Thursday, October 10, 2013

Janet Yellen Fed nomination no "rubber stamp" for US Senate

United States president Barack Obama has formally nominated Harvard economics professor Janet Yellen as the next chair of the Federal Reserve.

Mr Obama described the nomination as one of the most important economic decisions he would make as president.

Listen to my analysis from this morning's edition of AM.

Dr Yellen, a Brooklyn native, has been vice chair of the Fed since 2010.

Ben Bernanke's eight-year term as chairman ends in January.

If confirmed by the US Senate, Dr Yellen would be the first woman to hold the post in the Reserve's 100-year history.

Mr Obama said that would make her a role model for many.

The announcement appears to have been brought forward, as Mr Obama tries to calm financial markets amid concerns the US government will default on its debts if it fails to raise the debt ceiling by October 17.

Dr Yellen has pledged to promote maximum employment, stabilise prices and create a strong and stable financial system.

She says the US has made progress in recovering from the Great Recession, but more needs to be done.

AUDIO: Business editor Peter Ryan on Dr Yellen's nomination(AM)

"Too many Americans still can't find a job and worry how they'll pay their bills and provide for their families," Dr Yellen said.

"The Federal Reserve can help if it does its job effectively."

Dr Yellen is highly regarded by other central bankers around the world and like Dr Bernanke, she seen as a steady hand five years after the collapse of Wall Street.

Mr Obama says Dr Yellen ticks all the boxes he wants in a Fed chief.

"She is a proven leader and she's tough, not just because she's from Brooklyn," he said.

"Janet is exceptionally well qualified for this role. She has served in leadership positions at the Fed for more than a decade.

"Janet is renowned for her good judgement. She sounded the alarm early about the housing bubble, about excesses in the financial sector and about the risks of a major recession."

Dr Yellen joined Mr Obama in praising Dr Bernanke, who was present at the event, saying he was the epitome of calm, serenity and courage during the worst financial crisis since the Great Depression.

It is possible she will meet Republican resistance during Senate confirmation, but Dr Yellen sent a very clear message that she was more than up to the job.

Dr Yellen is considered to be "dovish" on policy, concerned more with job creation than the risk of inflation.

Thomson Reuters senior analyst John Noonan says that stance and the debt debacle in Washington will keep the Fed's aggressive bond-buying program in place for now.

"I don't think it's fair to typecast her as somebody who's always going to be taking easy monetary policy," Mr Noonan said.

"In her past she has warned about inflation, so I think until she sees the inflation pressures she is going to focus on improving the employment situation in the US.

"There's less likelihood of bond tapering also because of the damage that's been done to the economy from this latest episode."

Like Dr Bernanke, she will be trying her best to demystify the craft of monetary policy and cut the jargon.

Wednesday, October 9, 2013

Janet Yellen to be nominated as Ben Bernanke's successor at US Federal Reserve

With financial markets so concerned about the prospect a US debt default, President Obama has moved to temper the jitters by nominating a replacement for Ben Bernanke who's retiring as chairman of the US Federal Reserve.

Dr Bernanke's successor will be his deputy Janet Yellen who is set to become the first woman to lead the world's most powerful central bank.

Listen to my analysis from today's edition of The World Today.

It will be a hard act to follow.

Ben Bernanke is a veteran of sleepless nights after inheriting the Wall Street collapse in 2008 and is still managing the fallout of the global financial crisis which remains far from over.

Financial markets will see Janet Yellen as a safe bet and perhaps a short term antidote to the anxiety being caused by the partial US government shutdown and the fast approaching debt ceiling deadline.

Ms Yellen is not such a big departure from Ben Bernanke's dovish economic mantra.

She is seen as likely to keep official US rates close to zero for as long as necessary and will be cautious about when - or if - to wind back the Fed's economic stimulus program which is currently buying $85 billion in bonds every month.

The official announcement of Ms Yellen's nomination is scheduled for 3pm tomorrow in Washington (6am eastern time Australia) and already investors are welcoming a morsel of certainty in an increasingly volatile world.

A former member of the US Federal Reserve Randy Kroszner told Bloomberg Ms Yellen will be welcomed as someone who has been "battle tested" having made it through the worst of the financial crisis.

Ms Yellen is also expected to make it through the congressional confirmation process with little drama despite being President Obama's third choice.

Former Treasury Secretary Timothy Geithner couldn't be tempted to leave the corporate world and Larry Summers - a former Treasury Secretary to President Bill Clinton - withdrew after it became clear his nomination would be blocked.

Dr Summers' candidacy was damaged by perceptions by congressional heavyweights that he was responsible for weaker lending standards that contributed to the subprime mortgage crisis.

Investors were also worried that Dr Summers was regarded as a monetary policy "hawk" and might have cut back the Fed's economic stimulus faster than expected.

But the bigger immediate question is if news of Janet Yellen's nomination will temper nerves as the debt ceiling deadline approaches.

The futures market is showing Wall Street will open in positive territory this evening for the first time in two sessions.

But global investors are skeptical on whether the earlier than expected nomination of Janet Yellen will be enough to be considered as any circuit breaker.

Tuesday, October 8, 2013

Industry superannuation funds bracing for gov't battle over trade union influence

Industry superannuation funds are preparing to a fight government proposal to reduce the influence of trade unions on boards that manage retirement savings.

The government is considering a change to the current 50-50 arrangement, where boards positions are split between employer and employee representatives who are tied to unions.

AUDIO: Industry funds brace for Govt stoush on union (AM)

The Coalition is looking at a three-way split to dilute the role of unions and provide more room for independent directors, who tend to be closer to retail funds.

But the chief executive of Industry Super Australia, David Whiteley, says there is no room for political ideology when it comes to delivering super returns.

"We've had several years now of significant change, regulatory change and changes to the taxation system of super, and I think consensus within the community is very much that a period of stability and certainty would be welcomed by some members," he said.

"And I think that applies to both regulatory governance and taxation elements of superannuation."

Prime Minister Tony Abbott said during the election campaign that he would not support any detrimental changes to super.

And Mr Whitely expects Mr Abbott to fulfil that promise.

"I think that the Government will obviously be cautious and consultative in looking at any changes they will be making to the governance arrangements of any superannuation fund and, of course, be very careful and very circumspect in looking at governance changes which might reduce member return," he said.

But he says there is little evidence to show that unions have too much influence on the boards of industry super funds.

"Industry super funds are jointly governed by employer associations and by unions," he said.

"They're a function of consensus and, in fact, in many respects, could be regarded as a very consistent and enduring consensus over the last 20 years."

Mr Whitely warns against any politicisation of super fund boards.

"The most important thing that any government has got in mind will be: what are the long-term net returns to members?" he said.

"The industry super funds, according to the latest data that I've seen, have shown that they've outperformed the retail fund sector, over one, three, five, seven and 10-years.

"So what would be front-of-mind for any government would be making sure that the changes they make are beneficial to members' long-term net returns."

The Cooper Review into superannuation in 2010 recommended more independent directors on the boards of industry super funds.

Mr Whitley says it is unclear whether that would be the case.

"It's hypothetical, of course," he said.

"I think one thing that is clear is that the governance of industry super funds has been central to their outperformance."

"There's a number of reasons for that, of course. One has been the preparedness to invest directly in infrastructure. One has been that industry super funds do not pay sales commission to financial planners.

"But of course, also it has been the governance of those funds themselves and this is something which there has been numerous reports about, numerous evidence presented about, both in Australia and overseas."

Mr Whitey expects to be consulted about any changes to superannuation fund boards.

"I mean, our expectation would be that any government which was seeking to introduce significant change to any part of our industry would be consulting with industry super funds," he said.

Medibank Private boss says selloff in first Coaltion term "likely"

The anticipated multi-billion sale of Medibank Private could take place in the Coalition government's first term.

The publicly owned insurer's managing director George Savvides has told The World Today the selloff remains a key Coalition goal.

"I think it is designed that way and certainly we will respond in a manner required to meet the expectations of the owner," Mr Savvides said.

"But I suspect it will be in the first term."

Listen to my exclusive interview with George Savvides.

The sale speculation was ramped up as Medibank Private announced a 83.8 percent increase in full year profit to $233 million.

Membership rose to 3.8 million members during last financial year, and the company says it has 29.5 per cent market share.

Medibank was valued at more than $4 billion during the Howard Government in 2006.

But with today's price thought to be around half that, the government appears to be waiting for the the right time and a better price tag.

Monday, October 7, 2013

Leighton facing class action over Iraq bribery, corruption claims

Construction giant Leighton Holdings has vowed to vigorously defend itself against a shareholder class action relating to allegations of bribery and corruption in Iraq.

Leighton has been notified that Melbourne solicitor Mark Elliott filed a writ against the company in the Supreme Court of Victoria late last week.

LISTEN: Business editor Peter Ryan speaks with class action lawyer Mark Elliott

The writ alleges Leighton breached its continuous disclosure obligations under the Corporations Act by failing to reveal allegations of bribery and corruption against senior officers responsible for a $750 million oil pipeline contract in Iraq.

It also alleges the company failed to disclose an investigation of "misbehaviour" involving senior officers, including "misbehaviour the subject of a claim by Leighton against a former employee for $5.6 million", relating to the construction of a barge in Indonesia.

Mr Elliott, who is also a Leighton shareholder, told PM he launched the class action because he was concerned shareholders still did not know the full story about the alleged incident in Iraq.

The company denies there is a "proper basis for the alleged claim" and says it will vigorously defend itself.

Leighton voluntarily reported the incident to Australian Federal Police in 2011, describing it as a possible breach of its code of ethics, and notified the market in February 2012.

"The initial disclosure in February of last year had no impact on the share price and that's probably because the announcement was very innocuous - it talked about breaches of codes of ethics and similar wording," Mr Elliott said.

"I think you can see from activity in the share market on the 3rd and 4th of October last week that the share market was quite surprised by the most recent round of announcements and decided it was a billion-dollar problem now and marked the shares down accordingly."

Leighton has also attacked "sweeping criticisms" of its governance structures, processes and integrity in ongoing coverage of the allegations, revealed last week as part of a six-month investigation by Fairfax Media.

The reports revealed hundreds of confidential documents that Fairfax says show corruption was widespread, and in some cases approved, across Leighton's international businesses.

The documents include a handwritten note from November 2010 that allegedly shows former chief executive Wal King, who led the company for 23 years, approved $42 million in kickbacks to "a firm in Monaco nominated by Iraqi officials".

The investigation also exposed alleged plans to pay multi-million dollar kickbacks to win contracts to build a barge in Indonesia and a dam-building project in Malaysia.

Mr King has emphatically denied all allegations.

Today, Leighton issued a statement saying its board and management "condemn any form of corrupt or fraudulent behavior".

"Media coverage of the possible employee fraud concerning the construction of a barge has deflected the fact that this issue was investigated on more than one occasion and ultimately by external auditors, engineers and lawyers," Leighton said in the statement.

"The investigations have led to court proceedings being brought against the ex-employee, with Leighton seeking the recovery of $5.6 million.

"These steps were taken before media reporting on the matter, not in reaction to it. The attempt by some media, or their sources, to characterise this issue as a foreign bribery matter is misguided and incorrect."

When Leighton reported the Iraq incident to AFP in 2011, the company said it was not known whether there had been any "wrongful or illegal conduct".

The company says it is cooperating with the federal police investigation.

Sunday, October 6, 2013

Raining on the parade or wakeup call? Republican movement slaps PM's monarchist comment

The Australian Republican Movement has criticised yesterday's comments by Prime Minister Tony Abbott that "today everyone feels like a monarchist."

The comments to Prince Harry at the Fleet Review came as Mr Abbott said he regretted that not everyone is a monarchist.

So is the ARM being overly sensitive to the PM's well known monarchist stance? Or is Australia mature enough to celebrate such a significant event without feeling tied to the monarchy?

The question was put to Malcolm Turnbull on this morning's Insiders program on the ABC.

"I NEVER feel like a monarchist".

Photo by Peter Ryan

Media Release from Australian Republican Movement

Photo by Peter Ryan