The second largest bank collapse in American history took place as the Biden admin seized First Republic Bank and JP Morgan Chase Bank swooped in to assume all of the deposits for insured and uninsured. The big banks again get bigger with the help of the US government.
Welcome to Talking Business, a podcast produced in Melbourne Australia. The podcast is available on the Acast site, my own website, the Apple Podcast store or wherever you go to get your podcasts. Or you can get it at the Business Acumen website at www.businessacumen.biz or at Banking Day.
For the most exclusive access to leading economists and business leaders from around the world, subscribe to Talking Business from my website leongettler.com.
I am Leon Gettler. My job is to review and monitor the week’s news in business, finance and economics. I bring it all to you, every week.
This is episode number 14 in our series for 2023 and today’s date is Friday May 5.
First, I’ll be talking to Dr Philip Wuth from the Carina Medical and Specialist Centre who runs Australia’s only doctor led weight loss program. He saw lots of people putting on weight during COVID. COVID is over but he believes there are now long term health affects from that weight gain during COVID, everything from blood pressure to Alzheimers and his business now is getting that weight down. And I’ll be talking to Rabobank economist Michael Every about whether China’s economy is actually recovering.
But now, let’s talk to Dr Phillip Wuth.
So what’s happening in the news?
JPMorgan Chase is to acquire most of First Republic after US regulators orchestrated an overnight deal to shut the embattled California lender, wiping out its shareholders in the second-biggest bank failure in the country’s history. The Federal Deposit Insurance Corporation and California regulators, which announced the deal early on Monday morning, said they were simultaneously closing First Republic and selling off all $93.5bn of its deposits and most of its assets to JPMorgan. The Wall Street bank is paying the FDIC $10.6bn as part of the deal. The only bigger bank failure in US history was the collapse of Washington Mutual in 2008. While First Republic’s market capitalisation was $25bn in February, all its previous shareholders have now been wiped out. Shares in US regional banks were under pressure after the announcement. Citizens and PNC, which both bid unsuccessfully for First Republic’s assets, were each down around 5% by early afternoon trading, while PacWest was more than 5% lower, trimming earlier losses. The US Treasury department said it was “encouraged” that First Republic depositors had been protected and that costs to the FDIC’s deposit insurance fund — estimated at about $13bn — had been minimised by the deal with JPMorgan.
The Reserve Bank of Australia will raise interest rates by 25 basis points in a shock move few financial experts predicted. At its meeting the board decided to increase the cash rate target by 25 basis points to 3.85%. The decision will heap more pain on households already struggling with cost of living pressures, however the RBA said the move was critical in bringing persistently high inflation under control.
Qantas’s chief executive officer Alan Joyce will officially step down from the carrier in November after 15 years at the helm. Joyce will be replaced by chief financial officer Vanessa Hudson in November, putting an end to long-running speculation surrounding the airline’s succession plan.
7-Eleven could sell for $2bn as the convenience chain put itself up for sale. Billionaire Russell Withers and the family of his late sister Beverley Barlow could reap $2bn or more from the sale of the nation’s largest convenience and fuel retailers 7-Eleven. Mr Withers and the Barlow family have put 7-Eleven on the block in a process that will see the brand’s Japanese global owner join the bidding for a business that is making more than $4.5bn in annual sales and has pre-tax profits of at least $200m. The business has emerged in recent years from a wages scandal in 2015 when underpayment of salaries was found to be rampant, into a network of about 750 stores across Victoria, New South Wales, ACT, Queensland and Western Australia. Mr Withers has kept a low profile since the scandal, which saw him step down as 7-Eleven chairman and also resign his role on the Australian Olympic Committee.
The federal government will increase the tax on tobacco to bring in an extra $3.3 billion over the next four years as it rolls out measures to crack down on smoking and vaping. Recreational vaping will be banned as the government seeks to prevent the next generation of nicotine addicts. Health Minister Mark Butler announced at the National Press Club the tobacco tax would be raised by 5% a year over the next three years, starting from September. This follows a $234 million boost in the upcoming budget for tougher regulation of e-cigarettes, including new controls on their importation and packaging. The government will work with the states and territories to shut down the sale of vapes in retail and convenience stores, while making it easier to get a prescription for therapeutic use. To tackle the growing black market, the government will increase the product standards for vapes, including by restricting flavours and colours. It will require pharmaceutical-like packaging, a reduction in the allowed nicotine concentrations and volumes, and a ban on single-use vapes. Mr Butler revealed the scale of the public health issue, with children under the age of four having been reported to Victoria’s poisons hotline after they used a vape.
There are growing concerns within the supermarket, food, grocery and beverages industries that a carbon dioxide shortage might threaten the supply of hundreds of consumer products – from baby food to packaged meat – highlighting once again the fragile state of Australia’s food supply chain. It isn’t just the fizzy drink sector that is being hit by a shortage of carbon dioxide, with CO2 used in the production of hundreds of consumer products such as packaged meats, baby foods, fresh foods and baked products. It is also used for dispensing drinks in pubs and in a number of medical procedures. CO2 is used as a pure gas or in mixtures with other gases for anaesthesia, stimulating breathing and sterilising equipment. The tightening supply of manufactured carbon dioxide was revealed by Coles chief executive Steven Cain on Friday and acknowledged by Ritchies supermarket boss Fred Harrison, as well as the nation’s largest chicken producer, Inghams, a host of beverage companies including Coca-Cola, and a range of grocery manufacturers. Already the supply issues for carbon dioxide have left Woolworths desperately short of its private label soda water and mineral water products, with many stores sold out for weeks. Many of its shelves are also showing thinning supplies of branded soft drinks. Australia relies on two producers for its carbon dioxide, British multinational BOC and French group Air Liquide. A recent disruption to the supply of CO2 from Kooragang Island into NSW has put additional stress on supply of CO2 to other states. This unplanned outage in March has had a ripple effect across the entire supply chain with food, grocery and beverage manufacturers desperate to claw back CO2 supply to catch up.
Financial and crisis counsellors are reporting the highest rates of mental distress they have seen as a growing number of Australians cancel appointments with their psychologists to cut costs. According to suicide prevention organisation Lifeline, up to 80% of its calls now relate to cost-of-living pressures, with a new group of middle-class people feeling the pinch of rising inflation, mortgage repayments, food and fuel costs, and electricity bills. There have been 8000 more calls to the National Debt Helpline during the first three months of this year compared with the same period last year, representing a 30% increase. Since June, Carly Dober, a director of the Australian Association of Psychologists based in Melbourne, has experienced a threefold rise in patients cancelling or postponing appointments because they can’t afford them. She said this was a wider trend being observed by many other psychologists. Claire Tacon, assistant director of financial counselling at the Consumer Action Law Centre, said a new demographic of fully employed people who had never experienced financial problems before were phoning the National Debt Helpline. She said rent and mortgage repayments had overtaken credit card and energy bills as the main reason people sought help. Anne Holmes, a financial counsellor at Lifeline in NSW, said the organisation had encountered a “huge spike” in demand over the past year, and higher rates of mental distress than she had seen among callers during her 25-year career. There was an almost 50% increase in the number of Lifeline crisis operators seeking referrals related to financial issues and homelessness between July and January.
Research by security vendor Surfshark finds that 801,000 people fell victim to cybercrime worldwide during 2022, including 2,500 Australians making us the fourth in the world by cybercrime density – 106 out of every million Internet users in Australia.Surfshark’s research identified that of 801,000 cybercrime victims – with ten billion dollars in losses – 106 Australians were victims out of every million Internet users in the country. While that’s a total of 2,500 Aussies, the density places us fourth in the world for cybercrime density. This means while on a global scale, our overall volume of cybercrime incidents may seem small, the reality is Australians are being tricked by criminals, or having their data breached, more than any other country in the world except for simply three others – the United Kingdom takes the top spot, followed by the United States and Canada.
Australia’s big banks have defended a wave of branch closures across big cities and regional Australia, pointing to a sharp decline in over-the-counter transactions to argue that more of their customers prefer online banking. Banks have been steadily closing branches since the 1990s, but COVID-19 forced the trend to gather pace, sparking criticism from regional communities and prompting a Senate inquiry on regional branch closures. The Australian Prudential Regulation Authority (APRA) told the inquiry that, in the past five years, the number of bank branches dropped by 30%, or more than 1000, in major cities, and 29% in regional and remote areas. The Senate inquiry has so far received 500 submissions on branch closures, many of them from local councils, businesses, and customers negatively affected by banks shutting their doors. However, the banks have responded by arguing that more customers are shunning branches for their day-to-day banking needs as they also use less cash. They have also highlighted alternatives to bank branches, such as the partnership between banks and Australia Post.
Billions of dollars’ worth of road and rail projects are facing the axe to cover cost blowouts in infrastructure works caused by labour shortages and the surging cost of materials. Ahead of next week’s budget, Infrastructure Minister Catherine King will on Monday order a 90-day review into the $120 billion, ten-year infrastructure pipeline, claiming Labor inherited a list of more than 700 projects from the Morrison government that were not economically sustainable. The government is not revealing which projects could be on the chopping block, but an examination of the federal Infrastructure Department’s website suggests the repaving of the Newell Highway in western NSW ($264 million), Shepparton bypass in northern Victoria ($208 million) and Warrego highway upgrades in western Queensland ($375.6 million) fit the criteria. Since the global financial crisis, successive federal and state governments have ramped up infrastructure spending to stimulate the economy, respond to population growth and ease capacity bottlenecks, particularly those associated with mining and freight. However, the cost of raw construction materials has jumped significantly since 2020. Gravel and bitumen have risen by 50% in some locations amid high domestic and global demand. Another cost pressure is labour; Infrastructure Australia estimates there is a shortage of 95,000 workers for major public projects. The review is not intended to reduce the overall $120 billion allocated for infrastructure works; rather it is to create headroom in the budget to ensure projects that survive the review can be fully funded and finished. Putting projects under the microscope will also give states – which backed the review at last week’s national cabinet meeting – time to examine their own works schedule and decide what should be prioritised. Infrastructure funding is largely paid in the form of grants, therefore affecting the budget bottom line. The only off-budget infrastructure projects are Canberra’s equity stakes in the western Sydney airport and the Melbourne to Brisbane inland rail. The review will be headed by former infrastructure bureaucrats Mike Mrdak, Reece Waldock and Clare Gardiner-Barnes. The review comes as Finance Minister Katy Gallagher left open the prospect of a surprise budget surplus, and signalled enduring changes to assist struggling households rather than just one-off payments. As more than a dozen Labor MPs call for an increase to the dole, Senator Gallagher said support for battlers would go beyond power bill relief.
Modelling of an Actuaries Institute research paper by authors Hugh Miller and Laura Dixie from actuarial firm Taylor Fry shows that economic inequality in Australia is at a 70-year high. Measured using the well-accepted Gini methodology, the actuaries calculated Australia’s Gini coefficient for individuals to be 0.46 (where zero refers to low inequality and one is high inequality). Australia’s Gini has increased seven percentage points over the past 40 years, the report observed. The paper says Australia’s income inequality has remained fairly stable over the past decade, while wealth inequality has risen. The big gaps in income and wealth have translated into poorer social outcomes for low-income households. The big gaps in income and wealth have translated into poorer social outcomes for low-income households.Comparing the poorest 20% (quintile) of households to the richest quintile, the report says those living in the lowest income households are:
- Nine times more likely to be an unpaid carer.
- Seven times more likely to have experienced homelessness and unemployment.
- Five times more likely to have a child at risk of harm.
- Four times more likely to have recently been unable to meet rent or mortgage costs.
- Three times more likely to be a recent victim of crime.
- Twice as likely to suffer psychological distress or die by suicide.
Inequality is also driving geographical stratification within cities, with all capital cities now having distinct areas of disadvantage. Australia ranks 18th among 42 mostly wealthy OECD countries in terms of household income inequality, according to the European economic agency’s measures. The report’s authors warn that a disconnect between economic and wages growth is a driver of income and wealth inequality. The paper shows the share of gross domestic product attributed to company profits has nearly doubled since the 1970s from 16% to 31%, while wages have fallen 10 percentage points to around 50% of GDP in the same period.
About 10,000 taxi and ride-share drivers are being chased for $40 million by the Australian Tax Office in a crackdown on gig economy workers. The Tax Office is using data matching to collect and compare financial information such as bank account details and gross fares with its own records to ensure people are paying the correct amount of tax. ATO records show there about 10,000 tax and ride-share drivers on payment plans valued at $40 million. This can include the same driver with multiple debts and repaid through separate plans. The Tax Office does not distinguish between or provide a breakdown of taxi and ride-share plans. Ride-share drivers are considered self-employed and are responsible for costs including vehicle insurance, workers compensation, superannuation and income tax. While most businesses do not have to register for GST for turnover under $75,000, this does not apply for Uber drivers who are required to be registered from the first dollar earned. GST is calculated as an 11th of each fare.
Soldiers, sailors and aviators will be offered $50,000 bonuses to re-enlist in the Defence Force for another three years as part of efforts to combat a recruitment and retention crisis confronting the military. With last week’s Defence Strategic Review warning the military faced “significant workforce challenges”, the retention payments are designed to tackle a hollowing out of the ranks after people complete their initial period of service. About 3400 personnel over three years are expected to benefit from the Continuation Bonus Scheme, which will cost $400 million over the forward estimates and is part of the $19 billion the government has allocated to Defence Strategic Review recommendations. To make military life more attractive, especially for personnel with families, the government will also review the Defence Housing Scheme, with the hefty lift in Australian property prices and rental squeeze distorting the benefits for those serving their country. The Defence Force currently sits at just over 59,000 uniformed personnel but last financial year it recorded a separation rate – the number of people leaving the army, air force or navy – of 11.2%. The ADF has consistently failed to meet its retention targets, and last year recruited 5128 new personnel, or 75% of its goal.
Business has been given three years to get its affairs in order and ensure workers are paid their superannuation contributions every payday. The Albanese government has announced that from July 1, 2026, the option of paying super quarterly will disappear and employers will be required to pay their employees’ super at the same time as their salary and wages. The announcement follows a recommendation by Treasury that found the current system of having to pay super quarterly, which suited many small businesses because it helped with cash flow, was failing workers. About 56% of micro businesses and 30% of small-to-medium businesses paid superannuation quarterly, according to information provided by Treasury. But the industry estimates super payments are in arrears by a total of about $5 billion, while the Australian Taxation Office estimated that in 2019-20 alone, $3.4 billion in super was unpaid. The compulsory superannuation rate is 10.5% of ordinary time earnings and is scheduled to rise to 11% on July 1. It will rise to 11.5% one year later, and then top out at 12% a year after that, in 2025-26, a year before the new laws come into effect. Treasurer Jim Chalmers said the delayed start would provide sufficient time for businesses to prepare for a change that would benefit workers and employers. Workers, he said, could better keep track of their super payments and be less vulnerable to disreputable employers, making them better off at retirement.
And that’s it for this week. And next week, I’ll be talking to Glenn Cross, the Chair of EZZ Life – an ASX listed company that researches and develops a broad range of products to enhance health and wellness. And I’ll be talking to EY economist Cherelle Murphy about the Budget.
In the meantime you can catch me on Facebook, Twitter, Instagram, LinkedIn and YouTube. And if you want leave a comment. For the most exclusive access to leading economists and business leaders from around the world, subscribe to Talking Business on the Apple podcast store or on my website leongettler.com.
If you want to contact me, email me at leon@leongettler.com. I answer all emails.
Wishing you all a safe and healthy week. And looking forward to bringing you Talking Business next week
