Here is a snippet from an FNArena article October 2020.
Implications of a cash rate cut for investment platforms
With the Reserve Bank of Australia expected to possibly lower the cash rate in October (or maybe November), Citi tries to ascertain the impact such a cut would have on the cash margins earned by specialist investment platforms Netwealth Group ((NWL)) and Hub24 ((HUB)).
A -15bps rate cut in October would hit Netwealth’s FY21 net profit by -4%, Citi estimates, with Hub24 negatively impacted by -8%.
In fact, margins earned from ANZ Bank on pooled cash has been highlighted by Morgans before as a short-medium term risk for the platforms. An estimation by Morgans’ analysts puts the margin at 20-30bps above-market. So, if ANZ were to cut its margin offered, this would imply a headwind to both the platforms.
Reassuringly, both have contracts in place but Morgans calculates every -10bps reduction in the cash margin in FY23 would entail a circa -4-5% negative impact on the earnings for Netwealth. Hub24 will see a larger impact at circa 6.5-7%, adds Morgans.
NWL Price at posting:
$13.78 Sentiment: Hold Disclosure: Held
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