Friday, May 4, 2012

Reserve Bank cuts growth forecasts as economy softens

Bu Business editor Peter Ryan

The Reserve Bank of Australia has cut its growth and inflation forecasts as non-mining sectors struggle under the weight of a high Australian dollar.

In forecasting marginally lower growth rate of 3 per cent for 2012 and 2013, the RBA has signalled that earlier predictions were overly optimistic.

Listen to my analyis from The World Today broadcast shortly after the revision was made public.

Read the Reserve Bank's quarterly monetary policy statement here.

The central bank's latest quarterly statement on monetary policy comes three days after it cut the official cash rate by 50 basis points because of lower inflation and the need to stimulate parts of the economy.

"Although three months ago a range of indicators were suggesting that economic growth was close to trend, the outcome for 2011 as now reported was, in fact, somewhat weaker than that," the statement said.

In the previous statement, issued in February, the economy had been forecast to grow at 3 to 3.5 per cent.

The Reserve Bank also expects employment growth to "remain subdued" in the near term and has cited the high Australian dollar as a key pressure.

"There is the possibility that in the near term, labour shedding across a range of industries outside of the mining sector accelerates as firms continue to adjust to the high exchange rate, weaknesses in the property market and the effects of weaker public demand."

The Reserve Bank has also pointed to a subdued housing market and says "a recovery in housing construction is unlikely in the near term".

"What remains is for buyers to reach a point where they have sufficient confidence to commit to contracts for construction of new dwellings and for the supply side of the housing market to be responsive to demand," the RBA said.

The RBA says those conditions are needed to underpin a sound recovery in construction.

The central bank has also revised its inflation outlook to 2.5 to 3.5 per cent in the next year, with underlying inflation down to just 2 per cent from its previous forecast of 2.5 per cent, while noting the sharp fall in CPI inflation to 1.6 per cent.

The RBA expects the introduction of the carbon price in July to boost headline inflation by 0.7 percentage points in the year to July 2013.

"A key assumption made here is that there are no second-round effects owing to higher margins or wage claims," the statement says.

Backing the banks

The RBA has also confirmed claims by commercial banks that funding costs remain high.

"They remain higher than in mid-2011. At the same time, elevated competitive pressures have kept deposit rates in Australia high relative to the cash rate."

The RBA says a significant external risk to its outlook is the chance that the sovereign debt crisis in Europe could intensify and derail the global economic recovery.

"A substantial deterioration of conditions in Europe would be likely to have flow-on effects to the rest of the world," the statement said.

"A major flight from risk in global capital markets would see a marked deterioration in credit conditions and

The Reserve Bank holds its next board meeting on June 5, and some economists are tipping a further reduction in the cash rate to 3.50 per cent.

Thursday, May 3, 2012

James Hardie directors breached duties, High Court rules

The High Court has ruled that seven former James Hardie non-executive directors breached corporate law by making a misleading statement about the company's asbestos compensation fund.

In a major victory for the corporate regulator, the High Court upheld a landmark 2009 New South Wales court decision that the former board members, including high-profile former chairwoman Meredith Hellicar, breached their duties as company directors when they approved a misleading draft announcement to the stock exchange in 2001.

Listen to my interview with the chairman of the Australian Securities & Investments Commission, Greg Medcraft, broadcast on The World Today.

Read a summary of the High Court ruling here.

The statement said the company had established a fully funded compensation plan, the Medical Research and Compensation Foundation, to pay claims from people suffering asbestos diseases.

But the foundation was underfunded by more than $1.5 billion and faced bankruptcy.
The Australian Securities and Investments Commission (ASIC) won the first round in the New South Wales Supreme Court, when the directors were fined and banned from serving on boards for five years.

That ruling was then overturned by the New South Wales Court of Appeal in 2010.

But today the High Court ruled against the directors and ordered the case be returned to the appeal court to decide outstanding matters, including penalties.

In a statement, James Hardie took note of today's decision, but said it was too early to know how much the ruling would cost the company.

Tuesday, May 1, 2012

Reserve Bank surprises with aggressive 0.5 percentage point cash rate cut. But how much will commercial banks deliver to borrowers?

Reserve Bank certain to cut cash rate today. But how deeply will the RBA cut and what if anything will commercial banks pass on?

Paul Hogan settles with the Tax Office as Operation Wickenby pursuit ends

One of the country's longest running and most bitter tax disputes is finally over with Paul Hogan and John Cornell striking a confidential deal with the Australian Tax Office.

Listen to my interview with Paul Hogan's lawyer, Andrew Robinson, broadcast this morning on the ABC's AM.

The pair had been targeted by the ATO's Operation Wickenby which has been pursuing high wealth tax evaders.

The confidential settlement, reached on a "without admission" basis before a former High Court judge, lifts an order prohibiting Mr Hogan to travel outside Australia.

Mr Hogan was controversially banned from leaving the country at the request of the ATO after attending his mother's funeral during a two-week stand-off in September 2010.

The ATO pursued Mr Hogan for almost a decade over $150 million in unpaid tax, penalties and interest, and had alleged he used offshore tax havens.

No charges were ever laid and Mr Hogan consistently denied any wrongdoing.

The $300 million operation investigated high-profile Australians over fraud claims, and had been circling Hogan for years.

The operation has led to more than 60 charges, but the Australian Crime Commission (ACC) discontinued its criminal investigation of Mr Hogan and Mr Cornell last year.

Monday, April 30, 2012

NAB to slash 1,400 jobs as it restructures ailing UK business

National Australia Bank has announced a restructure of its loss-making business in the United Kingdom to focus on retail operations and small business lending.

The bank will cut 1,400 jobs from its UK operations - including Clydesdale Bank and Yorkshire Bank - by 2015, and restructure its balance sheet by transferring most of its commercial real estate assets to NAB Group from next financial year.

Here's my analysis broadcast on The World Today.

NAB group chief executive Cameron Clyne says the group cannot find a buyer its for its British banks.

The UK business posted a $39 million loss for the six months to the end of March due to bad debts and higher funding costs.

"It's not as though we've been walking past deals in the last three-and-a-half years, but there has been speculation over the asset - we have received informal and speculative expressions of interest, all of which are at very low valuations," Mr Clyne said.

"So I think as long as UK banks are trading at this sort of valuation ... the option we're taking is a better option."

Mr Clyne says the problems in the UK will not stop it from passing on any interest rate cuts.

"There is no correlation between what we have announced today and anything that we do in our Australian business," he said.