Friday, April 22, 2016

Prince dead aged 57. Savvy businessman who fought the establishment.

The sudden death of Prince at the age of 57 has shocked so many people this morning as they began their days.

It is the talking point dominating the airwaves here at the ABC given the cross generational appeal of the seven time Grammy winner.

I spoke to Rob Cox, an editor with Reuters BreakingViews in New York, about the Prince legacy and how he took on the music establishment

Read Prince - the businessman from ABC News Online

Even the Bloomberg finance wire is running big on the Prince news.

Thursday, April 21, 2016

Iron ore surge potential windfall for Budget; banks weigh price signalling in handling ASIC levy

There's been another surge in the price of iron ore overnight which is good news ahead of the Federal Budget on May 3.

Iron ore is sitting at US$64.30, up six percent over three days.

But there are questions over seasonal factors and whether the price can be sustained.

Meanwhile, banks are being circumspect about whether the ASIC levy will be passed on to customers because of price signalling laws.

Here's my report

Big banks unveil reforms in wake of Royal Commision calls

Australia's big four banks have promised major reforms to protect customers amid growing calls for a Royal Commission into unethical banking behaviour.

The Australian Bankers Association has outlined a review of sales commissions and the protection of whistleblowers.

The Bankers Association chief executive Steven Munchenberg spokes with me on The World Today.

Wednesday, April 20, 2016

Low rates a threat to super fund returns, RBA boss warns

The governor of the Reserve Bank Glenn Stevens has warned that today's world of ultra low interest rates is putting increasing pressure on returns for superannuation funds.

Mr Stevens says record low interest rates are "a big problem" for savers and that many stand to be "disappointed" about the direction of their retirement nest eggs.

Speaking in New York,Mr Stevens told a conference that low yields for investors pose a problem for both defined benefits and accumulation funds with the "whole set of assumptions" for retirement income plans is being called into question.

"Increasingly we are hearing commentary about the difficulty or impossibility of defined benefit pension plans making good on their promises with long term rates of return being so low," Mr Stevens said.

"The problem almost certainly is not confined to defined benefit plans. Even accumulation arrangements are predicated on some set of assumptions about future income needs and returns.

"It may take longer but surely eventually many of the owners of these funds are going to feel disappointed."

Mr Stevens warned that in a world of sluggish growth that "implicit promises" about retirement incomes were in danger of not being fulfilled.

The warning about the danger of lower rates for longer comes almost eight years after the global financial crisis where major central banks have rates near zero or in the case of the European Central Bank and Bank of Japan in negative territory.

The weakening capacity of central banks to intervene follows trillions of dollars of quantitative easing, or metaphorical money printing, to put life into global growth.

Mr Stevens also warned about the risks associated with "helicopter money" where central banks directly pump cash into households and governments to boost spending and to kick-start stagnating economies.

"To my mind the main complication surely is that it would be a lot easier to start doing helicopter money than it would be stop, if history is any guide any way," Mr Stevens said.

"That's a decision governments have historically found very difficult to get right. And that after all is how we got to the point where central bank direct financing of governments is frowned on or indeed illegal in so many countries.

"So it would be a large step, I think, to overturn those taboos which exist for good reason."

The RBA next meets on May 3, coinciding with the Federal Budget which has been brought forward by a week.

While there is little chance of a rate cut then, many economists are tipping a rate cut to 1.75 percent by the end of the year.

A big factor is the surging Australian dollar which has hit 78.27 US cents as commodity currencies recover.

Speculation is rising that the Australian dollar might be a trigger for a rate cut given RBA concerns that it is complicating the transition out of the mining investment boom.

Tuesday, April 19, 2016

Wages slowing over past four years, Reserve Bank confirms

The Reserve Bank has confirmed what most workers already know - their pay packets been stagnating or getting lighter over the past four years.

In the minutes from its most recent meeting, the RBA points to the latest data on enterprise agreements between employers and employees which underscores the low or slow growth of wages.

The RBA says the low growth of wages is "already apparent" in the wage price index contained in the most recent National Accounts.

"Nominal unit labour costs had been unchanged for over four years, as the growth in employee earnings had broadly matched growth in labour productivity," the minutes say.

"Members noted that subdued labour costs had led to low household income growth."

But looking on the bright side, the RBA says the flatlining wages growth has enabled businesses to boost employment "by more than might have been the case otherwise".

The RBA says that while wage growth remained at "quite low levels", low inflation means domestic cost pressures remained subdued.

The reality check on worker pay packets comes in the minutes from the Reserve Bank's April 5 board meeting when the cash rate was kept on hold at the historic low of two percent.

The RBA also notes that in additional to wage growth is low, unemployment had fallen back to 5.8 percent in February. 

Last week, the jobless rate for March fell again to 5.7 percent.

But the RBA appears to be cautious about the outlook for a constantly falling jobless rate.

"Members observed that month-to-month volatility in the labour force was not unusual and that overall the labour market was noticeably stronger than a year earlier."

The RBA has also highlighted employment growth in non-mining sectors which had been "relatively strong" and that there was evidence that non-mining business investment had increased in New South Wales and Victoria.

Citing low inflation "over the next year to two", the RBA board said it was appropriate to "keep monetary policy accommodative."

However the Board said an appreciating Australian dollar could "complicate program" as the economy rebalances from the end of the mining investment boom.

Some economists believe coupled with low inflation, a high Australian dollar would be the trigger for a rate cut to 1.75 percent late in the year.

The Reserve Bank's board next meeting on May 3 which coincides with the decision to bring the Federal Budget forward by a week.

Money markets are factoring in a 15 percent chance of a budget day rate cut with a 50 percent likelihood by the end of the year.

Arrium administrator says no redundancies yet for Whyalla steelworks

Less than a week into Australia's most complex corporate restructure, the administrator to the failed iron and steel firm Arrium says the company's future hangs on the fate of its Whyalla steel works.

The insolvency firm KordaMentha says while many of Arrium's businesses are in "good shape", most are in some way exposed to the survival of Whyalla operation

But Arrium administrator Mark Mentha of KordaMentha is cautiously optimistic and told theABC's AM program that no redundancies are planned for Whyalla as yet despite the debt burden.

"We've not undertaken and have any planned redundancies at this point. We are going sort of planned, methodical, strategic approach," Mr Mentha said.

"When we are more informed we'll be in a better picture to be able to talk about what are the next steps in moving forward at Whyalla."

KordaMentha, best known for its administration of the airline Ansett fifteen years ago, will host the first meeting of Arrium creditors in Sydney today with a webcast going to Whyalla.

Mr Mentha will creditors that the turnaround of the Whyalla steel operation is the lynchpin of any restructure of the overall Arrium business.

"It's the front end of the business where we dig the ore out of the ground and feed that into the mill starts in the whole steel process," Mr Mentha told AM.

"And in Whyalla particular many of the businesses in that town are in some way connected to the steel works. So it's a business that is very much interwoven into the fabric of that community and the state of South Australia.

"The social disruption aspect is very large in the minds of everyone. So as we said at the outset we'll leave no stone unturned to find a way to maintain all of the businesses this group is a growing concern."

KordaMentha was appointed as Arrium administrator last week after a revolt by major banks and the Australian Workers Union forced the sacking of insolvency firm Grant Thornton.

Mr Mentha was forced to take the US bank Morgan Stanley to the Federal Court yesterday after it moved at the weekend to call in a US$75 million loan to Arrium's Moly Cop business.

But Mr Mentha said the Federal Court action means Morgan Stanley will now agree to work with other major banks with the aim of restructuring Arrium.

It was a matter that the administrators and with the assistants of the court, have the ability to bind all creditors.

And that was a process that we were using yesterday to capture a US bank that was originally outside the agreement that we've reached with all the other banks across the Arrium group.

"Based on yesterday's representations we are confident that Morgan Stanley are acting in good faith," Mr Mentha said.

The Arrium restructure is likely to feature in the coming election campaign given the likely poll date of July 2.

But Mr Mentha says that rather than being a distraction, the election campaign could work in Arrium's favour.

"I have no doubt that all that political parties are motivated to ensure that Arrium is better downed so for us we have to have our plan in place before July 2."