THE DISTILLERY: ASX conflict

One jotter says the ASX has gone too far in its latest rule proposals, while another looks at how the banks will try to lift revenue in a tight market.

The Australian Securities Exchange should be stripped of its remaining supervisory responsibilities because the conflict of interest is simply too great. That’s the conclusion offered to us this morning by The Age’s Adele Ferguson, who argues that the latest push to relax the listing rules is simply a step too far. Eric Johnston, from the same newspaper, looks at the tweaked strategies of the major banks, as well as the consequences, while The Australian’s Robin Bromby has found someone who likes the outlook for shale gas.

But firstly, The Age’s Adele Ferguson has become tired of the ASX’s conflict of interest as market operator and supervisor.

"A proposal by the Australian Securities Exchange to liberalise an already lax regime for equity placements should be a wake-up call to the federal government to strip the ASX of what it retains of its supervisory power. By continuing to have responsibility for listing rules the ASX's dual role as a money-making enterprise and compliance/supervisor remains fraught with conflicts of interest. This was nowhere more evident than in the proposals paper released earlier this month, Strengthening Australia's Equity Capital Markets. The paper recommends a profound change to its listing rules to enable companies with a market capitalisation of $300 million or less to issue up to 25 per cent of new shares each year on a non-pro-rata basis without shareholder approval, subject to two caveats.”

Meanwhile, The Age’s Eric Johnston says the banks have exhausted their tried-and-true strategies for increasing profits.

"With investor hunger for more, banks are increasingly finding themselves at a strategic crossroads. With a tough outlook for revenue growth, the only way to continue profit momentum is to drive their own franchise harder. For some banks this means cutting into the hefty cost base while others are trying to tap new markets. One emerging battleground is lending to small-to-medium businesses. Two big banks, CBA and Westpac, and one regional player, Bank of Queensland, have each made a bid for a bigger slice of the market this week. With revenue growth from mortgage lending drying up, the sudden interest in business lending is clear. However, like housing, business lending is far from booming. And when so much capital is being thrown at so little, the risks become greater and margins thinner.”

And The Australian’s Robin Bromby has spoken to a client adviser based in Perth who isn’t so sure the market should be taking their eye off shale gas.

"He says he has been wrestling with the shale gas and oil concept for months. Then came a report from Citigroup global commodities research head Edward Morse that terms the US the ‘new Middle East’ in energy production. Last year, Morse says, the US was a net exporter of petrol, diesel fuel and other oil products for the first time since 1949. Crude oil output hit 2 billion barrels last year. The US, he concludes, has become the fastest growing oil and natural gas producing area in the world. Our adviser is still working his way through the issue and says the gas price will rise as parts of the US economy switch to it. He predicts shale gas and oil production will further reduce US oil import reliance and the oil price will fall (to below $US40 a barrel). The Middle East producers will become marginalised and falling energy outlays – one of the large cost components of industry – will mean better profits for US corporations. Therefore inflation will fall, hitting gold prices.”

Meanwhile in company news, The Australian’s John Durie spots Telstra chief executive David Thodey leaving the country for an investor roadshow just after creating a political firestorm back home. The Australian Financial Review’s Chanticleer columnist Tony Boyd examines the poor numbers of Boral, while The Australian’s Richard Gluyas says Coles won’t be satisfied with its expected 11th consecutive outperformance of its rival, Woolworths.

Elsewhere, The Age’s Mark Hawthorne says the casualty in the supermarket price war, at least when it comes to milk, appears to be quality. The Age’s Malcolm Maiden asks why M&A activity generally peaks as the market does, when the target is at its most expensive. The Sydney Morning Herald’s Ian Verrender says small businesses are being pressured on both sides of their business, with low customer demand forcing tighter margins, while the banks fatten margins to prop up their profits. The same newspaper’s Jessica Irvine says Europe’s banking system is infested with zombies.

Closer to home, The Age’s Michael West remains sceptical about Treasurer Wayne Swan’s budget surplus trick. The Australian’s David Uren previews the coming inflation data, while keeping one eye on the implications it has for the interest rate meeting next month. And finally, Fairfax’s Clancy Yeates looks at how the case for a corporate tax cut stacks up when the suggestions of how to pay for it are factored in.