Monthly archives: May, 2019

Murray bides time for new finance review

Proper review: David Murray says the financial system has moved on from Wallis. Photo: Nic WalkerThe former chief executive of Australia’s biggest bank says he would consider chairing a review of the country’s financial system if he were asked.
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David Murray, who steered the Commonwealth Bank through privatisation in the 1990s, says it is time for a proper review of the financial system, given the last review was nearly two decades ago.

His comments come after Joe Hockey, the shadow treasurer, last month said the Coalition would begin a comprehensive review of the country’s financial system if it won the federal election.

”The last review by [Stan] Wallis recommended that a review be done within 10 years,” Mr Murray said. ”The system changes a lot, and the question to be asked isn’t how [do] you regulate everybody as much as how does the economy get funded. And what is fundamentally different today is the size of the superannuation investment pool, and how that gets re-intermediated in the economy.”

The last comprehensive review of Australia’s financial system – the Wallis Review – took place in the mid-1990s, and reported in 1997 to then treasurer Peter Costello.

The biggest changes stemming out of Wallis were bringing about the so-called three peaks of regulation. Here regulatory functions were split between the Reserve Bank of Australia, securities regulator the Australian Securities and Investments Commission and the creation of the Australian Prudential Regulation Authority.

This went against the grain of other modern economies where the trend had been for banking regulators to be rolled up into a mega-prudential regulator. The review came just four years before the multibillion-dollar collapse of HIH Insurance in 2001.

”[The Wallis Report] set up a structure [for the financial system] and then soon after that we had HIH which forced the government to act on some aspects of the structure that needed reconsideration,” Mr Murray said.

”After that John [Laker] took over the central role at APRA and his more scientific method of supervision has served them well.”

Opposition spokesman on finance Joe Hockey has for the past few years been calling for a ”root-and-branch” review of the architecture of Australia’s financial system.

The Federal Treasury has also said that a comprehensive review of the country’s financial system regulatory framework was needed in the wake of the global financial crisis.

Mr Murray, who is the former chairman of the Future Fund, also said Australia’s three main financial institutions – the Reserve Bank, Treasury and the Australian Prudential Regulation Authority – should continue to balance transparency, independence and accountability, but that government needed to be more transparent about its dealings with the agencies.

”If you look at the lead-up to the global financial crisis and the post-crisis period, governments find it too easy to say, ‘Well, the central bank’s independent’, or ‘The numbers are from Treasury,’ or ‘The bank supervisor is independent’,” he said. ”[But] the reality is that the government remains accountable for the outcome.”

Mr Murray said if he were asked to chair a review of the financial system he would give it ”careful consideration”. He also said he believed business confidence would pick up after the election if the election delivers a stable majority government.

And the new government would have to drive a productivity agenda that started to deal with the high cost structure of the economy.

The original release of this article first appeared on the website of Shanghai Night Net….

Loss deepens to $127m for AJ Lucas

A recent equity raising by mining services company AJ Lucas Group looks to have rescued it from potential disaster, as the company scales back its operations to focus on the most profitable business lines.
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Details of the company’s dire financial position were disclosed on Friday night in preliminary accounts yet to be signed off by the auditor that showed a widened loss of $127 million.

Australia’s mining services industry has been in turmoil as the resources boom has cooled. Difficult trading conditions forced AJ Lucas to write down the value of assets by $45 million, and the company also reported difficulty attracting business due to its poor financial health.

The annual results showed a working capital deficiency at the end of the financial year, meaning current liabilities exceed current assets by $40 million.

But AJ Lucas said recent equity raisings had bolstered the ”company’s financial position and removed many of these concerns”.

”Difficult trading conditions, principally due to weak commodity prices and client focus on cost reduction, resulted in the group recording underlying earnings before interest, depreciation and amortisation of $3.3 million,” the company told the ASX.

”A reluctance to award work to the company whilst its balance sheet remained under strain also contributed to the poor performance, with revenue declining by 41.5 per cent, from $504.3 million to $294.8 million.”

AJ Lucas reported almost $62 million in one-off costs. It said it would focus on core strengths in its engineering and contracting division, where it reported a ”very disappointing” halving of revenue to $131.4 million in the year to June.

The company took into account the continuing support of substantial shareholder and lender Kerogen in assuming it was a going concern for accounting purposes, as well as recent contract wins and the prospect of further cash from its British Bowland prospect asset.

Shareholders will be asked to vote on extending AJ Lucas’ debt liabilities to Kerogen for three years until early 2017 – an agreement that AJ Lucas said would leave it without material borrowings falling due for 3½ years.

AJ Lucas shares closed at $1.40 on Friday ahead of the announcement of its full-year loss, compared with a price above $5 in the best years of the mining boom. Analysts said they had had low expectations for the result but were more upbeat this financial year.

The recent equity raisings – $137 million in June and $63.7 million in July – means that AJ Lucas’ gearing level has fallen to 24.8 per cent, from 43.4 per cent previously. One of Australia’s richest businesspeople, Paul Fudge, recently increased his stake in AJ Lucas to 10 per cent.

AJ Lucas is not alone in experiencing financial difficulties. Drill contractor Boart Longyear last week revealed further job cuts amid the ongoing contraction in mining activity. It swung to a net loss of $US329 million in the June half-year, largely due to heavy write-offs and a fall in revenue.

”We’re fighting against a decline which is unprecedented in a lot of ways. The market will come back, I can’t predict when, but I can tell you it will,” Boart chief executive Richard O’Brien said.

But engineering company UGL reported good news in Australian coalminers seeking tenders for maintenance for the first time in 12 months. UGL reported a decline in net profit for the year to June of $41.7 million, from $135.4 million, on the back of weakness in its engineering arm.

The original release of this article first appeared on the website of Shanghai Night Net….

Dollar tipped to stay south of 90¢ and fall further

Futures traders are betting the Australian dollar’s stability around US90¢ in the past two months is about to end, with pressure firmly on the downside.
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The currency last traded at US89.01¢ after sliding last week to as low as US88.93¢.

Projected price swings in the Aussie have climbed as a slump in business sentiment and weaker housing construction buoy prospects for another rate cut from the Reserve Bank this year coinciding with bets the Federal Reserve will start trimming bond purchases that have supported assets globally.

The RBA has indicated the Australian dollar remains historically high even after dropping 15.5 per cent against the US dollar this year.

”The Aussie will tend not to benefit when volatility rises,” said Todd Elmer, a Singapore-based strategist at Citigroup. ”Interest rates are lower, the RBA clearly wants to see a weaker Aussie and growth prospects are relatively poor.

”I highly doubt you’ll see Aussie buying on that basis,” said Mr Elmer, who sees the local dollar dropping towards US85¢ within the next three months.

The Australian dollar has fallen 11 per cent this year against major peers, the worst performer among 10 developed-nation currencies tracked by Bloomberg. It slid past US90¢ on July 12 for the first time in almost three years and touched US88.48¢ on August 5.

The currency ”had declined since the previous meeting, though it remained high by historical standards”, according to the minutes of the Reserve’s August board meeting.

A poll of currency analysts places a range from US82¢ to $US1.02 in their estimates for the Australian dollar’s year-end level, with the median projection being for US89¢.

The RBA ”is probably happier to tolerate a bit of easing of monetary conditions by the currency”, said Jeremy Stretch, the London-based head of currency strategy at Canadian Imperial Bank of Commerce. ”That leaves us of the opinion that the Aussie remains relatively vulnerable.”

Mr Stretch sees the currency dropping towards US85¢ in the next six months.

The original release of this article first appeared on the website of Shanghai Night Net….

Airline finally goes to the dogs

Virgin Australia boss John Borghetti is not his household’s only beneficiary of the airline’s loyalty program.
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The animal (and Porsche) lover revealed on Friday that one Barton Wilbur Borghetti will also be grateful for recent changes to Velocity, which include points for pets. ”It’s very important for my dog, in particular,” the CEO gushed at Virgin’s annual results briefing.

And who said the battle between Borghetti and Qantas boss Alan Joyce was not a tad personal?

”I was almost going to send Alan a thank-you note for showing me with lots of lead time what he’s going to do with the product,” Borghetti said. Qantas last week unveiled new business-class seats for the A330 planes that fly between the east and west coasts.

But the well-heeled will have to wait until next year to try them out.

Flying the flag

There’s no end to the humiliation that Coles boss Ian McLeod will endure in the name of charity.

Last Friday night the head grocer was at Melbourne’s Sofitel to lead a team at a corporate trivia challenge in aid of cancer charity Redkite.

He also popped up on the big screen, one of several CEOs who were each tasked with asking a question. However, none of the other CEOs had to do so while draped in a Scottish flag and brandishing a giant red hand.

CBD recognised the Scots ensign because, in what may or may not be a complete coincidence, the banner was the basis of a trivia question earlier in the night.

While in the supermarket business Coles has only to contend with arch-rival Woolworths; on the night McLeod’s crew was up against more than 40 teams, including entries from PwC, NAB, Country Road and Freehills.

McLeod led his team to victory, collecting a phrenology head trophy and the grand prize: a two-hour walking tour of Melbourne.

There’s no truth to the rumour that second prize was a four-hour tour. BusinessDay’s team finished fifth.

The race for last

They had Friday on their minds, but did these corporates have too much fun in the city?

Every year Australia’s underperforming listed companies compete to see who can be the last to lodge their annual results with the exchange before the cut-off on Friday night.

Clear winner this year is mining services group AJ Lucas, which only just got in under the wire with its shocker result, published by the ASX at 7.34pm.

Other easybeats included Zeta Resources (7.17pm), a Bermuda-registered investment company that listed on August 13 and has wasted no time unveiling a maiden loss of $US9.23 million.

At digital media group GoConnect (6.46pm), not even the presence of Jackson Five member and brother of Michael, Jermaine Jackson, could lift the company out of the red. It declared a loss of $2.1 million.

But CBD’s favourite would have to be Broad Investments (6.45pm), the outfit run by Vaz Hovanessian, the former chairman of failed telco Strathfield Group.

The tech support provider made a loss of $1.3 million and admitted that 92 per cent of its revenue comes from a single customer.

Nonetheless, it managed to pay executive chairman Hovanessian $240,000 in cash.

Only time will tell whether for Hovanessian and corporate Australia’s other Friday night filers it will be a case of, as ”Little” Stevie Wright once sang: ”Monday morning feels so bad. Everybody seems to nag me.”

Slim pickings

Wanna buy a weight-loss business? CBD hears administrator Adam Farnsworth has wasted no time trying to sell the Tony Ferguson slimming empire since being appointed on August 20.

An information memorandum is apparently already circulating among potential purchasers, portraying the business as capable of earning $30 million a year.

Half-owner and major creditor Barry Smorgon will no doubt be hoping that it’s a very convincing pitch.

The original release of this article first appeared on the website of Shanghai Night Net….

Macquarie doubles mortgage book to $9b in a year

Macquarie Group’s push into mortgages has caused its home loan book to more than double to $9 billion in the past year, as it seeks to exploit the fat profit margins in residential property lending.
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The value of Macquarie’s home loan book increased by 123 per cent from $4.04 billion to $9 billion in the year to July, figures from the Australian Prudential Regulation Authority show.

This year it has expanded by 60 per cent.

While its total market share remains small at 0.7 per cent, the rapid pace of expansion compares with industry-wide growth of 6.2 per cent a year in the value of all outstanding home loans.

The rise comes after Macquarie last year teamed up with Mark Bouris-backed mortgage broker Yellow Brick Road, supplying its white-label loans and taking a 10.5 per cent stake in the business.

Other brokers also report a sharp rise in customers taking out Macquarie-branded home loans.

Mortgage Choice says Macquarie’s share of new loans being written has jumped to 4.6 per cent, from 1 per cent a year ago.

Macquarie chief executive Nicholas Moore has played down the expansion into home loans. And its $9 billion portfolio is indeed tiny compared with the loans held by Westpac, Commonwealth Bank, NAB or ANZ.

However, it now has a larger Australian home loan portfolio than several foreign-owned banks including Citigroup and HSBC.

Bell Potter analyst T. S. Lim said mortgages were likely to provide Macquarie with reliable earnings. ”It’s an annuity stream – it provides stable income,” he said.

The investment bank also had access to low-cost funding through cash management accounts – and many of its clients tended to be wealthy and relatively low-risk, Mr Lim said.

Last month’s record profit result from Commonwealth Bank, driven by a surge in its retail bank, underlined that home loans remained highly profitable.

Among the big four banks, ANZ and National Australia Bank have grown fastest in the past year, while Westpac has been losing market share.

At Macquarie’s full year’s results in May, Mr Moore played down the mortgage push but said it was a ”good business,” highlighting that it had been involved in writing home loans since a partnership with Aussie Home Loans in the 1990s.

The original release of this article first appeared on the website of Shanghai Night Net….