Tuesday, July 18, 2017

Reserve Bank softens up borrowers for "neutral" cash rate of 3.5 pc; A$ surges

The Reserve Bank is continuing its campaign to soften up highly leveraged borrowers for eventual interest rate rises after a long period at record low levels.

The central bank is now busy estimating what a "neutral" interest rate might look like as the Australian economy continues to show patchy signs of recent strength.

In the minutes from its July meeting a fortnight ago when rates were left on hold at 1.5 percent, the RBA has signalled that to keep growth and inflation in check the "neutral nominal cash rate" would need to rise to around 3.5 percent.

The minutes show the RBA's pursuit for a "goldilocks rate" - not too high or too low - comes as as central banks around the world such as the US Federal Reserve signal conditions are right to slowly raise rates from emergency levels.

The predictions for a higher cash rate will put investor and residential borrowers on alert given high levels of loans issued at the record low cash rate.

"All estimates of the neutral real interest rate for Australia suggested that monetary policy had been expansionary for the previous five years or so," the minutes say.

"A reduction in risk aversion and/or increase in the potential growth rate could see the neutral real interest rate rise again.

"A number of central banks had become more positive about domestic economic conditions, and financial market pricing suggested that there had been upward revisions to the expected path of future monetary policy."

The RBA noted that despite slower economic growth in the March quarter, key indicators such as the labour market, wages growth and retails sales had been gradually improving in Australia.

Although the Australian Prudential Regulation Authority (APRA) has been cracking down on banks to maintain a cap on investor loans, the RBA says it is too early to assess their full effect.

While the July meeting was held before the recent resurgence of the Australian dollar, the minutes show the economy remains exposed to any spike against the US currency.

"The depreciation of the exchange rate since 2013 has assisted the economy in the transition from the mining boom," the minutes say.

"An appreciating exchange rate would complicate this adjustment."

Reserve Bank members are also concerned about rising wholesale electricity prices in the first half of 2017.

"This has led to significant increases in the context of efforts to address climate change and to alter Australia's energy mix," the minutes say.

"Concerns about energy security , reliability and costs has been heightened .. partly reflecting policy uncertainty."

Despite the RBA's efforts to manage expectations, concerns remain that anything but a gradual increase would leave indebted borrowers in Sydney, Melbourne and Brisbane potentially exposed to rising repayments.


Monday, July 17, 2017

No real winners in Amber Harrison ruling

There are no real winners from Amber Harrison's high cost, high stakes, circus-like legal battle with the powerful Seven Network.

While Ms Harrison is no unblemished innocent party in this saga, the former executive assistant limps away potentially financially broken and perhaps unemployable at least in the short term.

Here's my report on the ruling broadcast on the ABC's PM program

Justice John Sackar may have ruled in Seven's favour ordering Ms Harrison to pay their costs but will Seven risk the public perception of pushing of a confused single foster mother into bankruptcy in the face of paying Seven's legal bills?

Despite playing a hard and at times brutal game, the ABC understands that given the reputational damage already inflicted by the case, Seven is unlikely to pursue costs against Ms Harrison now having won the legal argument.

The challenge for Ms Harrison's ex lover, Seven West Media chief executive Tim Worner, is to move on from the scandal to recast Seven's image as a caring and compassionate media company with respect for women at all levels.

But as Justice Sackar observed in his ruling, there is no dispute that Ms Harrison brought much of the pain upon herself after breaching the terms of confidentiality agreements in return for payments of around $400,000 which prompted Seven to seek gag orders earlier this year.

At the same time Tim Worner - whose affair with Ms Harrison was consensual - is rebuilding a shattered reputation and remains on Seven's payroll despite calls for his sacking or resignation amid questions about his judgement.

Some company boards or government agencies may well have sacked or sidelined Mr Worner but he survives mainly thanks to the steadfast backing of Seven chairman Kerry Stokes who clearly regards him as a flawed prodigal son.

Seven West shareholders also have cause for concern about Mr Worner's judgement given the direction of Seven West's share price which had fallen to 79 cents from around $1.18 a year ago.

While the Amber Harrison affair is only a small factor in the share price demise, the unwanted headlines and uncertainty about Seven's direction have been the top agenda items for the Seven West board.

Mr Kennett said he was not speaking on behalf of Kerry Stokes or the Seven West board but his aggressive commentary the next morning on the ABC's AM  program came hours before a Seven West Media results briefing where Kerry Stokes came under heavy questioning for his handling of the Amber Harrison matter.

Mr Kennett's abrasive style in slapping down a fragile Ms Harrison also attracted criticism given his role at the time as chairman of the depression initiative Beyond Blue.

All of the above is evidence that Seven needed to shut Ms Harrison down as the damaging case dragged on in the NSW Supreme Court and briefly in the Federal Court when star barrister Julian Burnside QC was enlisted to defend Ms Harrison.

Evidence was tendered to the NSW Supreme Court that Ms Harrison continued to brief journalists despite the confidentiality agreement and released highly sensitive documents unrelated to her affair with Tim Worner after a 2014 raid by the Australian Federal Police over alleged payments to convicted drug trafficker Schapelle Corby.

Seven’s strategy and tactics led by the network's hardplaying commercial director Bruce McWilliam have been brutal in exposing Ms Harrison's pursuit of revenge against Mr Worner.

Seven's payout to Ms Harrison and her decision to break confidentiality agreements has clearly infuriated Seven hence the warlike response to bring Ms Harrison into line.

But given Ms Harrison's decision to release her lawyers and walk away from the case, should Seven have done the same and called off the legal dogs?

The demolition of Amber Harrison - once again, who brought this action upon herself - comes as other parts of corporate Australia assess their policies especially after two senior managers at the AFL were stood down late last week for inappropriate relationships with young female colleagues.

Tim Worner has already apologised but he need to put his words into action to ensure that his mistakes are not repeated and that similar errors will not be tolerated at Seven.

As Australian Financial Review senior writer Aaron Patrick told me: "Kerry Stokes will not want Seven West Media and the Seven Network dragged through the mud again."

"I think they will not want any of their executives sleeping with secretaries ever again."

Thursday, May 18, 2017

Competition boss Rod Sims warns big banks on levy - "we are watching"

Australia's five biggest banks have been put on notice that the competition watchdog will use new surveillance powers to ensure they don't pass on the new bank levy to customers or shareholders.

The Australian Competition & Consumer Commission (ACCC) will be able to summon bank chiefs for hearings under oath in addition to accessing internal reports and emails to track whether $6.2 billion dollar levy over four years is being absorbed.

While the regulator doesn't have the power to stop the banks from defying the government's order to pay the levy to help with budget repair, it's sending the a clear message to banks that their every move is being scrutinised.

ACCC chairman Rod Sims has kept an unusually low profile since budget night while forming a surveillance squad to monitor the inner workings of Commonwealth Bank, Westpac, National Australia Bank, ANZ and Macquarie Group.

Mr Sims told the ABC's AM program that watchdog will use its new powers to force greater transparency in banking competition with a particular focus on the new bank levy.

"Of course we don't have power to stop the banks from doing anything but I think the fact that we're looking will have an effect," Mr Sims said.

"But we'll not only get access to reports they do internally we'll have access to emails and other such things. We've got the ability to get them (bank executives) in to have compulsory hearings under oath."

The ACCC's bank squad will comprise about a dozen specialists assessing competition in the finance sector with the option of hiring in external consultants with insider banking experience.

However, Mr Sims confirmed the ACCC would not have the ability to place officials inside banks to turn up the surveillance heat.

Earlier this week, Treasurer Scott Morrison accused banks of using a "voodoo blackbox" to cloud the true cost of banking and how fees to customers are formulated.

But Mr Sims is confident the new powers provided to the ACCC in the budget will be enough to keep major banks honest.

"We have information gathering powers that give us access to their information explaining internally how they're doing what they're doing," Mr Sims told AM.

"That's information they'll have to provide because they have a hierarchy and various layers in the organisation. But that key starting point we have is access to that internal  information."

Mr Sims rejected claims by major banks that the bank levy was a last minute decision made in the days leading up to budget night.

"We had plenty of notice. We were given a look at the potential direction and were able to comment on that. So we had all the notice one could expect," Mr Sims said. 

But in the face of a fightback from the major banks, Rod Sims denies he is feeling the pressure from Scott Morrison to deliver on greater banking transparency.

"We're not in the pressure feeling business. We're pretty relaxed. We're asked to do a job and we'll do that job well."

The five major banks last night received confidential briefings on how the levy will work but were required to sign confidentiality agreements beforehand.

However, banks are expected to continue reporting to the stock exchange in the coming days on how the levy could impact future profits.

Wednesday, May 17, 2017

Ron Walker endorses TPG offer for Fairfax Media - but now media silence from former chairman

Former Fairfax Media chairman Ron Walker has endorsed a $2.76 billion takeover bid for the company by the US private equity group TPG and the Ontario Teachers’ Pension Plan.

In interviews with print journalists, Mr Walker said TPG's revised offer for entire Fairfax business would be a good outcome for shareholders and might protect Fairfax's quality journalism at The Age, Sydney Morning Herald and Australian Financial Review.

However, despite endorsing the TPG offer Mr Walker withdrew from a scheduled interview with the ABC's "AM" program after deciding to make no further comments.

Asked whether he had been pressured by Fairfax Media to remain silent on the TPG offer, Mr Walker told the ABC the decision was “my own call”.

A Fairfax spokesman confirmed the request did not come from Fairfax Media and that “we haven’t spoken to Ron”.

But earlier reacting to Mr Walker’s endorsement of the TPG offer,  the spokesman said "Ron's views are Ron's views".

"It's the best thing for shareholders," Mr Walker told The Australian Financial Review which is published by Fairfax Media.

"After having years of not great returns they have now got the opportunity to join one of the world's best dealmakers and make it a very successful company once again."

The intervention of Mr Walker - who led Fairfax from 2005 to 2009 - is seen as significant given concerns that TPG is a foreign predator only interested in the Domain real estate business and intent on breaking up the rest of once mighty media empire.

Mr Walker, who owns Fairfax shares, also anointed the head of the Domain real estate business Antony Catalano as the new chief executive of a restructured company.

"Antony Catalano has always been destined to be a CEO," Mr Walker told the Australian Financial Review.

The ABC understands the endorsement from the former chairman was not welcomed by Mr Catalano given the sensitive stage of the TPG proposal.

The Fairfax board says it is considering the revised offer from TPG of $1.20 a share for 100 percent of the company rather than the original bid for Domain and the three metropolitan mastheads.

The revised offer from TPG on Sunday improves the original bid of 95 cents a share that did not include Fairfax's regional newspapers, its New Zealand assets, its stake in the Macquarie Radio Network and a 50 percent share in the Stan streaming service.

The Fairfax board says if accepted the TPG bid would require approval from shareholders and the Foreign Investment Review Board (FIRB).

Treasurer Scott Morrison would have to endorse any decision from FIRB given national interest issues that could be raised by the sale and possible breakup of the once mighty Fairfax Media empire.

Fairfax shares closed higher yesterday at $1.19 having reached a six year high in the wake of the TPG proposal.

Follow Peter Ryan on Twitter @peter_f_ryan

Friday, March 17, 2017

Amber Harrison hired big gun Julian Burnside QC as battle with Seven escalates

Amber Harrison has hired prominent barrister Julian Burnside QC as her high profile  battle with Seven West Media moves to a new level.

Mr Burnside has confirmed that Ms Harrison will now counter sue her former employer after Seven escalated legal action over the release of confidential documents relaying to her ill- fated affair with Seven West chief executive Tim Worner.

Mr Burnside told the NSW Supreme Court that the matter needed to be switched to the Federal Court because Ms Harrison's cross claim relates to "substantial issues" under the Fair Work Act.

Justice John Sackur said he was inclined to agree with the switch to the Federal Court because the NSW Supreme Court does not have jurisdiction for Fair Work matters.

"It seems sensible that this should go to the Federal Court," Justice Sackur said.

Counsel for Seven David Thomas said the proposed move to have the case heard in the Federal Court came as a surprise.

However, Mr Thomas told Justice Sackur that his client wanted the Fair Work matter struck out of the cross claim.

Justice Sackur is yet to decide whether to release Ms Harrison's cross claim to journalists covering the case.

"I would normally accommodate the media under relevant legislation," Justice Sackar said.

However, he has asked representatives for Ms Harrison and Seven to reach an agreement on whether the documents should be released.

Amber Harrison - a former executive association at Seven - is under a temporary gag order preventing her from releasing more confidential documents allegedly gathered before leaving the media company.

Ms Harrison left Seven in 2014 after signing a confidentiality agreement that prevented her from speaking publically about Seven or her affair with Mr Worner.

The case is scheduled for a hearing in July but this could change if the matter switches to the Federal Court.

A hearing on Seven's request to strike out Ms Harrison's claim under the Fair Work Act has been set down for April 6.