Home loan mortgage rates set to rise as NZ taxman bites banks.

Home loan mortgage rates set to rise as NZ taxman bites banks.

Expect your mortgage intrerates to rise soon. Australia’s major banks, may have to pay $1.8 billion in back taxes in New Zealand after National Bank of Australia yesterday lost a landmark case over structured finance deals dating back nearly a decade. The Commonwealth Bank, the ANZ Bank and Westpac are all implicated in having similar structured arrangements, and given their recent moves to protect their profit margins by not passing on recent reductions in intereest rates by the RBA, we can assume that they will move rates higher in response to the loss.

The New Zealand High Court yesterday ordered NAB’s New Zealand operation to pay $NZ654 million ($A525.3 million) in taxes and accumulated interest on its complex lending agreements.

The finding is on the first of six cases New Zealand tax authorities have launched against foreign banks that took part in similar transactions.

Among these, Westpac has the biggest exposure, with some $NZ903 million in taxes and interest at stake. The court is expected to hand down its judgment on the Westpac case within the next two months.

ANZ has an exposure of about $NZ405 million and Commonwealth Bank is disputing $NZ280 million in back taxes.

The finding has come at the worst time for NAB which, like most of its rivals, is battling rising bad debts and slowing credit growth — particularly in New Zealand, where the recession is deeper than in Australia.

NAB, while well capitalised, also remains vulnerable to further heavy write-downs across its remaining holdings of unwanted high-risk credit instruments.

The NAB dispute centres on a series of highly profitable “repo” deals undertaken by its Bank of New Zealand business between 1998 and 2005.

BNZ made six individual loans of $NZ500 million each for up to five years to several big overseas financial institutions, including investment banks Credit Suisse and Lehman Brothers, at unusually low interest rates.

The loans were made by the way of an equity investment in an overseas entity on terms requiring the overseas counterparty to repurchase that investment when the transaction terminated. BNZ argued that the transactions were legitimate under the tax rules at the time and were genuine commercial deals.

In his ruling, Justice John Wild said the transactions “had the purpose of substantially altering the incidence of tax” for the BNZ. Other than the tax benefits, the repo transactions “had no commercial purpose or rationale”, he said.

The decision is almost certain to go to appeal.

Australia’s major banks have tapped shareholders for additional funds this year to pump up their capital bases. Expect them to tap mortgage customers soon.

Expect your mortgage intrest rates to rise soon in the wake of massive New Zealand Taxation claim against AUs

Australia’s major banks, may have to pay $1.8 billion in back taxes in New Zealand after National Bank of Australia yesterday lost a landmark case over structured finance deals dating back nearly a decade. The Commonwealth Bank, the ANZ Bank and Westpac are all implicated in having similar structured arrangements, and given their recent moves to protect their profit margins by not passing on recent reductions in intereest rates by the RBA, we can assume that they will move rates higher in response to the loss.

The New Zealand High Court yesterday ordered NAB’s New Zealand operation to pay $NZ654 million ($A525.3 million) in taxes and accumulated interest on its complex lending agreements.

The finding is on the first of six cases New Zealand tax authorities have launched against foreign banks that took part in similar transactions.

Among these, Westpac has the biggest exposure, with some $NZ903 million in taxes and interest at stake. The court is expected to hand down its judgment on the Westpac case within the next two months.

ANZ has an exposure of about $NZ405 million and Commonwealth Bank is disputing $NZ280 million in back taxes.

The finding has come at the worst time for NAB which, like most of its rivals, is battling rising bad debts and slowing credit growth — particularly in New Zealand, where the recession is deeper than in Australia.

NAB, while well capitalised, also remains vulnerable to further heavy write-downs across its remaining holdings of unwanted high-risk credit instruments.

The NAB dispute centres on a series of highly profitable “repo” deals undertaken by its Bank of New Zealand business between 1998 and 2005.

BNZ made six individual loans of $NZ500 million each for up to five years to several big overseas financial institutions, including investment banks Credit Suisse and Lehman Brothers, at unusually low interest rates.

The loans were made by the way of an equity investment in an overseas entity on terms requiring the overseas counterparty to repurchase that investment when the transaction terminated. BNZ argued that the transactions were legitimate under the tax rules at the time and were genuine commercial deals.

In his ruling, Justice John Wild said the transactions “had the purpose of substantially altering the incidence of tax” for the BNZ. Other than the tax benefits, the repo transactions “had no commercial purpose or rationale”, he said.

The decision is almost certain to go to appeal.

Australia’s major banks have tapped shareholders for additional funds this year to pump up their capital bases. Expect them to tap mortgage customers soon.