Hub24 halts trade to placate market – The Australian Financial Review

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Macquarie analyst Matt Johnson’s report considered what an interest rate cut to 1 per cent would mean for investment platforms Hub24 and Netwealth.

He concluded Tuesday’s Reserve Bank cut would be “a catalyst to trigger accounts to earn net negative cash returns or alternatively cause a cash margin squeeze for Hub24 and Netwealth”.

A cash margin squeeze refers to a reduction in the spread charged on the interest earned on cash that has not been deployed and is sitting in accounts.

The company disputes the example

However, Hub24 disputed that the example used in the Macquarie report would affect much of its client base.

“The fee example referenced in the article is not representative of the administration fees paid and interest rates received for the majority of our clients,” it  said.

Its position was supported by Ord Minnett analyst Nicholas McGarrigle, who said cash was held in the transaction accounts by Hub24 clients for a variety of reasons but very rarely as an investment.

The main reasons clients kept cash in these accounts was to fund pension payments, provide liquidity for trading or corporate actions and as a by-product of superannuation rollovers awaiting investment, Mr McGarrigle said.

Revenue pressure on Hub24  would be “non-existent unless rates are cut a further 50 basis points”, he said.

Wilsons Advisory analyst Liam Cummins agreed that if rates continued to fall, Hub24 faced a revenue challenge.

“I still think in a low-rate environment, as rates compress towards zero that revenue line can be challenged,” said Mr Cummins.

ECP Asset Management director Jared Pohl said the market was across the issues discussed in the Macquarie note.

“We believe that the business model, the structural drivers, and the current topics of discussion are well understood by the market,” he said.

ECP is a substantial shareholder in Hub24.