Friday, April 15, 2016

Reserve Bank alert on apartment glut

An oversupply of residential property developments has now become a key domestic risk to Australia's financial system according to the Reserve Bank.

While real estate investment has softened over the past six months, the Reserve Bank is worried about a "significant and geographically concentrated" growth in supply of new apartments in Sydney, Melbourne, Brisbane and Perth.

The RBA says with demand for apartments softening particularly in Brisbane and Perth, risks are rising that "settlement failures might increase" for investors who have bought from developers off-the-plan.

"A downturn in apartment markets could weaken the financial health of these developers," the RBA warns in its half yearly Financial Stability Review released this morning.

The RBA suggests an oversupply of apartments may weigh on prices and rents over the next few years and the option of selling up to service debt might be difficult.

"If that occurs, investors will need to service their mortgages while earning lower rental income," the RBA warns.

"Any households having difficulties in making repayments may not be able to resolve their situation easily by selling the property."

The RBA review also points concerns about a buildup in property investment by Chinese investors and how Australia could be exposed to a downturn if off the plan purchases turn sour.

"These apartments are popular with investors and foreign buyers and any concern over settlement risk and/or a slowdown in demand for Australian-located property by Chinese and other Asian residents could lead to difficulties," the Review warns.

In addition to residential property, the RBA is also concerned about financial exposure to the resources sector given the end of the mining investment boom.

While the RBA says the exposure of Australian banks to the mining sector is "small", it warns that foreign banks operating in Australia have a higher share of total lending to mining.

The RBA says despite household debt increasing, most households now have a buffer through mortgage offset facilities which would help in any shock.

Noting record low interest rates around the world, the RBA says Australia remains exposed to developments beyond the local horizon.

"A large global shock could be difficult for overseas policy makers to address which could have spillover effects on the Australian economy".

Thursday, April 14, 2016

Search for Funke Kupper replacement at ASX to take 3 to 9 months; headhunter to be appointed within days

The executive search to replace Elmer Funke Kupper as chief executive of ASX Limited is expected to take three to nine months.

The board of the ASX chaired by Rick Holliday-Smith has been interviewing executive headhunters since Mr Funke Kupper's sudden resignation three weeks ago with an agency set to be appointed within days.

Mr Funke Kupper's exit last month in the face of bribery allegations while he was Tabcorp chief executive is understood to have derailed the succession planning which the ASX board had in place.

The ASX board is looking to restore stability to the stock exchange operator and the successful headhunter selected will be asked to find a chief executive mirroring Mr Funke Kupper's "superhuman" qualities.

While not ruling out international candidates, Mr Holliday-Smith is known to favour a local appointment as Mr Funke Kupper's successor given the focus on government and regulatory issues and little time for a learning curve.

Elmer Funke Kupper was appointed as ASX chief executive in 2011 after a global search by headhunter Russell Reynolds.

Mr Funke Kupper announced his resignation as ASX boss on March 21 after the Australian Federal Police launched an investigation into a $200,000 payment Tabcorp made to the family of Cambodian Prime Minister Hun Sen.

At the time, Mr Holliday-Smith signalled Mr Funke Kupper left to avoid damaging the reputation of ASX Limited.

"The ASX Board accepted that Elmer wanted to direct his full focus to the investigations which may be made into the Tabcorp matter - and not have them interfere with the important role of leading the ASX," Mr Holliday-Smith said in statement to the stock exchange.

Despite an ongoing AFP investigation, Mr Funke Kupper received the unusual support of ASIC chairman Greg Medraft who described the resignation of "unfortunate" and "a sad loss".

Source: ASX statement 21 March 2016

Jobless rate in surprise fall to 5.7 percent in March

Australia's official jobless rate fell to 5.7 percent in March, the lowest level since September 2013.

The ABS says 26,000 new job were created with 34,900 new part time roles.

The Australian dollar surged after the Thomson Reuters newsagency mistakenly reported 260,000 new jobs had been created.

Wednesday, April 13, 2016

IMF downgrades global growth once again

The International Monetary Fund has once again downgraded its forecasts for global economic growth.

It says growth has been "too slow for too" long and that the world has become more exposed to a range of negative risks.

The IMF now expects the global economy to grow by 3.2 percent in 2016 down from 3.4 percent.

Listen to my analysis from The World Today on the ABC.

Arrium - new administrator KordaMentha says "business as usual", holds out hope for Whyalla steelworks

Source: Federal Court of Australia

After less than a week in the job, the administrator originally appointed to the failed iron and steel company Arrium has been forced to quit.

The insolvency firm Grant Thornton was last night replaced by KordaMentha, which is perhaps best known for its administration of the airline Ansett fifteen years ago.

The coup came after enormous pressure from the "big four" banks and the Australian Workers Union who had threatened to use their numbers to to sack Grant Thornton at the first creditors meeting if they didn't go quietly.

Going back to the drawing board so soon is more uncertainty for Arrium workers especially for those with jobs on the line at the steelworks in Whyalla.

But KordaMentha partner Mark Mentha told me "business as usual" as he tries to stablise Arrium.

Source: Federal Court of Australia

Tuesday, April 12, 2016

Prized AAA rating at risk without budget repair, NAB warns

With the federal budget three weeks away, the Federal Government has been warned Australia's AAA credit rating could be at risk.

The National Australia Bank is the latest to warn that the slow path to budget repair is pushing the patience of the big three ratings agencies - Moody's, Standard & Poor's and Fitch.

They want to see fiscal restraint and evidence that the Budget will show fiscal restraint ahead of this year's election.

I spoke with the NAB's chief economist Alan Oster for the ABC's AM program.

Source: National Australia Bank 11 April 2016

ASIC boss says watchdog well placed to weed out bad banks, sidesteps Royal Commission heat

Amid growing calls for a Royal Commission, the corporate watchdog has vigorously defended its capability to investigate and prosecute unethical banking conduct.

ASIC chairman Greg Medcraft signalled a Royal Commission is unnecessary.

I spoke to Mr Medcraft in Sydney for The World Today.

Arrium administrator coup - Grant Thornton set to make way for Korda Mentha

The administrator of the failed steel company Arrium is on track to be replaced in a sudden and bloodless coup that could delay the firm's restructure.

The insolvency firm Grant Thornton - which was appointed less than a week ago - is set to be forced out after a deal between banks and unions.

Under the deal, Grant Thornton would be replaced by its competitor Korda Mentha which has been working with the Australian Workers Union in the leadup to Arrium's failure.

Korda Mentha is best known for a range of complex administrations including Ansett which collapsed in 2001.

The ABC understands Grant Thornton agreed to step down quietly rather than being sacked at the first creditors meeting amid threats that bank creditors and the AWU would vote as a block.

The unlikely partnership with the AWU comes after banks owed more than a billion dollars agitated behind the scenes for the appointment of their preferred administrator McGrathNicol, which will work with Korda Mentha on the Arrium administration.

The details of Grant Thornton's removal were being finalised at a Federal Court hearing this morning in Melbourne.

Grant Thornton said on Sunday they were cautiously confident that Arrium’s Whyalla steelworks could be saved and that the indebted business stood a chance of being restructured.

In a statement, Grant Thornton said it had “stabilised the business to ensure to can run as usual” and that they firmly believed the Whyalla works could continue operations.

More to come

Monday, April 11, 2016

Getting to the truth about bad banks - is a Royal Commission the only answer?

"The definition of insanity is doing the same thing over and over again, but expecting different results" : Albert Einstein

While there's a bit of conjecture over whether Albert Einstein actually uttered these words, the quote comes in handy when considering the many cases of unlawful and unethical behaviour levelled at Australia's big four banks.

Inquiry after inquiry, committee on to top of committee, enforceable undertakings, slapped wrists, tough talk from the corporate watchdog, solemn commitments on the importance of "culture" from banking bosses.

To regular people getting on with their lives and trusting banks to manage their money, mortgage and superannuation it all sounds like the same answer - or "non answer".

For most it adds up to the same result Albert Einstein is attributed with talking about - the expectation that whatever banking bosses say about the misdeeds that have come to light there's a high certainty there are more skeletons in the closet that bank spin machines are trying resolve internally.

So how to get the to unvarnished truth about the culture inside Australia's banks as scandals continue to mount with alarming frequency and could, as Bill Shorten suggests, a Royal Commission be the answer?

To date, despite the plethora of inquiries, there seems no stop to the bad news coming out of banks as evidenced just last week when Westpac was dragged into allegations surrounding the rigging of the bank bill swap rate or BBSW.

While ASIC uncovered the alleged Westpac behaviour and is taking the bank to court, most other scandals have only come to light through the courage of whistleblowers who have paid a high personal and professional price for coming forward.

Whistleblowers were critical in revealing unethical practices at the Commonwealth and National Australia Banks. And more recently, the chief medical officer at the CBA's insurance arm Comminsure Dr Benjamin Koh put his job on the line and was ultimately dismissed after raising allegations about the appalling treatment of clients and staff alike.

As we have seen in the Royal Commission into child sexual abuse, whistleblowers and victims have come forward with painful evidence and personal experiences that might have been difficult or unthinkable while the institutions themselves, regulators or police were controlling the high emotion inquiries.

So while Bill Shorten is of course a politician sniffing a chance of winning office, he knows the public sentiment has turned against the banks and that demands will only grow louder for any inquiry that has teeth.

The spin from federal government ministers that the corporate regulator ASIC is best placed to investigate rings hollow given the findings of a 2014 Senate inquiry that ASIC is a "timid, hestitant" regulator.

For Jeff Morris - the whistleblower who brought the CBA's financial planning scandal to light - a Royal Commission is the only solution to restore confidence in the banking sector.

"Eight years ago, when I saw what they (the CBA) were doing to some people in that financial planning area, I realised just how bad things had become in financial services," Mr Morris told AM.

"And I kind of thought: this is where we're heading. I thought for many years there needed to be a parliamentary inquiry to lead to a royal commission. And I've never lost hope in that."

Oxfam slams World Bank over multinational tax haven links

The global charity Oxfam has criticised the World Bank's private lending arm for financing multinationals who then channel funds through tax havens.

A report by Oxfam says 51 of 68 companies funded by the World Bank's International Finance Corporation in 2015 to finance projects in sub-Saharan Africa used the tax haven of Mauritius to hide wealth and to dodge tax.

Oxfam claims the use of tax havens by multinationals had "no apparent link" with their core businesses of building infrastructure and providing service in some of the world's poorest nations.

The allegations from Oxfam come in the midst of a global crackdown on multinational tax evasion and the shady practices revealed in the Panama Papers by the law firm Mossack Fonseca.

Oxfam Australia's chief executive Dr Helen Szoke says the channelling of World Bank finance to tax havens is more evidence that the international tax system is broken.

""At a time when the Australian Government is also increasing its engagement with the private sector through the Australian aid program, the government's focus must be on responsible investment and sustainable development," Dr Szoke told The World Today.

"These companies could be cheating poor countries out of tax revenues that are needed to fight poverty and inequality.

"The World Bank Group should not risk funding companies that are dodging taxes in Sub-Saharan Africa and across the globe. It must put safeguards in place to ensure that its clients can prove they are paying their fair
share of tax."

The Oxfam report claims that over the past five years,  the International Finance Corporation has doubled its investments in companies that use tax havens from US$1.2 billion in 2010 to US$2.87 billion in 2015.

Dr Szoke said Mauritius is also a destination for the practice of "round-tripping" where a company shifts money offshore before returning it disguised as direct foreign investment.

Instead, Dr Szoke says the World Bank should be ensuring that its financing is used to fund infrastructure and health services to poor nations in sub-Saharan Africa.

"The region lacks money to provide enough skilled birth attendants, clean water or mosquito nets, for example, resulting in high rates of child mortality; one child in 12 dies before their fifth birthday."

The International Finance Corporation has dismissed the Oxfam report as "flawed".