THE DISTILLERY: Banks of China?

One jotter hears of impending Chinese buys into the big four, while another examines Genworth's restricted IPO.

In Australia we’ve got big miners, big supermarkets and big banks. China buys minerals from our miners, sells produce to our supermarkets, but what about the banks? The Age’s Eric Johnston has spoken to an Australian banking veteran with serious China experience who says there’s a very good chance one of their major lenders will take a cornerstone stake in one of our big four. The side-effects of China’s decision to slow its property market also gets a run in this morning’s Distillery, as well as a Genworth Financial’s IPO delay and a pending deficit and interest rate speech from Prime Minister Julia Gillard.

Firstly, The Age’s banking writer Eric Johnston speaks to Mike Pratt, recently retired boss of Standard Chartered's China business, about the potential of a Chinese lender taking a stake in one of our major banks.

"Mr Pratt said it is ‘highly possible’ that a large Chinese bank seeking to flex its investment muscle would emerge with a stake of as much as 15 per cent in an Australian lender this decade. However, any move would stop short of a takeover. The motivation would be mainly to get access to banking and management experience here. ‘They know of the Australian banks, they know the quality and they see where they rate globally and how they've come through the GFC,’ Mr Pratt said.”

The Australian’s China correspondent Michael Sainsbury says Beijing’s strategy of slowing down the property market is working, but there appears to be some residual downsides.

"The National Bureau of Statistics said prices of newly built homes in 46 of the 70 large and medium-sized Chinese cities in the survey fell in March on a sequential basis, up from 45 cities in February. In further evidence of the economic slowdown, provincial and local government revenues across China were down sharply in the first quarter. That adds to general concerns about the scale of the slowdown in the economy, which recorded its slowest gross domestic product growth in three years – 8.2 per cent – in the three months to March. The figures, released by local governments, have shown shrinking growth in the country's huge municipalities, except Beijing, which has yet to release its figures.”

The Australian Financial Review’s Chanticleer columnist Tony Boyd digs into the reasons why Genworth Financial pulled its IPO for 40 per cent of its Australian business.

"It is clear something has gone horribly wrong at Genworth. It had been earning about $40 million a quarter in Australia throughout 2011. The company said yesterday that flooding was an issue behind delinquencies rising sharply in the first quarter but it is hard to avoid the impression that the mortgage insurer has been allowing borrowers to string out their payments on hardship grounds when they were never going to be able to repay. Also, the flooding occurred long ago in Queensland and has been well and truly dealt with by its major competitor, QBE LMI, which is one of the better performing divisions of QBE Insurance.”

And, expect some attention to centre on Prime Minister Julia Gillard today, says The Sydney Morning Herald’s Phillip Coorey. The writer has secured an advanced copy of a speech she’s set to deliver, the topics of which are the deficit and interest rates.

"Julia Gillard will hit back at business groups and others demanding interest rate cuts while criticising her government's pledge to return the budget to surplus, saying they cannot have one without the other. In a speech to be delivered in Perth today, the prime minister will say a surplus is a ‘fundamental economic imperative’ that will free the Reserve Bank to start dropping interest rates, delivering relief to both households and business. In remarks that border on pressuring the central bank, she will say that at 4.25 per cent, Australia's cash rate is well above levels in the United States and Europe and there ‘is plenty of room for the RBA to move if need be’.”

Still on rates for the rest of this morning’s comments, The Australian Financial Review’s David Bassanese examines the gulf between the encouraging Australian economic forecasts of the International Monetary Fund and the cautious tone of the Reserve Bank’s minutes. The writer concludes that you should generally trust the body closer to the source.

In other economic news, The Australian’s Rowan Callick says a new report for Austrade argues that China is not in fact a hotspot for Asian globalisation, it shares that mantle with Japan. There’s a lot more to this piece and it’s a good read. Fairfax’s Carolyn Cummins says almost a third of global retailers have a home in Australia and more are headed down under.

The Sydney Morning Herald’s Ian Verrender believes mining giants are in a curious position, with a boom narrative and a bust share price. The Australian’s Barry Fitzgerald argues that any investor with their head screwed on will have sold out before the production reports of Rio Tinto and BHP Billiton or been completely unmoved by them. And the same newspaper’s Robin Bromby finds a New York emerging markets expert rubbishing the concept of a commodity super cycle.

The Sydney Morning Herald’s Michael Pascoe says the Andrew "Twiggy” Forrest story almost sealing a revolutionary deal with former Prime Minister Kevin Rudd is old news. Fairfax’s Clancy Yeates follows the subsequent war of words between Forrest and Treasurer Wayne Swan.

In company news, The Australian’s John Durie reports on the shareholder rejection of the pay packet for Citigroup chief executive Vikram Pandit, while the same John Durie looks at Genworth Financial’s caution. The Australian’s Tim Boreham surveys Minemakers, UCL, Lynas Corp and Cellmid in his Criterion column.

And finally, The Sydney Morning Herald’s Malcolm Maiden says the victory that union-backed superannuation funds won over Financial Services Minister Bill Shorten in 2010 is being steadily eroded.