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 seven in our series for 2019 and today’s date is Friday, March 15.
First, I’ll be talking to Simon Madder, the CEO of Prime Financial and he’ll share some interesting insights on the opportunities for smaller financial services firms in the wake of the Royal Commission, which has the banks retreating from the wealth management space.
And I’ll be talking to CommSec economist Craig James about what to expect from the market in the week ahead.
But now, let’s talk to Simon Madder.
Boeing Co. grappled with more groundings of its most important airliner as operators from Brazil to South Korea idled the 737 Max following a second deadly crash, throwing the U.S. manufacturer deeper into crisis. The fallout from the crash has weighed on Boeing stock and the share market with questions swirling around the future of the newest version of its 737 families, a cash cow that generates almost a third of the company’s operating profit. After China became the first major market on Monday to halt take-offs and landings of Boeing’s latest single-aisle model, flight halts quickly cascaded around the globe. Singapore barred all 737 Max service in and out of the city-state, a move that was followed by Australia and Malaysia. The U.K. said it would halt flights of the 737 Max and other European countries followed suit. Europe’s aviation regulator prepared a similar action as the region joins a global rebuke of the U.S. manufacturer’s most important plane. The suspensions have put about a third of the 350-strong global fleet out of action. The bans in Singapore and Australia mean that the newest version of Boeing’s best-selling model is now blocked from a key long-distance travel destination as well as Singapore’s Changi, Asia’s second-busiest international airport and a popular transit hub,
Prime Minister Theresa May’s EU withdrawal deal has been rejected by MPs for a second time, throwing her Brexit strategy into further confusion. MPs voted down her deal by 391 to 242 – a smaller defeat than when they rejected it in January. The PM said MPs will now get a vote on whether the UK should leave without a deal on 29 March and, if that fails, on whether Brexit should be delayed. That’s the most likely outcome. She had earlier warned MPs that if they did not back her “improved deal” they risked “no Brexit at all”. But she failed to convince enough of them that concessions she had agreed at the last minute with the EU were the “legally-binding” changes they had demanded when they rejected the deal by 230 votes in January. Northern Ireland’s Democratic Unionist Party, which keeps her government in power, voted against the deal, along with Brexiteer Conservative backbenchers.
The latest NAB business survey found there had been a broad-based decline in conditions, with key forward-looking indicators pointing to ongoing weakness. Business operating conditions in Australia have materially deteriorated in early 2019, posing downside risks for investment, hiring and broader economic growth in the period ahead, according to the National Australia Bank’s (NAB) Business Confidence Survey for February. The NAB’s conditions index fell three points to +4 during the month, dragged lower by weakening views towards profitability and trading conditions. The separate business confidence index also slipped by two points to +2, leaving it at the lowest level since January 2016.
At the same time, consumer confidence is tanking according to two opinion polls. The ANZ-Roy Morgan consumer confidence index tanked 4.8%, leaving it at the lowest level since late 2017. Sentiment towards family finances with views on current conditions and those in the year ahead slid 2.9% and 5.4% respectively and views on current economic conditions tanked by 7.9% while sentiment towards the economy looking five years ahead fell by a smaller, but equally ugly, 5.4%. And the Westpac MI index slumped 4.8% to 98.8, leaving it at the lowest level since September 2017. The main reasons cited were the December quarter accounts which had Australia’s economic growth slowing to a 1% annual pace over the second half of 2018, widely described as a ‘per capita recession’ in media coverage, and the housing market downturn.
Home lending is down by more than 20% in the last year, the biggest annual decline since 2008. New figures from the Australian Bureau of Statistics show lending to households fell 2.4 per cent in January, dragged down by a slide in the value of lending for homes. Lending to households for dwellings, excluding refinancing, was down 2.1% with owner occupier lending down 1.3%, which was better than market expectations of a 2 % decline.
While the Queensland Nationals are pushing for coal-fired power stations and the Morrison government has not ruled out supporting coal, the Reserve Bank of Australia has warned climate change is likely to cause economic shocks and threaten Australia’s financial stability unless businesses take immediate stock of the risks. The central bank became the latest Australian regulator to tell the business that they must analyse their investments on Tuesday, as the Coalition grapples with an internal battle over taxpayer-funded coal fired power and energy policy. In a speech to the Centre for Policy Development in Sydney, the Reserve’s deputy governor Guy Debelle said challenges for financial stability may arise from both physical and transition risks of climate change. “What if droughts are more frequent, or cyclones happen more often?” he asked. “The supply shock is no longer temporary but close to permanent. That situation is more challenging to assess and respond to.” Financial stability could be put at risk if businesses remained unaware of unanticipated insurance payouts, pollution-driven reputational damage, legal liability and regulation changes that could cause valuable assets to become uneconomic. Dr Debelle said the current drought across large swathes of the eastern states has already reduced farm output by around 6% and total economic growth by about 0.15 per cent. That has an impact on monetary policy, Dr Debelle said, citing the temporary shock of banana prices surging after Cyclone Yasi in 2011, which in turn boosted inflation by 0.7 percentage points. But he said future events may not be so one-off, with repeated climate events and the transition of the economy likely to have a longer-term impact.
ASIC is planning to target senior executives and company directors as part of a new police-style approach to enforcing the law. Under the new regime proposed by the Australian Securities and Investments Commission’s enforcement specialist, Daniel Crennan, QC, the regulator plans bringing prosecutions both large corporates, especially in the scandal-ridden finance sector, and individuals, particularly at executive and board level. Mr Crennan’s 125-page review of enforcement policies has prejudice in favour of litigation and against negotiated agreements.
Opposition Leader Bill Shorten is preparing to legislate a “living wage” if he becomes prime minister, in a move that would boost minimum pay packets and embolden unions but alarm corporate Australia just two months out from the federal election. Dismissing business leaders opposed to arise as “fat cats”, the Labor leader foreshadowed a change in the law to encourage the independent Fair Work Commission to set a higher minimum wage. Business threatened job losses within hours of Mr Shorten’s comments, which have placed industrial relations firmly at the centre of the impending election campaign.
The plan to abolish trailing commissions for mortgage brokers as recommended by the recent banking royal commission report has been dropped by Treasurer Josh Frydenberg. “Following consultation with the mortgage broking industry and small lenders, the Coalition Government has decided not to prohibit trail commissions on new loans, but rather review their operation in three years’ time,” he wrote in a statement. Mr Frydenberg said the review will be conducted by the Council of Financial Regulators and the Australian Competition and Consumer Commission and would also consider if upfront commissions would continue.
NAB interim chief executive Philip Chronican says he expects “greater accountability and focus” from senior figures at the bank when he becomes chairman. Mr Chronican, who will replace Ken Henry as chairman once the yet-to-be-chosen new chief executive is in place, said board renewal was a priority and that it was down to the bank’s leaders to raise their game in response to the failings aired at the royal commission. “I am confident in the strategic direction we have for NAB,” Mr Chronican said in a letter to shareholders. “My expectation of the bank’s leaders is that they implement our strategy with greater accountability and focus.” Mr Chronican said NAB, whose leadership was lambasted by Commissioner Kenneth Hayne, had let down customers, owners, community and staff but had returned more than $110 million in refunds and remediation to 310,000 customers since June last year.
Footwear start-up Shoes of Prey has just entered into liquidation, with Kelly Trenfield and John Park of FTI Consulting appointed as administrators. Co-founder Michael Fox cited the company’s failure to gain traction in the mass market as well as its difficulty in competing with cheap Chinese manufacturers as two driving reasons behind the collapse.
Sanjeev Gupta, the man credited with saving the iconic Whyalla steelworks, is targeting a near-$5 billion float of the Australian arm of his sprawling industrial empire in a move he hopes will quash speculation his business may be in trouble. Mr Gupta said an initial public offering of the Australian business would show his companies can “work under governance rules; [being listed] would bring transparency and shows our model is successful”.He added being a listed company would also mean “the discipline of publishing accounts, as well as giving us a currency and market value which will allow us to do other things”. The Whyalla plant became a totem of Australian industry in the carbon tax debate after then-opposition leader Tony Abbott said the town would be wiped out by the Gillard government’s planned carbon tax in 2011 and trade minister Craig Emerson responded in song. The Whyalla steelworks’ owner Arrium went into administration in April 2016 owing creditors about $2 billion and remained in limbo for over a year before being sold to Mr Gupta’s Gupta Family Group (GFG) Alliance in 2017. Then South Australian Premier Jay Weatherill said the sale was “a great victory for Whyalla and an extraordinary victory for South Australia”. Arrium provided about 3000 jobs in Whyalla, a town of 22,000 people when it went into administration and its revival was heralded across the political spectrum.
New York hedge fund Manikay Partners has doubled down on its call for the board of accounting software company MYOB to reconsider a takeover offer from vaunted private equity firm KKR, demanding the company provide it with key documents related to the bid. In a letter addressed to MYOB chairman Justin Milne dated March 6, the hedge fund run by former Australian Securities Exchange director Shane Finemore asked the company to provide it with a copy of the draft scheme booklet and independent expert’s report that was lodged with the regulator.
Australian miner Newcrest, the third-biggest gold producer by market value, agreed an $806.5 million deal to add an Imperial Metals Corp. mine in Canada, extending the spree of deal-making in the sector. Melbourne-based Newcrest, which is currently focused on mines in Australia, Indonesia and Papua New Guinea, will acquire a 70% joint-venture interest in the Red Chris copper and gold mine in British Columbia and become the operator of the site, the producer said Monday in a statement. The mine, on the northern edge of the Skeena Mountains, about 1,700 kilometres north of Vancouver, gives Newcrest a producing asset in North America and has significant development opportunities, the company said.
Flooding in northwestern Queensland has meant the loss of as many as 52,875 cattle for the country’s largest beef producer, the Australian Agricultural Company. “A complete assessment of cattle numbers will occur as mustering by AACo and our neighbouring properties is undertaken over coming months,” the company said in a statement to the ASX on Monday morning. AACo estimated it would also cost between $6 million and $8 million to repair damage to property, plant, fencing, station and water infrastructure at the company’s four Gulf of Carpentaria properties in Wondoola, Canobie, Dalgonally and Carrum
And that’s it for this week. And next week. I’ll have a great interview with Mayfair 101 CEO James Mawhinney who will be talking about the Mayfair 101 the IPO Wealth fund, which has raised over $30m from predominantly SMSFs. James believes there’s been an expansion in the breadth of investment scope from SMSFs, and thus is anticipating an uptick in investments in technology, both directly and indirectly.
And I’ll also be talking to RMIT economist Sinclair Davidson, looking at the state of the economy in the lead up to the election and what it means for the Federal Budget due in 10 days’ time.
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.