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.

Analysis: Rupert Murdoch's regret over phone hacking coverup at News International

Britain back in recession as austerity bites deeper than planned

Official data shows Britain's economy has sunk back into recession amid ongoing state austerity and the eurozone debt crisis.

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

The Office for National Statistics says Britain's economy has returned to technical recession - defined as two successive quarters of contraction - after shrinking by 0.3 per cent in the previous three months.

The data confounded most analysts' expectations that gross domestic product (GDP) would grow by 0.1 per cent in the quarter from January to March, compared with the final quarter of last year.

The ONS added in a statement that the decline in first-quarter GDP - the value of all goods and services produced by the economy - was driven by a poor performance by the construction and manufacturing sectors.

Britain's economy had clawed its way out of a record-length recession in the third quarter of 2009 following a downturn sparked by the global financial crisis.

But it has now returned to recession amid painful government spending cutbacks and fallout from the debt crisis in the neighbouring eurozone, which is a key trading partner.

Cash rate cut almost certain after consumer inflation slows dramatically

Official interest rates are almost certain to be cut next week after official consumer inflation slowed dramatically.

According to the Bureau of Statistics, the Consumer Price Index rose by just 0.1 per cent in the March quarter, making 1.6 per cent for the year.

The evidence that inflation is now less of a worry than the multi speed economy is expected to prompt the first official rate cut since December.

The question is now whether the RBA will cut by 0.25 percent or 0.5 percent to stimulate struggling sectors, some of which are in technical recession.

Here's my analysis from The World Today.

Global markets dive as Europe's austerity resolve falters

European markets fell heavily this morning on renewed concerns that Europe's commitment to budget cuts is fracturing.

In addition to uncertainty about Nicolas Sarkozy's re-election as French president, the Dutch Prime Minister Mark Rutte resigned after failing to agree with on how to impose austerity.

Here's my analysis from this morning's edition of AM.

Industry superannuation chief warns Reserve Bank's inflation focus is damaging economy

By Business editor Peter Ryan

The head of a powerful superannuation body is calling on the Federal Government to rewrite the Reserve Bank's charter, warning that the Bank's primary focus on managing inflation is damaging the economy.

The chairman of the Industry Super Network, Garry Weaven, says that with inflation now under control, the RBA should be using interest rate cuts to boost employment and to drive down the value of the Australian dollar.

Listen to my interview with Garry Weaven broadcast on this morning's edition of AM.

Read the story on ABC News Online.

The former ACTU assistant secretary, who lobbies for superannuation funds including AustralianSuper, Cbus and Hesta, told AM that the inflation targetting mandate imposed when Peter Costello was Treasurer in 1996 is now " totally inappropriate".

"It seems to be still unduly influencing the Reserve in its policies. I know it's very hard to get the balance right, but I think consistently for many years now the Reserve has had far too much focus on inflation only and not enough on full employment and economic prosperity generally, which is their requirement under the Act," Mr Weaven said.

"It's hard to see that the current arrangements are properly co-ordinated. And I think there seems to be little point in having a situation where the Reserve is locked into a sort of single blunt instrument approach and the Government is locked into a political set of parameters."

Mr Weaven said that to the requirement to keep inflation with a two to three percent band over time, the RBA should follow other mandates in the Reserve Bank Act such as ensuring a stable currency, full employment and "the economic prosperity and welfare of the people of Australia."

Mr Weaven suggested monetary policy could be used to trim the high Australian dollar and bolster industry and said the inflation only focus was already hurting the economy.

"I think it clearly does. Notwithstanding the mining boom, we do have signs of real weakness in retail and manufacturing. But more importantly in a way, we have very high interest rates by international standards. And high interest rates push the currency high and that's very, very bad for manufacturers, tourism and some

other industries."

Mr Weaven said the Treasurer Wayne Swan could renegotiate the Reserve Bank's mandate without comprising its independence which he has also questioned.

"It's not much good being independent if all you can do is react through interest rate policy and have no regard for other factors. So at the end of the day no-one is truly independent," Mr Weaven said.

"If the requirements, both for the Government and for the Reserve Bank, is the greatest good of the Australian people and, in particular, the specific requirements in the Reserve Act of full employment, then in the end you must take account of the full picture. And there needs to be dialogue about what you actually do in a policy setting."

Mr Weaven is also the latest to criticise the government's pursuit of a budget surplus, adding to comments by the former Commonwealth Bank chief executive Ralph Norris that it was a "mindless" strategy.

"I think it's very, very difficult. I think it's now almost a political imperative that they deliver that. That's been the result of, you know, 15 years or more of political and economic rhetoric. Given the actual circumstances right today, I think it's hard to argue that a surplus is the main requirement."

Interest rate cut tipped for May as Reserve Bank waits on inflation update

By Business editor Peter Ryan

The Reserve Bank has signalled that official consumer inflation data out next week could be the trigger for an interest rate cut in May.

In the minutes from its latest meeting, the RBA board noted that it would focus on the official Consumer Price Index due to be released by the Bureau of Statistics on April 24.

Listen to my analysis broadcast on the ABC's The World Today.

Read the April meeting minutes released today by the Reserve Bank.

"If slower growth in demand could be expected to result in a more moderate inflation outcome, then a case could be made for an easing of monetary policy," the RBA board said in the minutes.

"The board would have an opportunity at its next meeting to review the inflation outlook based on comprehensive data on new prices as well as information on demand and output."

In leaving the cash rate on hold at 4.25 per cent at its April meeting, the RBA board "judged it prudent to evaluate those data before considering a further policy adjustment."

Read my story on ABC News Online.

Financial markets are pricing in a 90 per cent chance that the RBA will cut interest rates by 25 basis points at its May 1 meeting, with some economists tipping a more aggressive move of 50 basis points.

In previous statements, the RBA has repeatedly signalled its comfort with moderating inflation, which is expected to be within the central bank's target range of 2 to 3 per cent in the next two years.

The Reserve Bank also suggested that a softer than perceived labour market could add to the case for a cut in the cash rate.

"Despite the rate of unemployment showing little change for some time, it was apparent that labour market conditions had softened over the course of 2011," the bank said.

"An easing in average hours worked and a decline in the participation rate were indicative of a softer labour market than implied by the unemployment rate."

On the controversial issue of funding costs for banks, the RBA board noted that Australian banks had taken advantage improved conditions to issue a large volume of secured and unsecured debt.

The minutes note "a significant fall" of around 50 basis points in five years, "which would help to alleviate the pressure of higher funding costs in coming months".

However, the RBA board was also briefed on the costs of term deposits for banks, which has sparked a competition war that has seen costs rise materially relative to the official cash rate.

The board also noted that the lingering debt crisis in Europe "continued to be a potential source of adverse
shocks to the world economy" despite risks to global growth having receded in recent months.

However, the RBA says Spain is the new concern in Europe, given the recent decline in the nation's fiscal position and its soaring bond prices.

Budget surplus pursuit could spark recession and jeopardise prized AAA rating, strategist warns

By Business editor Peter Ryan

A top financial strategist has warned the government's pursuit of a budget surplus could spark a recession and ultimately jeopardise Australia's AAA credit rating.

Christian Carrillo, head of fixed income strategy at Societe Generale in Tokyo, has backed concerns from Australian business leaders that deep spending cuts to achieve a surplus could damage the economy.

Listen to my extended interview with Christian Carrillo.

Read the ABC News Online story here

"In the effort of achieving the budget surplus there is going to be so much money withdrawn from the economy that demand will weaken again and therefore the economy will potentially even dip over into a recession," Mr Carrillo told AM.

"This actually could be magnified if they slow down in demand and potentially in employment causes a downturn in the housing market even more than what we are already observing."

Mr Carrillo told AM that although global ratings agencies will initially applaud the budget cuts, the economic fallout could eventually prompt a review of Australia's prized AAA credit rating.

He pointed to savage austerity programs in Britain and recent warnings that its AAA rating could be downgraded because of the economic impact.

"If Wayne Swan went into a similar type of a strategy and the economy were to slow down significantly because of the pursuit of a surplus the ratings agencies will stab him in the back at the first sign that the economy is losing momentum," Mr Carrillo said.

"You can actually do something like an own goal in which because you tighten fiscal policy so much, you find that perhaps interest rates are biting a little bit, then you could actually cause a downturn in the economy that could in turn, in the future, risk your own sovereign rating."

Mr Carrillo said the Treasurer should heed calls from prominent business leaders that a budget surplus at all costs was a dangerous strategy.

"They are seeing the situation on the ground which is why we are concerned."

Mr Carrillo told AM that reduced demand in the economy resulting in a recession could also harm the already soft housing market.

"The housing market is wobbly at best. Let's just say that demand weakens so much that housing takes a turn for the worst and more seriously. You cannot just say okay, we will achieve the surplus no matter what," Mr Carrillo said.

"The housing market has been looking very poorly for a while in places like Western Australia which was supposed to be the main beneficiaries of the mining boom. Other states in Australia that are arguably in recession and that if you squeeze further from them, I think recession is a realistic possibility."

Foxtel banned from negotiating exclusive internet rights deals in ACCC's Austar merger ruling

The pay TV company Foxtel has been given the go ahead to swallow its regional rival Austar but only after agreeing to strict conditions imposed by the competition regulator.

The Australian Competition and Consumer Commission has banned Foxtel from negotiating exclusive content deals for internet television which had the potential to lock out fledgling IPTV companies such as Fetch TV and Quickflix.

The regulator's concerns centred on Telstra's 50 per cent ownership of Foxtel and the telco's much greater market dominance if the $2 billion deal went unchallenged, particularly in rural and regional Australia where choice is limited.

Listen to my interview with the ACCC's chairman Rod Sims who seems confident the pay TV sector can remain competitive given Foxtel's new dominance.

Read the ACCC's reasons for not opposing Foxtel's merger with Austar.

Here's Foxtel's response to the long awaited ruling from the ACCC.

.

CBS 60 Minutes legend Mike Wallace dies aged 93

As a founding reporter on CBS 60 Minutes, Mike Wallace asked the big prime time questions in the big days of US network television news.


Watch the CBS tribute.

Here's how CNN reported his death at the age of 93.






Check out Mike Wallace's grilling of General William Westmoreland on how much truth was being told about the war in Vietnam.

Mike Wallace was also portrayed by Christopher Plummer in "The Insider" which was based on the 60 Minutes pursuit of "big tobacco".





ANSTO broke competition rules in nuclear medicine tender, Productivity Commission finds

By Business editor Peter Ryan

Australia's government-owned nuclear and scientific agency been has criticised for unfairly using its public ownership to win a contract to supply nuclear medicine to hospitals in New South Wales.

A report by the Productivity Commission has found that the Australian Nuclear Science & Technology Organisation (ANSTO) breached some rules on competitive neutrality when it outbid a small private company, Cyclopharm Limited, in a tender process.

Listen to my report broadcast this morning on the ABC's AM program.

After a nine month investigation into the awarding of the contract, the Commission's Competitive Neutrality Complaints Office found ANSTO breached regulations, suggesting it leveraged the benefits of public ownership in its tender submission.

Cyclopharm referred the complaint to the Productivity Commission last year claiming that ANSTO's subsidiary Petnet had failed to comply with rules on competitive neutrality.

Cyclopharm said the prices included in the Petnet tender did not reflect the true costs and its forecast profits were not commercially acceptable.

In the report released yesterday, the Productivity Commission made two key findings in favour of Cyclopharm's complaint that competition rules were broken.

"Forecasts over ten and 15 years demonstrate that Petnet Australia's operations are unlikely to achieve a commercial rate of return on equity over either time period. This represents an ex ante breach of competitive neutrality policy," the report says.

"To comply with with competitive neutrality policy it would need to adjust Petnet's business model such that it can be expected to achieve a commercial rate of return that reflects its risk profile of the full investment."

Cyclopharm's managing director James McBrayer has welcomed the findings and has called for a shakeup up at ANSTO to ensure small companies are able to compete on a level playing field with government.

Read Cyclopharm's response here.

"We are very pleased with the outcome and feeling quite vindicated through all our efforts over the past nine months," Mr McBrayer told AM.

"We would expect that the New South Wales Department of Health will rescind the tender based on the fact that ANSTO was supposed to be in compliance with competitive neutrality which they are clearly not.

"We would be seeking that the New South Wales Department of Health re-let the tender as we have been disadvantaged from day one. We would expect that the department would do the right thing in awarding us the tender while the review process is underway."

Mr McBrayer called on the federal government to call ANSTO to account to ensure it plays by the rules.

"ANSTO gets about $165 million of taxpayer's funds each year. ANSTO's role is to support Australian industry in this particular area instead of preventing it from happening," Mr McBrayer said.

ANSTO has defended its conduct in the tender process but says it will review the Productivity Commission's findings.

"ANSTO will now carefully consider the report, its recommendations, and the need to ensure continued supply of radiopharmaceuticals to Australian patients," a spokesman said.

“That said, ANSTO notes that Royal Prince Alfred Hospital produces and sells FDG at significantly lower prices than both PETNET and Cyclopharm."

Read ANSTO's full response here. 

The New South Wales Ministry of Health is yet to respond to the Productivity Commissions findings and said it would be inappropriate comment until the report has been completely reviewed.

Phone hacking toll grows as James Murdoch quits BskyB; Murdoch family succession in tatters

Rupert Murdoch's media dynasty has taken yet another blow with James Murdoch resigning as chairman of News Corporation's British pay TV arm, BSkyB.

James Murdoch is facing more questions about the phone hacking scandal gripping News Corporation and says he didn't want the fallout to tarnish BSkyB's reputation.

But it all but confirms that James Murdoch is no longer the most likely successor to his father at News Corporation.

Here's my coverage and analysis broadcast on the ABC's The World Today.

Reserve Bank leaves interest rates on hold at 4.25 percent. April 24 inflation reading now seen as trigger for May rate cut.

Company directors urge government not pursue budget surplus at any cost

A major business lobby group is urging the Federal Government not to push for a budget surplus at any cost.

The Institute of Company Directors (AICD) has warned that business is already hurting from the high Australian dollar and that the pursuit of even a wafer thin surplus could damage the economy.

Read the story on ABC News Online.

An index by the Institute shows 90 per cent of directors surveyed believe the Government's performance is continuing to damage consumer confidence.

According to the index released today, around 60 per cent of directors say it is not vital for the Government to achieve a budget surplus in 2012/13.

AICD chief executive John Colvin told AM that only 26 per cent thought that achieving a budget surplus was vital.

"The view of the directors, or the majority view of the directors, is that that's more of a political aspiration than an economic one," Mr Colvin said.

"Any more burdens to business at this stage of the cycle would be regarded I think as a difficult thing for business and probably counter-productive."

Balancing act

Mr Colvin said that while many company directors would normally urge a budget surplus, most agree the time is not right to make spending cuts that could potentially damage the economy.

"My surmise would be that [directors] would think that a budget surplus is the right thing to do, but trying to do it all at once or in a very quick manner rather than staggered over time, can be hurtful in the short term," Mr Colvin said.

"All businesses have to be careful about paying off debt, making sure the shareholders are looked after, making sure they can spend in terms of investment and what have you.

"It's a balancing act all the time for businesses, so I think they would assume that the balancing act in all those areas is a better way to go rather than sort of just hammering away on a debt level. "

Mr Colvin said that the government would be better focused on issues such as infrastructure, health, education, business regulation and industrial relations.

"Industrial relations was ranked as a number one concern by 20 per cent of those surveyed directors," he said.

"Ninety per cent of directors, which is a very high number, said that infrastructure spending was too low."

The index also says that around 90 per cent of directors still believe the performance of the Federal Government is continuing to hurt consumer confidence.

"Obviously it's negatively impacting on people's willingness to spend and get the economy moving outside the resources and a few other related industries," Mr Colvin said.

Carbon tax

Mr Colvin also identified the carbon tax as an issue affecting business, though for many it was no longer a primary concern.

"Significantly fewer directors, at 16 per cent in this survey down from 31 per cent in November, identified the carbon tax as one of the main economic challenges facing business, although more than 60 per cent of directors still believe that the announcement and the legislation of the carbon tax will impact their business negatively," he said.

"That's pretty much unchanged from the last survey which had about 63 per cent.

"So 60 per cent of directors still believe the announcement of legislation of the carbon tax will impact our business negatively."

Austar chief slams News Corporation pay TV piracy claims as "farcical"

The chief executive of regional pay television company Austar has denied reports that News Corporation promoted a wave of piracy to damage its pay TV competitors.

John Porter, who has led Austar since 1995, told AM the accusations made by the Australian Financial Review newspaper and the BBC are "farcical".

Listen to my interview with John Porter here. 

Read the ABC News Online story here.

Austar shareholders meet this afternoon to vote on Foxtel's $2.5 billion takeover bid for the regional pay TV company, and Mr Porter is firmly backing the offer.

Foxtel is 25 per cent owned by News Corporation's Australian division, News Limited.

Mr Porter says all pay-TV operators deal with hackers and he is not surprised to hear that News Corporation had its own security unit to protect its profits.

"Certainly there was a piracy issue back over a decade ago," Mr Porter said.

"It was the early days of digital satellite transmission, and the whole industry worldwide had a problem; you didn't have to be a Mossad agent to crack the encryption of the early satellite transmission system."

Mr Porter insists that News Corporation did not promote pay-TV piracy; in fact, he says both Foxtel and News Corporation worked to resolve piracy issues around the world.

"I think we would have been aware of a conspiracy in this area," he said.

 

"I mean, it doesn't surprise me that a bunch of security experts would be discussing these issues over a decade ago in the very early days of visual encryption, but we've seen no signs of any conspiracy in this area that would lead me to believe that this story is just not on base."

And he says he would not waste his time reading any of the 14,000 emails published by the Financial Review to support its claims of piracy.

"I find this story to be so farcical that I really don't think it is worthy of my time," he said.

Mr Porter says Austar staff also deal with hackers in their efforts to maintain the security of the company's systems.

"I have a security expert, ex-Australian Federal Police, who works in this area full-time," Mr Porter said.

"Any time you have a secure system in the pay world, people are going to try to hack it. Every so often it moves us to build a better mousetrap."

And Mr Porter insists the value of Foxtel's takeover offer has not been affected by any security operations.

"The scheme arrangement in front of our shareholders is extraordinarily compelling, and I think what happened over a decade ago in the area of security, which was certainly not material to the value of the deal, is completely irrelevant," he said.

Reserve Bank cites sudden worsening in Eurozone crisis as biggest risk confronting Australia and the world

By Business editor Peter Ryan

The Reserve Bank has warned that any new escalation of the Eurozone debt crisis remains the biggest risk to the Australian economy.

In the minutes from its March 6 meeting, the RBA board has provided a reality check on the still fragile state of the global economy and Australia's exposure to Europe.

"The clearest downside risk to the outlook for Australia remained a sudden worsening in the situation in Europe and its flow-on effects to the rest of the world through trade, financial and confidence channels," the boardroom minutes warn.

"Members noted that a sharp slowdown, particularly in east Asia, would have significant implications for commodity prices and demand for Australian exports.

The minutes warn that a resulting "flight from risk" in global markets would see significant changes in credit conditions, the exchange rate and confidence.

While the RBA believes a worst case scenario from Europe is now less likely, it warns "this downside risk could still materialise."

The board minutes show that although the RBA believes the current cash rate setting is appropriate for now, it still has "ample scope" to ease policy as long as inflation remained contained.

The RBA board left interest rates on hold at 4.25 percent this month citing improved conditions in Europe and local comfort about inflation. The RBA cut rates by a total of 0.25 percent in both November and December last year as fears about Europe intensified.

The RBA board also underscored the strength of Australian banks which have been under pressure from higher funding costs on global markets.

"Members noted that the Australian banking system remained in a relatively strong condition," according to the minutes.

"The larger banks were in a better position than a few years ago to cope with the tighter funding conditions given the improvements made to their funding.

"The wholesale funding task had also become more manageable, with deposit growth continuing to outpace credit growth by a wide margin."

The minute also note the impact of the high Australian dollar and the creation of a multi speed economy.

But the RBA believes the booming mining sector is compensating for losses in struggling manufacturing industries which rely on a lower currency.

"Most information thus far has indicated that weakness in parts of the economy - including manufacturing, building construction and parts of the retail sector - was being approximately balanced by the strength in the mining sector and some services industries."

The Reserve Bank also noted that while global sharemarkets had grown ten percent since the beginning of the year, the Australian market was relatively weaker because of a larger weighting on the mining sector.

Corporate watchdog in crackdown on disclosure rule breaches as Leighton is fined $300,000

The corporate watchdog has put Australian companies on notice about their obligations to quickly disclose both good and bad news to the stock exchange.

The warning comes after the construction company Leighton Holdings was fined $300,000 for failing to promptly update investors about costly delays on Brisbane's Airport Link toll road, Victoria's desalination plant and the company's Middle East operations, Al Habtoor Leighton Group.

The delays caused a $900 million profit downgrade but the market was only given the bad news in April last year, three weeks after Leighton became aware of the losses.

The shock downgrade and an associated $757 million capital raising sent Leighton shares into a 12 percent free fall after a trading halt was lifted.

While making no admission of guilt, Leighton agreed to fines of $100,000 for each of the three disclosure breaches and will engage a consultant to overhaul the company's disclosure policies.

The chairman of the Australian Securities & Investments Commission Greg Medcraft told the AM program that the Leighton fines should remind all list companies about their obligations to keep investors fully informed.

Listen to my interview with Greg Medcraft here.

"What we have is an outcome that sends a very clear message to the directors of listed companies that they need to have a close look at what happened at Leightons and make sure that their own governance policies around continuous disclosure are adequate," Mr Medcraft said.

"A company has to immediately notify the exchange of any information that a reasonable person would expect to have a material effect on its price or value of it's securities. It's actually very clear."

Signalling a push for tougher penalties on disclosure breaches, Mr Medcraft said companies were required to disclose bad news material to a share price in the same way favourable developments would be reported.

"You can't just disclose the upside. You must also disclose the downside," Mr Medcraft told AM.

"We have the systems, we have the people and we have the power and where we identify unexplained price movements then the ASX or ourselves will satisfy ourselves as to those unexplained price movements."

Read the background to ASIC's action against Leighton Holdings here.

Leighton chairman Stephen Johns confirmed that as part of accepting the infringement notices the company would implement a formal review of its continuous disclosure policies and procedures.

Read Leighton's response, released to the ASX on Friday evening, here.

"We take our continuous disclosure obligations very seriously and have undertaken to ASIC to implement an independent review of our systems," he said in a statement.

"We recognise that continuous disclosure is extremely important for the efficient operation of the market and will use the review as part of our program to improve the systems that support our business."

Leighton has explained the delay in disclosure by saying it didn't have enough certainty on the scale of the downgrade until a review of its operations was formally concluded with a board meeting on the morning of April 11.

The delay prompted a class action against the company by shareholders who invested between November 2010 and April 2011.

Analysis: Future Fund fallout damages multiple reputations

By Business editor Peter Ryan - analysis

There are plenty of lessons to be learned from this week's ugly stoush over the appointment of the Future Fund's next chairman.

The obvious one goes to the first rule of issues management especially when they involve tens of billions of dollars and big egos - when you're in a hole, stop digging.

First to the personalities.

No one doubts David Gonski's credentials to lead the $73 billion sovereign wealth fund.

But how he unexpectedly won the job is a multi-level case study in how not to manage reputations nurtured and built over years.

The highly regarded Mr Gonski was undoubtedly a clear contender for the role given his multiple chairmanships of listed companies and his status as an honest broker "go-to guy" in business, government and philanthropic circles.

But instead of putting Mr Gonski on a short list of candidates, Finance Minister Penny Wong commissioned him to assess the views of Future Fund guardians on who might be the best successor to David Murray.

It's understood Mr Gonski was told the government's preference was for an internal candidate who could make a smooth transition.

After winning the confidence of guardians, Mr Gonski was given a majority view that the former Treasurer and Fund founder Peter Costello should get the chairman's job.

That "view" rather than a recommendation was relayed to Senator Wong last November. But the Peter Costello's nomination gradually saw the goal posts move and the beginning of damaging speculation.

Mr Gonski makes the point that he was not asked to be a headhunter for the Future Fund role and further, that he wouldn't have accepted such a brief because he might have considered himself as a candidate.

The issue of a perceived or actual conflict of interest was created not by Mr Gonski but by the government's confusing and inconsistent approach to filling a role critical to the superannuation expectations of millions of Australians.

The absence of a clear succession planning strategy has infuriuated Future Fund guardians, in particular the outgoing chairman David Murray who was reappointed last year for a fixed twelve months only days before his term expired.

Mr Murray was choosing his words carefully yesterday when he told me: "the appointment process could have been handled in a more timely manner to prevent speculation about potential candidates."

While describing David Gonski as "a person of stature", Mr Murray would only say he was "a good appointment".

But Mr Murray would not be drawn on whether he thought Mr Gonski was the best man for the job.

The effect of Mr Murray's measured comments and Peter Costello's suggestion that the succession process was a "shemozzle" have the effect of damning Mr Gonski with faint praise.

The fallout from the poorly managed process also makes Mr Gonski's entry as Future Fund chairman far from smooth as his immediate task will be to implement damage control and soothe some bruised egos.

While the Fund's mandate of covering $140 billion of public sector superannuation liabilies by 2020 is been steaming ahead behind the scenes, it has done so despite a high level of instabilty and uncertainty that has the potential to damage Australia's international reputation.

The government's reaction to criticism created by the selection process debacle has also been unnecessarily politicised given that the Fund has built up a reputation for independence and forthright commentary, much of it from the ever dry and direct chairman David Murray.

Rather than maintaining the line that Mr Gonski was "the best man for the job", Communications Minister Stephen Conroy was in attack dog mode yesterday pointing to Peter Costello's political past as a failed contender to replace John Howard as Prime Minister.

And Penny Wong's comment that unlike Mr Gonski, Mr Costello had not been asked to chair any Australian listed companies appears to undermine the status, power and influence of a Treasurer who served for more than a decade.

The public questioning of Mr Costello's credentials also puts the government in the position of undermining one of its key Future Fund guardians who was presumably made a guardian on the basis of his significant background.

Mr Costello has also been damaged by the fallout from his rejection.

Now instead of continuing a corporate life after politics, albeit as a Liberal party elder stateman,

Mr Costello has returned as a partison player who has rejoined the political slanging match to defend his reputation.

The stoush is likely to make current and future governments reluctant to appoint politicians from either side of politics given the "ticking timebomb" factor and in Peter Costello's case on how easily partison poltics can re-emerge.

The unseemly debate also creates boardroom governance issues and whether the Future Fund's integrity can be better preserved through the use of independent selection panels.

The boardroom advisor Nicholas Barnett said the government could consider a process used by BHP Billiton where the board voted on a new chairman and the process was overseen by the accounting firm KPMG.
　
"In an ideal world, the potential future board chair is sitting on the board and doesn't need to be parachuted in and people are getting a good feel for that and well before the due date, six months out." Mr Barnett told me before Mr Gonski was appointed.
　
Mr Barnett also flagged some of the boardroom issues Mr Gonski will be facing in relation to the selection process.
　
"You certainly don't want to be on a board where you do have a conflict and the question is when does that conflict start and stop. Also the perceptions of people in the marketplace are pretty important to take into account."
　
The media storm over the flawed decision making goes to the heart of how big decisions are debated and resolved in Cabinet meaning the next major appointment will be scrutinised to see if lessons have been learned or are doomed to be repeated.
　
Peter Ryan is the ABC's Business editor
Twitter: @peter_f_ryan
www.mainstreetwiththeabcspeterryan.blogspot.com　　

Future Fund appointment process raises questions about succession planning

A boardroom governance expert has criticised the selection process use to appoint David Gonski as the next chairman of the Future Fund.

Speaking before Mr Gonski's appointment was confirmed, Nicholas Barnett said the process raised serious questions about succession planning at the $73 billion sovereign wealth fund.

Listen to the interview here.

Future Fund boss David Murray criticises selection process of successor

The retiring chairman of the Future Fund David Murray has described his successor David Gonski as "a good appointment" and "a person of stature".

Mr Gonski has become embroiled in a political row over his appointment as Future Fund chair after Cabinet rejected the candicacy of the former Treasurer Peter Costello.


Mr Gonski had relayed the view of Future Fund guardians that Mr Costello was the preferred internal candidate.


While welcoming Mr Gonski as "good appointment", Mr Murray stopped short of a full endorsement.


Asked if he agreed that Mr Gonski was the best person for the Fund's top job, Mr Murray said: "I didn't say that. I said he was a good appointment."


Listen to my analysis of the Future Fund row broadcast this morning on AM.


The founding chairman of the Future Fund is known to be frustrated over the appointment of his successor, having agreed to a fixed twelve month appointment a year ago days before his term expired.


"The appointment process could have been handled in a more timely manner to prevent speculation," Mr Murray told me.


Mr Murray was not critical of Mr Gonski and stressed he was highly regarded in the business community.


However, Mr Murray's comments add to criticism about the process of the appointment, poor succession planning and perceptions that Cabinet's rejection of Peter Costello as the Fund's next chairman smacks of poltiical payback.

Surprise jobs fall put rates cut back on agenda

The number of Australians in jobs fell unexpectedly last month, putting new pressure on the Reserve Bank to cut interest rates.

More than 15,000 jobs disappeared in February, pushing the unemployment rate up to 5.2 percent.

Full time employment was flat, despite expectations  that the economy was picking up.

Listen to my analysis broadcast on The World Today.

Here's the breakdown from the Australian Bureau of Statistics.

Bureau of Statistics figures show 15,400 part-time jobs disappeared last month, while the number of full-time jobs remained steady at 8.1 million, taking the total number of people employed to 11.4 million.

Economists had expected 5,000 jobs to be created in the month.

The participation rate - which is the number of people at work or seeking work - fell to 65.2 per cent, from a rate of 65.3 per cent in January, yet the amount of time people spent at work increased by 21.6 million hours.

The male unemployment rate rose 0.2 per cent to 5.1 per cent, while the female jobless rate edged 0.1 per cent higher to 5.4 per cent.

Around the country, Western Australia was the only state to see a fall in the jobless rate, down 0.1 per cent to 4 per cent.

Unemployment rose sharply in Queensland (from 5.4 per cent to 5.7 per cent) and Tasmania (up 0.3 per cent to 7 per cent in trend terms), while it also rose in Victoria (up 0.2 per cent to 5.4 per cent), South Australia (5.2 per cent) and the Northern Territory (4.3 per cent).

And it was steady in the ACT (3.6 per cent in trend terms) and New South Wales (5.2 per cent).

Disappointing growth puts pressure on surplus projections and raises prospect of more rate cuts

The Australian economy grew at a slower pace than expected last year, national accounts figures show.

Listen to my analysis from The World Today.

Australian Bureau of Statistics figures show gross domestic product growth of 2.3 per cent last year on a seasonally adjusted basis, which was slightly less than expected.

Federal Treasurer Wayne Swan acknowledged the result was "somewhat softer" than anticipated and reflected "patchiness" in an economy that was going through structural change.

In the final quarter of the year the economy expanded 0.4 per cent, following expansion of 0.8 per cent in the previous quarter, downwardly revised.

Economists had been expecting much stronger growth of 0.8 per cent for the period.

Global stocks fall as Greece bailout threatens to unravel

Global stocks have fallen on renewed concerns that the latest bailout plan for Greece could unravel by the end of the week.

European markets ended around three percent lower and Wall Street closed 1.5 percent weaker.

The Australian sharemarket followed the lead with the All Ordinaries Index opening one percent in the red.

Investors are also on edge about falling commodity prices and wider evidence that the world's economy is slowing.

Here's my analysis from this morning's edition of AM.

China growth cut unlikely to hurt mining boom - yet

Economists say China's revised growth forecast of 7.5 per cent is unlikely to hurt commodity prices or tame the resources boom.

However, there are concerns that a more acute slowdown could add to concerns about the global economy

Analysts are watching the calibration of China's economy closely, but the government is sending the message that resources boom mark 2 is still on track.

Here's my analysis broadcast on The World Today.

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Reserve Bank holds rates at 4.25 percent; stays on the sidelines, more optimistic about Eurozone

Corporate criminals target mining sector assets

Corporate criminals are prospering amid tight economic times, a survey on global fraud has found.

The report by accounting firm Pricewaterhouse Coopers found white-collar crime was a growing threat, and the mining sector was a particular target.

Half of Australian businesses reported at least one case of economic crime in the past year - a much higher rate than recorded in the Asia Pacific overall - with some suffering losses of more than $5 million, according to the survey. 

Listen to my interview with PWC forensic partner Malcolm Shackell who told The World Today there had been a large rise in expense fraud and false invoicing.

"The typical business criminal is an employee, typically they're male and they've been employed between three and five years in the organisation and usually have a managerial role," Mr Shackell said.

"Most of them are after financial gain, and they will seek that through the theft of assets and funds.

The report found cybercrime was the second most reported economic crime, as individuals have more ways to access information in an organisation.

"Interestingly what we are seeing more of now is of course the cyber criminal, and the cyber criminal is after information because information these days has value," he said.

And Mr Shackell says the criminals also are selling disused equipment, which can be very valuable, particularly in the mining sector.

"Also, interestingly, there is a thriving black market around old assets, particularly in industries
such as mining and also construction," Mr Shackell said.

"So what we are seeing is the fraudulent writedown of assets, and these things are then being on-sold in the black market or through auction sites."

Investors push to de-Murdoch News Corporation board

James Murdoch's resignation as executive chairman of News International is the latest chapter in damage control stemming from phone hacking at The News of The World.

The decision also takes James Murdoch another step away from succeeding his father Rupert as chairman and chief executive of News Corporation.

But the news could be worse the James Murdoch.

News Corporation shareholders are increasingly angry about the damage the scandal is doing to the company's reputation and share price.

London's Guardian newspaper has reported that some are already drafting resolutions for this year's annual general meeting to remove James Murdoch from the News Corporation board.

The moves add to speculation that when Rupert Murdoch finally retires or dies, his successor is unlikely to be a Murdoch but News Corporation's president and chief operating officer, Chase Caret.

Listen to my analyisis from AM, and see below for coverage on ABC News Breakfast.

Business wants to get back to business now the Labor leadership is resolved

The Business Council of Australia has welcomed Julia Gillard's overwhelming victory in Monday's labor leadership ballot.


BCA president Tony Shepherd hopes the clear outcome in favour of the Prime Minister will end a period of uncertainty for business and kickstart the debate of major policy.


Mr Shepherd  says while Australia's economy remains solid, its reputation has taken a mild hit because of the instability.


I interviewed Mr Shepherd for The World Today shortly after the vote was made public.

RBA chief says big banks "not excessively profitable"; thinks stellar rise of Australian dollar "a bit odd"

The governor of the Reserve Bank says the Australian banking sector is not too profitable.

Listen to my analysis broadcast on The World Today.

Appearing before the House of Representatives Standing Committee on Economics, RBA governor Glenn Stevens said that if he had to choose between unprofitable and profitable banks he would chose the latter.

"You only have to look at the dimension of the banking problems in Europe to see we don't want banks that can't earn a good return," Mr Stevens said.

"Are they too profitable? Our assessment is if you look at the rates of return on equity at our banks over a lengthy period of time they're actually broadly in line with the listed company sector in general."

The big four banks have recently come under scrutiny for raising their variable mortgage rates outside the Reserve Bank's official cycle while at the same time posting record profits.

The banks have blamed weak lending growth and rising funding costs for their rate rises as the eurozone's sovereign debt problems slow economic growth around the world.

Mr Stevens also told the committee he had no plans to intervene in currency markets to reduce the strength of the Australian dollar.

The manufacturing and export sectors have come under pressure as the dollar holds at historically high levels.

Thousands of jobs have been slashed in those industries as a result, but Mr Stevens does not believe intervention would be effective at this stage.

He said Australia's natural resources and its proximity to Asia were behind the currency's strong rise.

"I'm not saying we'd never do it, but we have not done so to date," Mr Stevens said.

"We do continue to ask ourselves whether what's happening in the currency markets makes sense.

"The most recent bout of strength is happening at a time when the terms of trade have actually peaked and started to come down. That is a bit odd, but we'll see what happens."

Business heavyweight Graham Bradley warns labor leadership stoush is damaging economy

One of Australia's most powerful business leaders has warned that the battle for the Labor leadership is damaging confidence in the Australian economy.

The chairman of HSBC bank and Stockland property group, Graham Bradley, told AM that important policy debate was being sidelined by the showdown between Prime Minister Julia Gillard and Kevin Rudd.

Read the story on ABC News Online here.

"Changes of leadership are destabilising - they affect consumer confidence and they affect business confidence - and the fact that there's going to be a lot of distraction with federal ministers over the coming months can't be helpful," Mr Bradley said.

Mr Bradley said the Government's relationship with the business community had deteriorated in the past year, but he would not be drawn into the debate about who should lead the Labor party.

"We'd welcome any leader, as we welcome Julia Gillard's commitment to better consultation with business around business regulation and a better understanding of the challenges of business," he said.

Mr Bradley also called for the carbon tax to be reviewed.

Ombudsman says some insurance company sales staff don't understand the policies they sell; customers not the only ones confused

The General Insurance Ombudsman has expressed concern that workers in the industry do not always understand the policies they sell.

Read the story on ABC News Online.

The fears have been raised as the insurance industry tries to rebuild its reputation, which was tarnished by its handling of last year's cyclones, floods and bushfires.

In all there were eight official disasters, 275,000 claims and losses of $5 billion.

Ombudsman John Price told AM there must be a greater focus on training and communication in the industry to ensure frontline staff provide customers with clear information.

"Policies do not clearly inform individuals, and it's not only the consumer that's confused - it's also the salespeople that are confused," Mr Price said.

"And if the salespeople trained by the industry are confused as to what the cover offers then how do you expect the consumer to understand?"

The industry is trying to head off tougher regulation of policies and payouts after complaints that some claims were either unpaid or unresolved.

Reserve Bank defends bank claims on higher funding costs

The Reserve Bank has backed claims by major commercial lenders that higher funding costs are forcing them to pass on new costs to borrowers through independent interest rate increases.

In the minutes from its board meeting on February 7, the RBA confirmed that funding costs were "significantly higher" than in the middle of 2011 because of a dislocation of bank debt markets.

"The cost of swapping funds raised in offshore markets into Australian dollars has increased in recent months," the RBA noted. 

Listen to my analysis broadcast on The World Today shortly after the RBA minutes were released.

The minutes say that at the same time, banks continued to compete for deposits, meaning reductions in deposit rates had not fully matched the cumulative 0.5 per cent cash rate cuts in November and December.

"Collectively, these developments had increased banks' overall cost of funding relative to the cash rate and had narrowed the difference between banks' lending rates and funding costs," the board noted.

The Reserve Bank surprised most economists a fortnight ago by leaving the cash rate on hold at 4.25 per cent.

According to the minutes, the RBA board judged the current setting to be "appropriate" given the overall economic outlook.

Major banks responded with independent increases in their standard variable rates, fuelling anger from Federal Treasurer Wayne Swan, borrowers and consumer groups.

The RBA's defence of the higher funding cost argument counters claims by Societe Generale's head of strategy in Asia, Christian Carrillo, that banks were wrong to claim funding costs on global markets were higher.

"What we have seen over the last six months is that overall funding costs for Australian banks have absolutely come down," Mr Carrillo told AM.

"Research suggests that effectively pretty much every source of funding that they use - in terms of domestic deposits, short-term funding onshore, long-term funding onshore - has actually gone down. "

Bluescope boss calls company "bipolar" as he posts a $530 million half year loss

Bluescope Steel has reported a loss of $530 million for the first half of the financial year due to restructuring costs and weak trading conditions.

The result was nearly 10 times the $55 million loss posted in the same period last year, bu
t includes $260 million for restructuring.

Here's my analysis broadcast on The World Today.

Read the story on ABC News Online.

Last August, the steelmaker posted a full-year loss of $1 billion and slashed a total of 1,000 jobs at its Port Kembla steelworks in New South Wales and its Western Port steel mill in Victoria.

Chief executive Paul O'Malley says the company expects to record a much smaller loss this half as the benefits of the restructure flow through to the bottom line.

"Really the story is of a bipolar company in many respects," Mr O'Malley said.

"The Australian business is really challenged but we have taken significant steps to restructure and improve that performance, and as I mentioned we'll start to see improvements - material improvements - in that business performance in the coming months."

Bluescope Steel shares fell as much as eight percent at one point.

Business warns Labor leadership war is damaging confidence, demands swift resolution for "good of the country"

One of Australia's biggest business lobby groups has denied reports it has been approached by Kevin Rudd or his backers to rebuild bridges with business.

Read my coverage on ABC News Online.

Labor's leadership crisis appears to be near breaking point, with supporters on both sides telling the ABC the brawl could be resolved as early as this time next week.

The Labor caucus is due to meet next Tuesday, February 28 unless a special meeting is called to put the party leadership, and therefore the prime ministership, to a vote.

This morning the Australian Chamber of Commerce and Industry (ACCI) called on the Labor caucus to resolve the leadership debate for the good of the country.

ACCI chief executive Peter Anderson said he was agnostic about who should be Labor leader, but speaking to me on AM, warned the matter needed to be resolved "for the good of the country."

Air Australia grounded stranding 4,000 passengers. Unable to buy fuel at Phuket International Airport

Creditors of Air Australia and thousands of stranded passengers face a nervous wait to see if they will be left out of pocket by the budget airline's collapse.

After just four months of operation, Air Australia's entire fleet was grounded on Friday morning after administrators discovered there was no money to meet basic operational expenses.

As first reported on Friday's AM program,  Air Australia was unable to purchase fuel at Phuket International Airport.

The Brisbane-based airline employed 300 staff and flies to Hawaii, Bali and Thailand, where many passengers have be told to make alternative arrangements.



ABC Business editor Peter Ryan on speculation about Qantas job cuts

Qantas axes 500 jobs and warns more to come as heavy maintenance operations are reviewed

Qantas chief executive Alan Joyce today confirmed the the airline is sacking at least 500 workers and reviewing hundreds of maintenance positions after reporting a sharp fall in first-half profit.

The airline made $42 million in the six months to the end of December, down 83 per cent on the $241 million it made a year earlier.

I interviewed Alan Joyce shortly after the sackings were revealed in Sydney this morning.

Listen to it here.

Mr Joyce said the fall was due to industrial action, which led him to decide to ground the airline's entire fleet last year. Qantas says the bill for last year's action cost the airline $194 million.

He announced a five-year plan involving changes in engineering, maintenance and ground handling services to make the airline more globally competitive.

Earlier, there was speculation that as many as 1500 sackings would be announced.

However, Mr Joyce said there would be a 60 consultation period with staff and unions.

Commonwealth Bank boss holds out hope of lending rate cut if global conditions improve.

The chief executive of the Commonwealth Bank has held out the possibility of an independent cut to its lending rates if global financial conditions improve.

Ian Narev, who succeeded Ralph Norris as the CBA's boss late last year, says the bank will cut rates if funding conditions are "appropriate" but warned that any move in the short term was unlikely.

Listen to my interview with Mr Narev broadcast on this morning's edition of AM.

Here's the story on ABC News Online.

Australia's biggest home lender yesterday announced a 19 per cent rise in first half profit to $3.62 billion as the political debate about independent rate increases continued to flare.

Mr Narev told AM, however, that if conditions such as funding costs on global markets improved he would consider giving borrowers relief with a cut to lending rates.

"We certainly would consider that, I mean we're in a competitive market and therefore fundamentally we're making an assessment of both the competitive dynamic and the funding costs and in the appropriate circumstances we certainly would be willing to cut our rates," Mr Narev said.

But Mr Narev responded cautiously when pressed on when any cut could come and he ruled out a move the coming year.

"I can't see it coming, quite candidly, in the near future, but I've said a number of times that even the near future is difficult to predict so we really can't rule anything out," he said.

Commonwealth Bank delivers $3.6 billion profit but repeats that funding costs have increased. Says there are no "major" plans for job cuts or offshoring

Commonwealth Bank has defied analysts' estimates and recorded a net profit of $3.62 billion, up 19 per cent on the same period last year.

The bank's preferred measure, cash profit, came in at $3.58 billion for the six months to the end of December.

Speaking to analysis this morning, chief executive Ian Narev said the bank was committed to its 52,000 staff and had no plans for major job cuts or offhshoring.

Here's my analysis from The World Today.

The bank says it is becoming increasingly hard to make money from home loans.

In his first results announcement, Mr Narev said it was becoming harder for the bank to make money from home loans but he had seen no sign of customers leaving after the bank's recent increase in its variable mortgage rates.

China signals it might assist in Eurozone bailout - but not just yet.

China has signalled that it's willing to get more deeply involved in resolving Europe's debt crisis.

However, Beijing is being cautious and wants to see more evidence of how Europe is working to resolve its financial woes before putting its hand in its pocket.

So far China has been investing in sovereign bonds and has been supporting the European Financial Stability Facility, but China is wary given that it's already holding US$1.5 trillion of debt from the United States.

China's premier Wen Jiabao has been meeting in Beijing with EU president Herman Van Rompuy, who was doing his diplomatic best to convince China to take on a new customer.

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

Reserve Bank fights back on interest rates; says it still pulls the levers on monetary policy

The Reserve Bank has downplayed suggestions that commercial banks are pulling the levers on interest rates.

RBA assistant governor Guy Debelle told a business function in Sydney that moves by the big four banks to lift their mortgage rates outside the central bank's cycle would not alter the influence of monetary policy on the economy.

Listen to my analysis from The World Today and see the story on ABC News Online.

There was an element of fight back in Mr Debelle's speech this morning, given suggestions that the banks were thumbing their nose at both the RBA and the Federal Government, with Federal Treasurer Wayne Swan pressuring banks for months not to lift their rates independently.