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.

Listen to my interview with Oxfam Australia chief executive Dr Helen Szoke broadcast on The World Today 

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".

Pressure ramps for Royal Commission into bad banking behaviour

Pressure is continuing to ramp up for a Royal Commission into unethical banking behaviour.

The Opposition Leader Bill Shorten wants the government to consider the option while some Coalition and Labor backbenchers think it's the only way of getting to the truth.

Liberal MP Warren Entsch says Australians have lost faith in the integrity of the banking system, accusing banks of "bastardry and blackmail".

Mr Entsch's comments follow similar calls from Nationals senator John Williams and Labor senator Sam Dastyari.

Listen to my report from The World Today broadcast on the ABC.

Bank of Queensland surprises customers with rate hike

Bank of Queensland cites tougher regulatory requirements for announcing a rate increase on owner-occupied and investor home loans from 15 April.

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

Older and casual workers in Aust more vulnerable in mass layoffs, warns OECD

Older workers and casual and part-timers are more likely to be laid off as Australia's manufacturing industry continues to shrink, according to a global report out this morning.

The warning comes from the Paris-based Organisation for Economic Cooperation and Development (OECD) which says older Australians struggle the most to find a new job which is usually much lower paid.

The OECD's call to improve services for laid off workers comes as the steel maker Arrium announced it was going into voluntary administration, putting the future of its Whyalla steel operations in further jeopardy.

Listen to my interview with the OECD's Christopher Prinz broadcast on AM

The author of the OECD's study into Australian layoffs, Christopher Prinz, told the ABC's AM program that better employment services were needed for laid off workers, in particular older ones.

"It's not only older people who are affected but what we do still continuously find is if it is older people who are laid off, they have a much harder time to find back into the labour market," Mr Prinz said.

"These are people who have had good jobs for a long time and all of a sudden, unprepared, they need to find a new job and that is not straight forward."

The OECD's report comes as local manufacturing remains under pressure, especially with the Australian dollar remaining well above 70 US cents despite official interest rates at the historic low of two percent.

The concerns also coincide with the demise of Australia's car industry as Holden, Ford and Toyota prepare to close local operations over the next two years.

"These are exactly the cases in which some policies are in place to help people who lose their jobs because of bigger restructurings and the big mass layoffs," Mr Prinz said.

"We are getting older and older the age from which you are considered like an older worker hasn't really changed but partly it is to do with the fact that there are people who have been out of the education system nevertheless for 25 years and therefore, of course, given how fast things develop, their skills might be outdated."

The OECD report says the current flashpoints in Australia include manufacturing and the forestry industry in Tasmania.

Mr Prinz told AM that laid off workers needed special services from government to unsure that are appropriately skilled for new roles.

"I think it's really about anticipating change, about preparing people for change, about up skilling people all the time not only once they have lost their jobs".

Westpac to "vigorously defend" rate rigging allegations; trader says actions "completely wrong"

Westpac has become the latest of big four banks to become embroiled in a financial scandal.

The corporate watchdog ASIC is taking Westpac to court alleging it rigged a key market interest rate over a two year period - another dent in the credibility of the banking sector.

The scandal confronting Westpac follows similar rigging allegations recently levelled at the ANZ while the Commonwealth Bank is in damage control over unethical behaviour at its insurance arm, CommInsure.

It sounds like financial jargon but the bank bill swap rate, or the BBSW, is the rate set in a five minute window every day that determines what banks charge to lend to each other.

For banks it can mean hundreds of millions or billions of dollars in profit. For regular people it sets benchmark rates on corporate loans, business loans, mortgages and credit cards.

Listen to my report from this morning's edition of AM

The corporate regulator ASIC alleges Westpac manipulated the BBSW for two years between April 2010 and June 2012.

In a statement of claim filed with the Federal Court ASIC accused Westpac of a pattern of behaviour that amounts to unconscionable, misleading and deceptive conduct.

Source: ASIC statement of claim 

Westpac's trading had the effect or likely effect of causing the 30 day BBSW to set at a rate which did not reflect genuine forces of supply and demand and of creating an artificial price.

ASIC interviewed around 50 Westpac staff and cites recorded telephone conversations illustrating the high stakes pressure on traders who allegedly push the limits, including this one from Colin Roden, Westpac's managing director of group treasury who is quoted as saying he "knew it was completely wrong":

Source: ASIC statement of claim

The Westpac allegations follow similar action ASIC is taking against the ANZ Bank over the alleged rigging of the bank bill swap rate.

The National Australia Bank and the Commonwealth Bank have been damaged in unrelated scandals involving unethical financial planning, while the CBA is reeling from claims of unethical behaviour at its insurance arm, CommInsure.

Westpac has responded cautiously and says it will vigorously defend itself against ASIC's rate rigging allegations.

Source: Westpac statement 

Nationals Senator John Williams has been crusading against the big banks since his election in 2008 and he says a royal commission into banking bad behaviour is now critical.

"When I was a young fellow back in the 70s, when I first started work, the bank manager was probably the most trusted person in your town and community. I don't think that's the case today," Senator Williams told the ABC's AM program.

"As time goes by the case builds stronger and stronger in my opinion for a royal commission into the finance sector.

"My concern is the culture is simply profit, profit, profit and to hell with the customers".

APRA boss says no room for complacency about new GFC

The chairman of the Australian Prudential Regulation Authority has warned Australia should not be complacent about its ability to dodge another global financial crisis.

Wayne Byres told a conference in Sydney that after the build-up to the Wall Street meltdown in 2008, the regulator is now more active and prepared to intervene.

Listen to my report from The World Today

Mr Byers, who was not APRA chairman until 2014, had a sombre reality check about his mission to maintain a resilient banking system in Australia as the fallout from the GFC continues to resonate around the world.

"We shouldn't kid ourselves that the worst of the problems elsewhere couldn't occur here or that there hasn't been a healthy dose of luck involved," Mr Byres said.

"We can't be complacent. After 25 years of economic expansion, it would be a surprise if the banking system wasn't in good shape.

"But put simply, when adversity arrives - and at some point it will - we want the banking system to help alleviate rather than exacerbate problems. Ideally it’s a shock absorber not an amplifier."

Mr Byres also responded to last night's 7.30 program which revealed secret APRA documents from 2007 show that lax lending standards by banks could have could a serious question or a banking crisis.

In response to questions from the ABC, Mr Byres signalled the regulator had ramped up its supervision of bank lending standards between 2007 and now saying some of the issues were "eerily similar".

"I don't think the issues were all that different but broadly speaking the issues that were on the radar screen then - buoyant housing lending, commercial property lending standards - are all things that are on our agenda again.

"This time around we've been a bit more active and interventionist maybe than we were last time but I don't think the issues have particularly changed that much."

The former Treasury secretary, now chairman of the National Australia Bank, Ken Henry agreed Australia remained exposed to a new global shock.

And he revealed that in scenario planning in the lead up to the Wall Street collapse, the potential meltdown of the global financial system was not seen as a real possibility and that being locked out of financial markets was the main concern.

"We asked ourselves the question -  in what circumstances could that worry cause a real problem for Australia. And we came up with one and we thought it was so left field that there was no point worrying about it," Mr Henry told the conference.

"And you know what it was? A meltdown of the global financial system.  This remains a risk for Australia and our best protection is a strong public sector balance sheet, that's our best protection."

Lifestyle expectations exceed economic reality, MLC survey shows

With the government likely to make tough decisions on superannuation in next month's Budget, more Australians are worried they won't be able to pass on today's lifestyles to their children.

A survey by the National Australia Bank's wealth arm MLC shows almost two-thirds of Australian believe the next generation will never be able to buy their own homes.

Around half of the two thousand people surveyed don't think they can sustain their own standard of living in a decade's time and a fifth are relying on a family inheritance to pay off their mortgage.

Listen to my report from "The World Today" on the ABC

MLC chief executive Andrew Hagger says expectations that future generations will do better than today's taxpayers is fast fading.

"We know that maintaining our lifestyle and financial security are our top priorities for Australians. However, Australians are telling us they are worried," Mr Hagger said.

"There has always been the expectation that future generations will do better than us. Yet these findings paint a different picture. It's concerning to see so many people worried about how their children will afford their own homes and live a comfortable lifestyle."

The MLC survey shows:

* two-thirds of Australian parents don't believe their children won't achieve the same lifestyles as them

* almost 1 in 5 Australians are relying on the family inheritance to pay off their mortgage

* more than a third of Australians believe they will be relying on the Australian government during retirement

MLC's general manager of corporate super Lara Bourguignon says the research indicates the lifestyles of the baby boomer generation are no longer sustainable.

"The cost of living and the mortgage absolutely rule our financial lives," Ms Bouguignon told the ABC's AM program.

"Many worry that today's young people will struggle to build the same kind of life that their parents generation has enjoyed."

Ms Bouguignon said that without structural change and lower expectations, standards of living could slide over time.

"Twenty years of economic prosperity has been led by the mining boom. Australians are aware the mining boom has tapered out and they're not yet confident where that next wave of growth is coming from."

Ms Bouguignon says the federal government needs to confront hard decisions in the May 3 budget and that the funding of retirement needs to be a national priority.

Cash-strapped mining minnow throws desperate switch to Hollywood

It's a sign of the times as the once in a century mining investment boom rapidly fades.

Cash-strapped resource companies are having to diversify to survive and some are taking unusual and perhaps desperate measures to stay in business.

The West Australian copper, platinum and gold explorer Artemis Resources has literally thrown the switch to Hollywood and will bankroll a B-grade action movie, "Tango Down" which is set to be released next year.

Listen to my report and interview with Ed Mead broadcast on "The World Today"

The $8 million investment from Artemis comes as the resources sector is being crunched  by record low commodity prices that are also damaging much bigger mining and energy players like BHP Billiton, Rio Tinto, Woodside and Santos.

Artemis chief executive Ed Mead says the investment is all about providing a glimmer of hope to shareholders who have seen the value of their investments evaporate to 0.0001 cents a share.

"The opportunity present by Tango Down aligns with our commitment to deliver shareholder returns," Mr Mead told investors describing it as "an exciting investment opportunity".

Despite the bankrolling "Tango Downs", Mr Mead signaled it was more of a one-off sideshow rather than Artemis shelving its mining interests all together.

"We will continue to maintain our focus on our prospective gold and base metals projects in the West Pilbara region of Western Australia."

If "Tango Down" is successful. Artemis shareholders could benefit from 20 percent of all profits.

Artemis, which is current valued at just $3.6 million, is betting the film will gather a following given the cult status of writer and lead actor James C. Burns who is famous for the video games "Call of Duty Black Ops" 1 and 2.

But changing with the times is not new for struggling mining companies.

During the "dotcom" boom back at the turn of the century, small operators used their ASX listings to raise money for fledgling technology companies many of which disappeared when the dotcom flash turned to ash.

Seven West warns media reforms could erode local content; wants licence fees axed

While the Prime Minister works to sell his proposed tax reforms to state and territory leaders other government business is continuing behind the scenes.

This morning, the Senate inquiry into proposed changes to Australia's media laws has been hearing from the Seven West media empire which has described the reforms as "dangerous" and "piecemeal".

Chief executive Tim Worner wants the government to abolish commercial broadcast licence fees so broadcasters can better compete with the likes of Netflix, Stan, Facebook and Google.

Listen to my report broadcast on "The World Today" 

Fed to "proceed cautiously" on US rate rises; Janet Yellen dovish amid global jitters

The US Federal Reserve appears unlikely to raise interest rates in the coming months after it's chair Janet Yellen said the world's biggest central bank would "proceed cautiously".

The increasingly dovish language from Dr Yellen comes amid concerns that the recovering US economy remains exposed to the global economic slowdown and potential fallout from a hard economic landing in China.

The Fed recently signaled that rate rises in 2016 had been scaled back from four to two quarter point increases as inflation remains stubbornly low at 1.7 percent and on a slow track to the target of two percent.

"Developments abroad imply that meeting our objectives for employment and inflation will likely require a somewhat lower path for the federal funds rate than was anticipated in December," Dr Yellen told the Economic Club in New York.

"Given the risks to the outlook, I consider it appropriate for the Committee to proceed cautiously in adjusting policy."

The US central bank raised rates from their near zero levels in December for the first time in almost a decade, signalling the emergency from the Wall Street meltdown in 2008 was over.

When the Fed kept rates on hold earlier this month at between 0.25 and 0.5 percent, it pointed to global market volatility, record low oil prices and concerns about China's economy.

But Dr Yellen still has an "expectation of fading headwinds" that will keep the Fed on track for "gradual increases" as appropriate given that the US economy has proven to be"remarkably resilient."

"The overall fallout for the US economy from global market developments since the start of the year will most likely be limited," Dr Yellen said.

Growing expectations that US rates will remain on hold for the next few months saw Wall Street stocks rally with the Dow Jones Industrial Average closing 0.56 percent higher.

The US currency fell and as a result the Australian dollar surged by more than one percent to 76.3 US cents.

Dr Yellen's caution reins in comments from other FOMC (Federal Open Market Committee) members that another rate hike was likely in April or June.

Blackrock fixed income chief Jeff Rosenberg said Dr Yellen's comments were unexpectedly dovish and pushed out rate rise forecasts.

"We're pricing out expectations and reducing our probability of expectations for when that next interest rate hike is going to come if it ever does come," Mr Rosenberg told Bloomberg.

Dr Yellen's dovishess comes as major central banks around the world - including the European Central Bank and the Bank of Japan - pursue a negative interest rates strategy.

Blast from the past - former Telstra boss Sol Trujillo on Bloombergthis morning

A very quiet Easter Monday morning with markets closed in Australia and not much going on elsewhere.

Bloomberg TV in the US was running a pre-recorded Charlie Rose program looking at Latino issues in the race for the  White House.

A special guest who took my eye was Sol Trujillo - the controversial former boss of Telstra here in Australia.

I managed to get one interview with Mr Trujillo for the ABC's "AM" program back in 2008 just as his tenure was looking shaky ..

Who commissioned BIS Shrapnel report on negative gearing; what were their motives?

          There is a old - and yes cynical - saying in the world of consultancy.

He who commissions research and writes the parameters can usually expect a desired outcome.

In the world of journalism, there are also simple checks and balances that apply to the deluge of reports and releases that hit the inboxes of journalists who are more time poor than ever these days.

Usually there is enough of a raised eyebrow from this reporter when a company, organisation or interest group declares it has commissioned research that deals with issues relating to the fortunes of its business.

But there were new questions late on Wednesday when an email from the highly regarded economic forecaster BIS Shrapnel landed in my inbox.

The executive summary outlined potentially catastrophic consequences of mooted changes to the negative gearing of residential investment properties and that the fallout from limiting tax deductibility would "go well beyond any tax saving to the Federal budget".

Given the debate over negative gearing and the fierce lobbying by groups with vested interests to leave it alone, I had a few questions for BIS Shrapel given that I had only received a executive summary riddled with potential headlines.

Also, unusually, I noticed there was no declaration on whether the research had been commissioned or conducted independently by BIS Shrapnel.

So I put the question to BIS Shrapnel and the answers raised a few suspicions about the spin of the study and how we should handle a hot report that missed a vital factor - who commissioned it and what outcome were they looking for?

"Could you just confirm that this is independent research by BIS or has it been commissioned? I just need to know given the various interests in this debate," I asked in an email.

"Totally understandable of course. It has been commissioned, by whom I have not been told, but I’ve been told the information is confidential," came the answer.

"If we were to touch this we’d need to say who it was commissioned by. As you know there are many interests in the negative gearing debate so we need to declare all info where we can," I responded.

I passed on this information about the BIS Shrapnel report to the executive producer of "AM" Ashley Hall given the program's coverage of the political stoush over negative gearing and the government's attack on Labor's policy.

I learned the Treasurer Scott Morrison had been scheduled to appear on AM the next morning so we agreed the questions over the BIS Shrapnel report could be put to him.

Mr Morrison seized on the report as an indictment of the Labor policy. But he told presenter Michael Brissenden the research was valid despite questions over who commissioned and paid for it.

Listen to the interview here

MICHAEL BRISSENDEN: it's also politically convenient for you, for your political argument at the moment. Who commissioned it?

SCOTT MORRISON: I don't know. I mean you'd have to ask BIS Shrapnel. BIS Shrapnel have released reports …

MICHAEL BRISSENDEN: Well, they won't tell us. 

SCOTT MORRISON: Well, that's a matter for them. You'd have to ask them. 

But BIS Shrapnel has been around a long time and people like Frank Gelber, you know, who I knew many, many years ago and you know he's done, he's well respected in the community. 

MICHAEL BRISSENDEN: But they usually don't, they're usually not reluctant to tell us who commissioned any report

SCOTT MORRISON: Well, I have no idea who's commissioned it. 

MICHAEL BRISSENDEN: Isn't that an important detail? People will want to know. This is a central piece of the argument and how can anyone trust it?

SCOTT MORRISON: Well, because it's BIS Shrapnel's report. I mean everybody knows who BIS Shrapnel is. They've set out what their assumptions are, they've set out what their analysis is and they are a respected economic consultancy firm. 

But did Scott Morrison seize on the incendiary findings of the report too early especially given questions about its genesis?

Shortly after, the author of the report revealed it had actually been written in 2015 and was not related to Labor's negative gearing policy.

Extract from BIS Shrapnel report

But still, a very big question remains over who commissioned the research.

An initial suspect, the Property Council of Australia- which has a vested Interest in tearing down negative gearing changes - outright denied it commissioned the report.

Chief executive Ken Morrison told me if the Property Council had commissioned the research it would have certainty put its name to it. And from past experience, journalists phones would have been ringing well ahead heralding the findings.

So who paid for the research? The question is all the more intriguing and important given the sensitively of the matter and suspicions that the warnings of economic Armageddon have been inflated.

All of this is a reminder to journalists to be ever cautious and to nurture a healthy suspicion about media releases, research and spin from stakeholders with vested interests.

It is also a reminder to politicians that the back story to research can be more important than the headlines - especially when no one really knows who commissioned and paid for the spin and what their true motives are.

RBA cautiously upbeat on economy but says China remains flashpoint

The Reserve Bank has delivered a cautiously upbeat report card on the Australian economy in the face of global financial turmoil.

But the RBA has repeated that despite local optimism, uncertainly about the outlook for China and the management of its economic slowdown remains a potential global flashpoint.

In its quarterly economic snapshot released today, the central bank has signalled qualified optimism about the local outlook given a falling jobless rate, low inflation, a lower Australian dollar and evidence the transition out of the mining boom is starting to take hold.

"Non-mining business investment is forecast to pick up in the second half of the forecast period, reflecting the improvement in domestic demand," today's statement says.

"There has been a noticeable improvement in labour market conditions that was not anticipated at the time of the previous statement.

The official unemployment rate for December fell to 5.8 percent after peaking at 6.3 percent during 2015, down by 0.5 percent.

"Also the low growth of wages is likely to have encouraged businesses to employ more people than otherwise," the RBA says.

The RBA also points to low headline and underlying inflation in addition to lower petrol prices caused by the plunge in global oil prices.

The outlook makes no material change to to economic growth outlook which it expects to increase gradually over the next two years to "be a bit above the decade average."

The RBA expects growth remain steady at between 2.5 and 3.5% to December 2016, slightly better that the forecast in November with headline inflation of between 2 and 3 percent for the same period.

However, the RBA says uncertainty about China and concerns about its economy remain a key focus for Australia.

"The outlook for China continues to be a key source of uncertainty for the forecasts," the RBA says.

"The recent bout of global financial market volatility has been characterised in part by concerns about the evolving balance of risks in China and the ability of Chinese authorities to manage a challenging economic transition.

"Any sharp slowing in economic activity in increase in the financial stresses in China could spill over to other economies in the region."

The RBA has warned that any unexpected fallout from China would "adversely affect commodity prices including those that are important to Australia" such as iron ore.

While plunging oil prices have damaged the balance sheets of global giants like BP and Royal Dutch Shell, the RBA believes lower oil prices will continue to support growth in Australia's major trading partners.

The RBA repeated the easing bias contained in Tuesday's interest rate decision when the cash rate was left steady at the historic low of two percent.

"Continued low inflation may provide scope for easier policy should that be appropriate to lend support to demand."

The RBA has also noted that significant steam appears to gone out of the hot real estate markets in Sydney and Melbourne.

It says building approvals have declined but remain at still high levels while housing prices "have declined a little" and auction rates have fallen.

Commodities crunch sees BHP Billiton hit with rating downgrade

The commodities crunch has dealt a serious blow to the credit risk profile of BHP Billiton.

The ratings agency Standard & Poor's has downgraded BHP's credit rating to A from A plus to reflect changes in forecasts for commodity prices.

In a statement, Standard & Poor's said the decision reflected "very challenging market conditions and increased demand uncertainty over the coming years".

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

"Metal prices have come under pressure because of fears of lower demand from China, and excess supply remains an issue," S&P said.

"Particularly relevant for BHP Billiton, the oversupply of crude oil in the market results in very weak oil and gas prices, which we now believe will last over the foreseeable future, putting further pressure on its balance sheet."

S&P has also placed BHP on "credit watch with negative implications" and has signaled the miner's rating could be taken a notch lower after it releases its earnings later this month on February 23.

BHP responded to the downgrade saying it "has the strongest credit rating in the sector and remains committed to maintaining its strong balance sheet through the cycle."

The S&P downgrade comes as BHP struggles to maintain its progressive dividends to shareholders in the face of global turmoil and falling commodity prices.

BHP chairman Jac Nasser late last year refused to guarantee the progressive dividend would survive but said it as an "important distinguishing feature" for the company.

BHP maintains an A plus credit rating at Fitch Ratings and an "A1" assessments at Moody's which has the miner on review for a downgrade.

The miner's shares have plunged as result of the commodities crunch and fears about China's economy.

BHP shares ended 0.65 percent lower yesterday at $15.25

ACCC pursuit of Woolworths to be long and complicated

View from Level 18, Federal Court in Sydney. Justice Yates is taking the "long view: on ACCC case against Woolies

The Federal Court has laid out a what could be a long and complicated timeline as the competition watchdog pursues Woolworths over its tactics against supermarket suppliers.

Justice Yates has issued deadlines on when both Woolworths and the Australian Competition & Consumer Commission (ACCC) must file their respective cases and produce documents.

Highlighting the complex legal issues, Justice Yates said in the order issued on Friday that a hearing date for the case would not be set until after 4 August this year.

The ACCC instituted proceedings against Woolworths last December alleging it had engaged in unconscionable conduct when dealing with a large number of its supermarket suppliers.

The regulator is alleging that in December 2014, Woolworths senior management approved a scheme known as "Mind The Gap" as part of an urgent drive to reduce an expected shortfall in gross profit.

The ACCC alleges Woolworths sought $60.2 million in payments and that while some suppliers were expected to refuse, it knew some suppliers would ultimately agree.

It is alleged that the requests were made when Woolworths was "in a substantially stronger bargaining position than the suppliers" and that not agreeing to a payment would be seen as "not supporting" Woolworths.

Back in December, ACCC chairman Rod Sims said Woolworth's conduct was unconscionable and in breach of Australian Consumer Law.

The first deadline is on 15 February when Woolworths is expected to file its defence with the court.

Fears of "peak oil" catastrophe fade as global oil glut deepens

With the world awash with too much crude oil at the moment, the fear of an economic catastrophe when fossil fuels start running out is quietly fading in the background.

The prediction is known as "peak oil" - what happens when crude oil extraction hits its maximum and supplies begin a steady and permanent decline creating a global shock.

Listen to my report broadcast on this morning's edition of "AM"

But now the "peak oil" argument is fast losing currency as global supplies of oil vastly outstrip demand pushing the US benchmark price heads toward 30 dollars a barrel.

Shane Oliver, chief economist at AMP capital investors, says the supply and demand table has well and truly turned on the once vocal peak oil advocates.

"They've been talking about a peak in the global production of oil for the last two decades now and it still hasn't happened and I think the reality is that they are going to remain wrong going forward," Dr Oliver told the ABC's AM program.

"Therefore the catastrophe that was predicted by the peak oil advocates where oil production would peak and there would be huge economic impact globally that just won't happen."

The "peak oil" argument has confronted a new global reality - or a new normal - driven by major geopolitical and economic factors rocking both the developed and developing world.

* US shale producers are pumping like never before and adding to stockpiles

* With US sanctions lifted, oil-rich Iran is about to rejoin the global market with US sanctions lifted

* the OPEC oil cartel is refusing to tighten supplies to keep prices high  Iran betting that US producers will produce themselves out of business

Watch the BBC's 2006 docudrama on "peak oil" fears -  "If the Oil Runs Out"  

AMP's Shane Oliver says rather the facing a "peak oil" shock, consumers and industries will move awat from fossil fuels in an orderly manner and renewable technologies get closer to reality.

" What's going to happen is that oil production globally will at some point peak but it's going to be because the world has moved away from oil towards the use of other things," Dr Oliver told AM.

"The electrification of automobiles and greater efficiency in the use of oil will drive a decline in the demand through time anyway."

Dr Oliver says that rather replicating a shock in the 1970s when OPEC restricted supply, the world is on the a revolution that will see the world requiring less oil.

"Only a decade ago I was being told that I've got to get rid of my car and replace it with a horse and buggy. That prospect appears as a less likely," Dr Oliver said.

"The reality is the days of the internal combustion engine using oil are numbered and I won't be getting rid of the car and getting a horse and buggy - I'll perhaps be getting a car with an electric engine."

Dr Oliver points to developments in battery life such as those used in the Tesla electric car.

"The technological innovation that we've seen in batteries and electric cars generally is mind blowing."

This morning, West Texas Intermediate crude had a rare bounce to US$36.66 a barrel but there are predictions the price could dip below US$30 next year as global oversupply deepens.

The focus in 2016 will be on OPEC's resolve in maintaining supply and the the potential impact as China's demand for oil weakens as its economy continues to slow.


                           

Dysfunctional & outdated - has the AGM has it's day?

It's a sacred institution to many shareholders but the days of the annual general meeting could soon become the latest victim of digital disruption.

The Australian Institute of Company Directors (AICD) says the annual general meeting has had its day and the concept is "dysfunctional" in today's online world.

A survey by the business lobby group has found a third of the 5000 company directors surveyed found the AGM is outdated and needs to change with the times.

Listen to Peter Ryan's story from AM here

"The old company AGM is no longer meets its purposes. We're getting fewer and fewer people attending. And many of the decisions are made well and truly before the AGM is opened," chief executive John Brogden told the ABC's AM program.

"The concept that through democratic capitalism shareholders come along to an AGM where they vote and decisions are made is long gone."

Mr Brogden says there are better digital alternatives to preserve the shareholder voice such as online voting and webcasts that were more useful to remote shareholders.

"There are mum and dad investors who do like to chat to the managing director or the chairman after the meeting but if you're in Perth you're hardly going to fly over to Sydney for an AGM." Mr Brogden said.

"I think people used to enjoy a bit of sport at an AGM. I don't know whether that's constructive. But what's very constructive is people having a chance to engage formally and properly that they're by and large not getting at the moment.

"We want shareholders to be engaged in the activities of their company. But we don't want the only time they turn up is when something goes wrong."

 The renewed pressure to overhaul the AGM institution comes as more companies face protest votes over company strategy and a number of "first strikes" against remuneration packages.

For the Australian Shareholders Association the latest attack on the sanctity of the AGM has unleashed the expected response.

ASA board member Don Hyatt says personal shareholder contact - or the human touch - can't be replaced by technology.

"This is the one time of the year that the directors and the chief executive has to face the shareholders," Mr Hyatt told AM.

"It's a great opportunity to actually look the directors in the eye - particularly afterwards over a cup of coffee. You can speak to them and you get a real feel on whether they've got the shareholder interests at heart or whether they're in it for themselves."

Mr Hyatt used the example of News Corporation and other family controlled companies where attempts had been made to limit shareholder dissent or discussion at annual general meetings.

"There are a number of individuals and family owned companies who seem to think they're not accountable to the shareholders," Mr Hyatt said.

But despite calling AGMs dysfunctional, John Brogden says his reform proposal is not about silencing shareholder dissent.

"No. In fact we want to make it easier to people to attend and engage. So if you're a critic it's also certain that changes to AGMs will make it easier for people to be engaged rather than harder."

John Brogden is about to start talks on the future of annual general meetings with big super funds and institutional investors.

But for now the AGM is safe as any plans to reform or dump the shareholder gathering is subject to government legislation being changed.

Elizabeth Proust warns - quotas an option to force more women into boardrooms

One of Australia's top company directors is warning that quotas might be needed to get more women into Australian corporate boardrooms.

Elizabeth Proust, who was today appointed chairman of the Australian Institute of Company Directors (AICD), has set 2018 as the deadline for 30 percent of board positions in the nation's top 200 companies to be filled by women.

Ms Proust - well known in corporate Australia as chairman of Bank of Melbourne and Nestle` Australia - says quotas could be justified to force male-dominated boards to change with the times.

"Until recently the policy of the AICD has not been to support quotas. But we've softened that in recent times to say if we don't meet our target of 30 percent by 2019 that everything will be on the table, including quotas," Ms Proust told the ABC's "AM" program.

Listen to the full interview with Elizabeth Proust

"The message to companies is that if they don't act then it's likely to be government legislation which will mandate it and they'll have to do it.

"It's always better to do these things of your own volition rather than having it forced on you by government."

Ms Proust, who in the past has opposed quotas, admits the sluggish pace of change in corporate Australia has forced her to take a more aggressive stance.

"When I started my career all those years ago I suspect the thought of having this conversation would be a sad event," Ms Proust told AM.

"I thought we would have made much more progress but there are still boards I've been on where I've been the only women and in some cases boards with no women at all."

Ms Proust's comments add to criticisms that while most listed companies have policies on boardroom diversity, some are yet to take them "off the shelf" and put them into action.

Last month, the federal government's Workplace Gender Equality Agency warned that many company bosses still fail to implement policies on pay equality and family friendly work patterns.

The agency said that in addition to taking home a smaller pay packet, women who break through the glass ceiling into management are not getting the part time work opportunities they might have fought for in the past.

In addition to her chairman roles, Elizabeth Proust has held senior corporate and government positions at ANZ Bank, BP, the City of Melbourne and is a former secretary of the Department of Premier and Cabinet in Victoria.

It was a beautiful boom. But temporary boom, permanent promises" Chris Richardson on MYEFO challenge

Today's midyear economic update is set to confirm the harsh truth that the financial bonanza from the mining boom is not just fading - but over.

But how well have consecutive governments, both Labor and Coalition, managed expectations that booms eventually end and more often than not become a bust?

The answer is "not so well" according high profile economist Chris Richardson, a former Treasury official and partner at Deloitte Access Economics.

He argues that despite the evidence from Treasurers and regular warnings from the Reserve Bank that the investment phase of the boom was in transition, few people have been listening.

"Ordinary Australians don't get it. Temporary boom, permanent promises," Chris Richardson told RN Breakfast this morning.

"It was a beautiful boom. The biggest beneficiary was never the miners - it was the budget.

"As a nation we took it and we made the oldest mistake - we pretended it was permanent. We spent it on family benefits, baby bonuses and tax cuts.

"Now that boom is gone and we've got to pay for those permanent promises."

Like real estate prices in Sydney and Melbourne which went to the point of becoming a bubble, Chris Richardson says Australians and some politicians were deluded into thinking that prices would keep rising.

Instead, Treasurer Scott Morrison is now playing a game of catching a falling knife as the iron ore price falls from the US$48 a tonne projected in the May budget to today's level of US$37.50.

So given the collapsing revenue from mining, what chance does Chris Richardson see of the budget returning to surplus by 2020?

"Not the faintest hope," Chris Richardson says.

"Look, the Senate could pass everything before it right now. The states could stop arguing the toss over the 2014 cuts that they had and you still wouldn't get close to surplus."

Scott Morrison will be putting his signature on economic forecasts against a backdrop of slowing growth and evidence that the transition away from mining is sluggish.

And while talk of a recession is being discounted, Chris Richardson warns that after around 25 years of unbroken economic expansion a downturn is inevitable.

"At some stage down the track Australia will face a recession. And you want the Treasurer of the day to have sufficient confidence that the budget is good shape and that we use it as a shield to defend against that recession."