders a great sigh of relief.

SAI said on February 18 that an ongoing ACCC merger investigation could constitute a breach of its terms (Hopes dashed by SAI, February 18), causing consternation once again for Espreon investors who have repeatedly seen their hopes for a positive shareholder exit dashed.

Since mid last year Espreon has knocked back a series of increasingly smaller offers. Former competitor Vectis initially offered Espreon shareholders 65 cents a share in cash in June. SAI is making an all-scrip offer of one SAI share for every 4.8 Espreon shares, effectively valuing the target at 48.96 cents per share. SAI's offer increases to one for 4.4 shares if it comes to own 90 per cent of Espreon.

The outcomes of the ACCC investigation, which begun on January 14, will be announced on February 25 and, hopefully for Espreon, will constitute the last major hurdle to the deal.

SAI is being advised by Macquarie Capital and lawyers Gilbert + Tobin. Advising Espreon are TC Corporate and Baker & McKenzie on the legals. Vectis is being advised by Grant Samuel and Mallesons Stephen Jaques. 

Espreon and SAI - an update

Espreon shareholders could be once again disappointed after its supposed white knight bidder SAI Global said that an ACCC investigation had breached one of its offer conditions, meaning that the offer of one SAI share for every 4.8 Espreon shares may not necessarily go unconditional. The alleged breach will also allow SAI to walk away if it chooses to do so. 

SAI had offered Espreon shareholders a sweetened deal of one SAI share for every 4.4 Espreon shares if at least 90 per cent of shares were acquired by February 27. Latest figures show that SAI holds 45.48 per cent of voting power. 

The competition watchdog's informal review of SAI's proposed acquisition was commenced on January 14 by merger investigators Jason Byrne and Brett Morris. The ACCC has set February 25 as the date it will announce its findings. 

This latest announcement comes as a disappointment after SAI's offer, which valued the target at 52 cents a share based on SAI's closing price of $2.50 on January 9, was welcomed by Espreon on January 13.

The SAI deal favourably compared with a rival offer from Melbourne-based private investment firm Vectis Group, which was offering 45 cents a share in cash.

Vectis, which used to compete with Espreon before selling parts of its business to SAI Global several years ago, first made an offer to Espreon in June of last year – plonking 65 cents a share on the table, or $62 million, before the market went south. 

In a signal that Vectis, led by prominent Melbourne businessmen Alan Schwartz and Jacob Weinmann, wanted to re-enter the sector, Stephen Cooper and Cam Stewart from Grant Samuel were hired to advise on a scheme of arrangement, as were Craig Semple and Nicola Charlston from Mallesons Stephen Jaques. 

Espreon responded by hiring Robert Fraser from TC Corporate, along with legal firm Baker & McKenzie to advise on its options. The Espreon team managed to subsequently force Vectis to raise its offer by an extra $5 million, or 5.5 cents per share, but then that offer was withdrawn, with negotiations returning to the original proposal of 65 cents a share. 

Yet it didn’t stop there. That number was reduced again to 62.2 cents a share in August and to 44 cents in October. By November negotiations were over and the parties agreed to disagree and go their separate ways. It was thought at the time that accounting software giant Reckon would put in an alternative bid. Vectis had, after all, planned to spin off a portion to Reckon had the deal gone ahead. 

However, the day of 'Reckoning' never arrived and Vectis subsequently went hostile, this time reducing its offer to 40 cents a share, increasing to 42 cents if it managed to get full control. Espreon dismissed it as inadequate, opportunistic, uncertain and highly conditional, and a “waste of time and money”. Espreon had, after all, already spent $1 million of cold hard cash on advisory and legal fees for the original scheme of arrangement proposal.

Major Espreon shareholders Hunter Hall (19 per cent) and LUT Investments (12 per cent) had also refused to agree to the deal. Institutional shareholders, including Dick Pratt’s Thorney Holdings control a combined 48 per cent of Espreon. 

Vectis’s offer was subsequently increased to 45 cents cash before SAI, advised by Macquarie Capital and lawyers Gilbert+Tobin, came onto the scene. The rest, as they say, is history.

But now, with SAI throwing this latest spanner in the works, what can history teach us? Don’t look a gift-horse in the mouth? Probably, but it’s not over yet. SAI are due to issue their notice of status of conditions this Friday. 

Business Spectator

Westpac strife lessens, but still annoys

The operational problems at Westpac’s home loan centre in Adelaide may be improving, but they are still creating headaches for the bank.

The bank has cut the expected delays of six weeks in processing home loan applications (for loan applications submitted through the typical mortgage brokers) to nine days.

One factor in the delays, according to advice from Westpac business managers to brokers earlier this month, is that “application numbers reached record highs” creating “an unprecedented pipeline in the system”.

Westpac’s more accommodating stance on lending policies is certainly driving this demand.

It is also leading to the occasional public relations flap.

The Herald Sun today reported that Westpac denied some customers the advertised fixed rate home loan of 4.99 per cent, an offer heavily promoted in December. The bank instead amended final contract documents to a higher rate of 5.49 per cent.

Westpac told the newspaper the bank erred in one case raised with the newspaper, but said its advertising was not misleading. The bank described this as an administrative error.

 

Source Finance News

Fraud and Electronic Settlements (NECS)

FRAUD IN CONVEYANCING

Fraud and Electronic Settlements (NECS)

As most conveyancers will be aware, Australia is heading towards a national electronic conveyancing system, referred to as the National Electronic Conveyancing System (NECS). The NECS is described as “Australia's joint government and industry initiative to create an efficient and convenient way of completing property based transactions and lodging land title dealings for registration”. The proposed NECS is therefore somewhat of a misnomer as it deals with the settlement and registration aspects of the conveyancing transaction rather than a model for electronic ‘conveyancing’ as a whole. For example, the proposed NECS does not cover preparation and exchange of contracts for sale, pre-settlement investigations, procurement of any insurances required by purchasers, such as title insurance, creation of loan documentation or processes for examining and registering instruments once lodged with a Land Registry.

 

Essentially, a conveyancer using the NECS will electronically:

• prepare dealings and related instruments to register changes in ownership and interests

• settle financial transactions (including payment of duties, taxes and any disbursements)

• lodge their dealings with the appropriate Land Registry

• receive confirmation of dealing lodgement and registration.

 

One question which is often raised is whether the proposed NECS will increase or decrease the scope for conveyancing and mortgage fraud. Certainly, the NECS model has not been designed to specifically deal with the allocation of fraud risk. For example, it is stated on the NECS website that “the NECS design is based on, as far as possible, maintaining the existing risk allocations and management philosophies in the paper-based conveyancing and settlement processes.”

Therefore the NECS model does not appear intended to specifically prevent the types of fraud which are currently occurring in the paper based system from occurring in the electronic based NECS on the basis of the re-allocation of risk.

Conveyancers will still be responsible for the registration of title documents as part of the conveyancing transaction and will be responsible for identifying their clients and acting in their best interests. Although it is difficult to draw any reliable conclusions given that the NECS is still in the development rather than implementation stage, a recent study based upon the current NECS model has concluded that the types of fraud currently occurring in the paper system, ie, forgery of signature and identity theft, fraud by solicitors and conveyancers, can continue to occur in the proposed NECS.

In relation to forgery of signature it is noted that whilst NECS certifiers will digitally sign mortgage and title instruments on behalf of their clients, NECS requires a client authorisation form to be completed and physically signed by the client, in which case, fraud may still be perpetrated by a fraudster who forges a signature on the authority and the witness does not follow the proper attestation or the attestation is also a forgery. In this respect the paper concluded that “the only difference between the paper system and the NECS is that in the paper system, the forgery is on the land title document, whereas in the NECS, it is on the authorisation form”.

 

Identity fraud can also continue to occur in the NECS and the onus will continue to be placed on the conveyancer as a subscriber to the NECS to properly identify the client. In this regard, the NECS will require conveyancers to provide certifications on electronic instruments prior to signing them on behalf of their clients. The conveyancer must certify that the “prescribed procedures” in verifying the identity of the client have been followed, and the conveyancer is holding a properly completed and signed authorisation form and has thoroughly and carefully examined and retained copies of all identification documentation.

 

The identity certification procedure is intended to give all participants in the NECS confidence that the practitioner has followed the prescribed procedures to verify the identity of the client and “may protect the practitioner from a negligence claim if the identity is subsequently proven to be false”.

 

Conveyancers should therefore be mindful that failing to follow the prescribed procedures will almost definitely result in a finding of negligence.

 

Although the precise nature of the prescribed identification documents is yet to be determined it is anticipated that there will be some move towards uniformity across the States and Territories and may result in a 100 point system similar to that under the Financial Transaction Reports Act 1988 (Cth) being adopted.

 

It is argued that the NECS may also introduce new opportunities for fraud within the conveyancing industry, namely, the unlawful use of a conveyancer’s digital signature certificate (as a certifier in the NECS) to digitally sign documents. That is, a fraudulent person with access to the NECS, such as a law clerk or other employee, would be able to prepare mortgage documentation, digitally sign the document on behalf a client and lodge it for registration.

 

 

Extract from a paper presented at the Australian Institute of Conveyancers 2007 National Conference, March 2007

By Paul Watkins

General Counsel, Australia

Stewart Title Limited