Welcome to Talking Business, a podcast produced in Melbourne Australia. The podcast is available on the Acast app, the Apple Podcast store or wherever you go to get your podcasts. Or you can get it at the Business Acumen website at www.businessacumen.biz.
I am Leon Gettler. My job is to review and monitor the week’s news in business, finance and economics. I bring it all to you, every week.
This is episode number nine in our series for 2019 and today’s date is Friday, March 29.
First, I’ll be talking to Kevin Sherry the Executive Director – Global Business Development, Enterprise Ireland. We’ll be talking about some new deals for Irish companies in Australia and the reality of Brexit for Irish and Australian exporters.
And then I’ll be talking to Indeed economist Callum Pickering about the latest jobs figures and what it means for the RBA and in the lead up to the election.
But now, let’s talk to Kevin Sherry.
A growing number of economists and monetary policy experts are warning the Federal Reserve’s independence is being tested by a president in the most sustained way since Richard Nixon strong-armed Arthur Burns in the early 1970s – just before inflation ran out of control. They’re worried that a jubilant Donald Trump determined to “spend” his newly-earned political capital from the Mueller report exoneration will goad the US Fed into cutting interest rates in coming months to juice the economy ahead of the 2020 presidential race. Critics including Republicans are piling into Stephen Moore, an official at the conservative Heritage Foundation think tank and an economic adviser to Trump’s 2016 campaign. after President Donald Trump picked him to be a governor of the U.S. Federal Reserve. At least one prominent Republican economist has called on the Senate to block the appointment. Moore’s selection is subject to Senate approval. He’s Trump’s sixth nomination to the nation’s monetary authority, which has a seven-seat board of governors that typically is filled with trained economists, former financial-industry executives and bank regulators. There are currently two vacant seats. Two previous Trump nominees, Nellie Liang and Marvin Goodfriend, failed to get Senate approval in 2018. Unlike Moore, neither faced accusations that they were unqualified. Even some private-sector economists who’ve generally supported Trump’s efforts to accelerate growth with lower taxes, less regulation and fairer trade deals were nonplussed by the selection of Moore
Apple has officially declared war on Netflix and Amazon Video with the iPhone maker announcing a new video streaming service called Apple TV+. Apple TV+ will compete directly with popular video streaming services such as Netflix and Amazon Prime Video. Apple TV+ includes original programming from well-known entertainment talents such as Jennifer Aniston and Reese Witherspoon, Kumail Nanjiani (Little America), Steve Spielberg, J.J. Abrams, and Oprah Winfrey. Apple says new content will be added every month when the service launches in over 100 countries.
Australia’s 10-year bond rate has dropped to a record low of 1.76 per cent. This is a steep fall over the last few months and it’s expected to signal interest rate cuts. The Reserve Bank of Australia is expected to cut interest rates in an attempt to boost the economy.
Analysts are warning severe tropical cyclone Veronica could have a significant impact on the Australian economy and Chinese steel industry. The cyclone has temporarily stopped iron ore exports from the world’s largest bulk export port, Port Hedland. Australia currently supplies about 60 per cent of the world’s iron ore, and about 90 per cent of that comes from the Pilbara ports of Port Hedland, Dampier and Cape Lambert. All three were shut down on Friday in preparation for the severe weather event. Iron ore analyst Phillip Kirchlechner said depending on how long the ports will be closed, the event could hit the nation’s economy, costing it more than $1 billion.
Labour leader Bill Shorten has pledged to lift the minimum wage, claiming that the statutory $18.93 per hour is “too low” for the average adult to look after their family. However, Labor has not put a specific number on it. The announcement comes just weeks after the ACTU issued its own demands that the minimum wage is lifted to represent at least 60 per cent of the median wage. That would represent an increase of 10 per cent to the current minimum wage.
Australia’s government wants to increase fines for tech companies that breach privacy laws, under proposed changes which would also force the likes of Facebook and Google to stop using or disclosing an individual’s personal information upon request. According to Bloomberg, the penalty for serious or repeated breaches will increase from $2.1M to $10M. The Federal Government is also reportedly drafting new laws that would make it illegal for social media companies to leave videos filmed by terrorists on their sites.
NAB and ANZ have fared worst from the Hayne royal commission, according to the latest survey of bank customers. The survey of more than 1200 bank customers aged between 19 and 36 years old taken by Millennial Future found more than 16 per cent of NAB and ANZ customers plan on switching banks in the wake of the Hayne report. CBA and Westpac were both closer to 10 per cent in terms of young customers wanting to switch. Former NAB CEO Andrew Thorburn and chairman Ken Henry resigned in the wake of the Hayne report. The results accord with Roy Morgan survey results taken last month that also found NAB was the most distrusted bank brand in Australia, leapfrogging CBA in the wake of the Hayne report. NAB was singled out in the inquiry’s final report with Commissioner Hayne warning that he was “not confident” former CEO Andrew Thorburn and former chairman Ken Henry had “learnt the lessons of the past” and accepted responsibility for deciding “the right thing to do”. Both were subsequently forced to stand down. Still, the latest Millennial Future survey found that banking and finance brands were still rated as more trustworthy than both insurance brands and the media. The results suggest the whole banking industry was not affected equally by the royal commission, but that those banks found most at fault are suffering the biggest backlash. The results were also in line with the latest Edelman Trust Barometer. It found that financial services were the only business sector to suffer a serious fall in trust, falling to equal-lowest with the energy sector.
ASIC has a warning for Australia’s banks. Deputy chairman Daniel Crennan said they would be punished with separate legal action if their lawyers engage in the “game playing or brinkmanship” they have used in the past. “Large institutions should not treat regular cases brought by a regulator as if it’s a sport or ordinary litigation,” he said in an interview. This comes after Australia’s corporate regulator faced criticism for being too willing to do deals with financial institutions accused of wrongdoing, rather than taking them to court.
NAB interim CEO and chairman-elect Philip Chronican has announced the bank’s intention to end the bank’s “introducer program” that awarded non-bank employees a “spotter’s fee” for referring home-loan customers. The program has been the source of many headaches for the bank including the very first day of the Hayne royal commission where it was revealed sales incentives were being manipulated by a fraud ring operating out of Western Sydney who was accepting cash bribes over the counter. Commissioner Hayne did not explicitly recommend the banning of the schemes in his final report however he raised the question of who introducer and other ‘agents’ were working for in several instances, making the observation that it was impossible for a man to stand in more than one canoe. Mr Chronican has made the decision just a week after saying he wanted the bank’s executives to move faster and resolve outstanding issues that were hanging over the bank. NAB will terminate the program from October 1. It is the first of the big four to make the move. Last year the bank said the program was responsible for the origination of one in every twenty home loans the bank writes. NAB has said the program generated the bank around $24 billion in loans and led to the payment of around $100 million in spotters’ fees. A report from ASIC found the value of home loans sold by the big four banks via introducer channels rose $3.3 billion or 22 per cent to $14.6 billion in 2015.
Telstra has slashed its employee share scheme with chief executive Andy Penn cutting costs at the telecommunications behemoth. Employees at the telco who receive satisfactory ratings on their performance reviews will no longer be entitled to 100 free Telstra shares. The news comes not long after the company’s own board was slapped with one of the largest protest votes in ASX history against its executive remuneration policy. 62% of Telstra shareholders voted against the plan, signalling that Telstra executives were paying themselves too much considering the performance of the company. While the performance shares for Telstra staff were issued for free, they’re not worth what they used to be. Telstra shares are trading down at $2.02, having hit $4.54 in April 2015. Penn, formerly Telstra’s chief financial officer, has been slashing costs at the telco as it tries to find a new revenue stream. All this comes at a time when the national broadband network company NBNCo is eating into Telstra’s profits as its wholesale customer’s mover over. In June last year, Telstra announced 8000 job losses as part of Penn’s T22 strategy to make the company more nimble.
Westpac has issued a profit warning. Its first-half profit will take a $260 million hit from refunding customers in its financial advice, consumer and business banking arms, and it has signalled this will not be the end of its compensation costs. The banking giant on Monday said its first-half results, to be delivered in early May, will include a $260 million provision for customer remediation, with about 90 per cent of the costs relating to problems from previous financial years. About half the costs relate to its financial advice business, which the bank last week said it would sell, and the remainder are for issues in its consumer and business banking divisions.
Coles plans to steal leadership of the $3 billion online grocery market from arch-rival Woolworths, by entering a $150 million agreement with the British online supermarket Ocado to bring its robot-driven grocery platform to Australia in a major shake-up of its digital offering. Coles said it would pay Ocado to open automated fulfilment centres in Melbourne and Sydney by 2023, which will double its home delivery capacity and improve profitability. Coles’ online business is growing rapidly, at about 30 per cent per year. But the cost of packing and delivering orders makes it less profitable than its bricks and mortar business. Ocado will change that by running centres that will each have about 1000 robots moving orders around and are expected to start operating in four years with each handling products worth between $500 million and $750 million a year. Ocado’s warehouses are run by an army of small robots, which pluck individual grocery items from a vertical stacking system and load them into customer’s order boxes. Coles staff currently pick items for home delivery by hand from Coles supermarkets or at “dark stores”. Coles chief executive Steven Cain said the move to a website and warehouse run by Ocado would be transformational. Ocado works with other supermarket giants around the world including Marks and Spencer and Morrisons in the UK and Kroger in the US. Coles will spend $130 million to $150 million over the next four years setting up the new warehouses, including fees paid to Ocado. The deal is an exclusive arrangement, meaning Woolworths will not be able to use Ocado’s technology in the future.
Wesfarmers is looking to splash some of the cash that it got from demerging Coles. It’s making a $1.5 billion offer for rare earths miner Lynas Corp. But Lynas has rejected the offer. So far. In a statement to the ASX, Lynas said it would not deal with Wesfarmers “on the terms outlined in [its] indicative and highly conditional proposal”. The company did not provide detailed reasons on why it turned down the offer. The $2.25-per-share all-cash offer represents a 44.7 per cent premium to Lynas’ share price before the start of trade on Tuesday. Wesfarmers had been looking for acquisitions after the demerger and IPO of supermarket Coles in November, as well as the sale of the Bengalla coal mine, Kmart Tyre and Auto Service, and Quadrant Energy.
And that’s it for this week. And next week I have a terrific interview with Louise Hvala, co-founder of Gatehouse Legal Recruitment and founder of new startup Alifery which is leading the legal profession into the future by connecting ASX listed companies, private businesses and law firms with highly experienced expert freelance lawyers for work opportunities, contracts and projects. At Gatehouse she was increasingly seeing the trend for our corporate and law firm clients requesting subject matter legal experts for short term or project based legal matters rather than hiring a full-time legal professional. Within a year, Alifery has over 700 users and are looking to raise capital later in 2019 to capitalise on this growth.
And I’ll be talking to economist Stephen Koukoulas about where the economy is heading and what the RBA is going to do.
And of course, I’ll be bringing you all the week’s news. In the meantime, you can find me on Twitter at talkingbizz, on Facebook and on LinkedIn. And if you want, leave a comment. Wishing you all a great week, take care, be good and looking forward to bringing you Talking Business next week.