THE DISTILLERY: BHP bygones

Two business commentators are analysing how arguably the most famous companies from Australia and the United States are dealing with some embarrassing recent episodes. The Australian's Barry Fitzgerald looks at BHP Billiton's newest addition to the board following the miner's defence of its shale gas play, while The Australian Financial Review's Chanticleer columnist Tony Boyd says heads should roll at JP Morgan – last night, one did. Also in The Distillery, The Sydney Morning Herald's Michael Pascoe has discovered another way the federal government might limp its way to surplus.

But first, The Australian's Barry Fitzgerald wonders if new BHP Billiton board member, former Sasol boss Pat Davies, would have cautioned against the miner's US shale gas play if he'd been a director when the idea was first presented.

"Probably not. But at least investors in BHP would have had the comfort of knowing there would have been a more robust discussion on what Yeager and the rest of the gang from Houston were serving up to the BHP board with the push into shale gas, and the annual $US4 billion in capital expenditure requirements that came with it. We know that because, as a former chief executive of Sasol, with its renowned expertise in gas-to-liquids and coal-to-liquids technology, Davies has a particular insight into the shale gas revolution in the US and elsewhere that would not be matched by BHP's other non-executive directors. Sasol's expertise in the field was born of South Africa's dark years of apartheid when most of the world would not sell it the oil it needed. Necessity was very much the mother of invention and Sasol played a leading role.”

The Australian Financial Review's Chanticleer columnist Tony Boyd says heads should be rolling at JP Morgan (as of last night, chief investment officer Ian Drew was out).

"This was not a rogue trader like Kweku Adoboli, who allegedly cost UBS $US2 billion in losses in 2011, or David Bullen and his colleagues at National Australia Bank who lost the bank $360 million from unauthorised foreign exchange options trading in 2003. In the JP Morgan case we are talking about an officially sanctioned credit derivatives trading strategy that went wrong. It was allowed to continue for months despite vocal public warnings from market participants that it was disrupting the smooth functioning of a market used by banks to lay off risk. Those in the credit derivatives market, including Australia's big four banks, were aware of the impact of the outsized positions taken by JP Morgan but could do nothing about it. While Australian banks take positions in this market of up to $US100 million, this was a tenth of the estimated $US1 billion positions taken by JP Morgan. Market participants believe the bulk of the $US2 billion in losses incurred by JP Morgan are in foreign exchange markets and interest rate swaps and not in the core credit derivatives area.”

The Sydney Morning Herald's Michael Pascoe says rising migration rates could help the federal government sneak towards the benchmarks necessary to deliver its surplus.

"The federal budget papers are missing an important figure: population growth is on the rise again with a 30 per cent surge in net overseas migration over the seven months to the end of March. And the absence of that figure or any mention of the population growth outlook for 2012-13 looks more than a little suspicious as stronger population growth makes it more likely that the government's forecast of trend economic growth is indeed achievable in the year ahead. While Treasury's Budget Paper No. 1 spells out any number of assumptions that underpin the headline economic forecasts, population growth – a key cause and effect of economic growth – is missing.”

And The Age's Adele Ferguson has found some research from Evans & Partners pointing to an even weaker retail sector that the official numbers from the Australian Bureau of Statistics might imply.

"The survey revealed that consumer electronics was particularly weak, with discounting more pronounced and customers more selective. In terms of profit margins, the greatest weakness was in the household goods segment, while the greatest improvement was in sports, leisure and entertainment. In terms of sales channels and locations it noted that only online delivered improvement in April, with shopping strips and airports suffering the greatest level of weakness. In other segments, wholesalers reported a fall in supermarkets in April, discount department stores showed some relative improvement on last month and department stores continue to disappoint on sales from branded wholesalers. The knock-on effect of weak retail sales is profound across the supply chain. It can lead to a build-up of inventory, which is a profit killer for retailers, and result in tighter margins.”

Staying with economics, The Age's economics editor Tim Colebatch reflects on the degree of difficulty associated with Europe's attempt to cut its way to surplus amid recession.

In company news, Fairfax's Insider columnist Ian McIlwraith says Sir Ron Brierley is now getting a taste of his own medicine. In a separate piece, McIlwraith argues that Dulux Group's takeover of Alesco Corporation mightn't be as opportunistic as it is essential.

Elsewhere, The Sydney Morning Herald's Ian Verrender is on NAB this morning, while The Australian's John Durie looks at Incitec Pivot's latest numbers, offering some kind words for company boss James Fazzino.