THE DISTILLERY: Rates related
Australia's largest investment bank Macquarie Group has been trying to rediscover its purpose since the millionaire factory's satellite formula was brought undone so comprehensively by the global financial crisis. The silver donut's failure to recognise, or at least manage, the problems with its European operations has brought into question how the bank can reform itself and where the required leadership will come from. The Australian Financial Review's Chanticleer columnist Tony Boyd says much of it will come down to the company's managerial philosophy, which is looking increasingly outdated. On perhaps a more patriotic note, The Australian's Barry Fitzgerald says a lot would need to change for Glencore International to ever truly rival local heroes BHP Billiton or Rio Tinto, even with Xstrata under its belt. And of course there's more about yesterday's ‘surprising' decision by the Reserve Bank of Australia.
But first, The Australian Financial Review Chanticleer columnist Tony Boyd seriously asks whether Macquarie can continue to allow some of its stars to construct global businesses if this is the kind of results such generosity produces.
"While it is obvious that the time has come for Macquarie Group to seriously rethink its ‘loose-tight' management philosophy, it is not at all clear that the company's executives have the wherewithal to do it. An executive committee that has been the cheer squad for entrepreneurial adventurism within tight risk controls must inevitably struggle with the idea of central control. But the ugly financial disclosures contained in the operational briefing yesterday point to the need for action. Someone has to take control of this iconic Australian success story before it is too late. It is not a task for the board of directors. This initiative has to come from the 10-member executive committee, led by chief executive Nicholas Moore and deputy managing director Greg Ward.”
Meanwhile, The Australian's Barry Fitzgerald eviscerates the commentary about the $US80 billion merger between Glencore International and Xstrata that suggests that firm could one day rival the likes of BHP Billiton and Rio Tinto.
"The mining assets that are being brought together in the merger are on the whole second rate when compared to what BHP and Rio have in their kit bag, with the exception of thermal coal and some copper assets in Latin America. More to the point is that much of the asset base of the merged group is in three areas where the pressure is on to turn a decent return – zinc, nickel and aluminium. And the basket of assets is missing the one thing generating supreme returns and looking like doing so for at least the next three or four years – iron ore.”
The Herald Sun's Terry McCrann says yesterday's Reserve Bank decision to leave interest rates unchanged reveals much about the central bank's board, and the news is reassuring.
"More particularly, that's a combination of two things. The board continues to be united with Stevens. I think you can take it as read the board did not overrule a Stevens recommendation to cut the rate. Along with this, is it not the 'soft' board feared by some commentators, in the wake of some high profile departures – economist Warwick McKibbin in particular, along with business leaders Graham Kraehe and Don McGauchie – and their replacement by former Keating adviser and economist John Edwards and industry lobbyist Heather Ridout. This is a board which still backs the governor and backs him in not taking the easy decision. Nothing could have been easier than delivering the 'certain' rate cut, and then seeing both the banks only half-cut.”
And fourthly in this morning's edition of Distillery, The Australian's John Durie is bold enough to predict what the big four banks will do without the shroud of a rate cut from the Reserve Bank to hide behind.
"For months the big bank oligopoly has defended its right to adjust mortgage rates outside of the Reserve Bank cycle – and now it has its chance to do just that. The question we will have answered by this time next week is whether, with the spotlight firmly on them and no RBA to hide behind, the banks are hard-nosed business people, or all talk. Logic suggests the former. ANZ's Mike Smith will have to make the first call on Friday, and this column will back him as a leader. The other lemmings will let him sweat it out for at least the weekend before following suit with an increase of about 10 basis points, and the People's Bank will come in last.”
Staying with banking for the rest of this morning's business commentaries, The Australian's Richard Gluyas agrees with Durie that ANZ Bank could indeed take on Canberra with an admittedly hesitant rate hike.
The Sydney Morning Herald's Jessica Irvine explains why it was such a ‘shock' the Reserve Bank didn't raise rates. It all comes down to access to statistics, the politics of economic forecasts and media hype. Fellow SMH writer Malcolm Maiden characterised the decision as one made in anticipation of coming economic conditions rather than a reaction to media coverage of recent job losses – that have been largely met by job gains. The same newspaper's Michael Pascoe says close Reserve Bank watchers will not have to wait long before the central banks releases some new insights into its thinking, while Elizabeth Knight says National Australia Bank is unique in one crucial respect – it has to deal with the British banking market. Fairfax's Ian McIlwraith also throws in his two cents.
In company news, The Australian's Tim Boreham takes a look at the share positions of Cochlear, National Australia Bank and Macquarie Group in his column Criterion. The Australian's Bryan Frith retraces Macquarie's increasingly troubling numbers.
Meanwhile, The Australian's Andrew Main is encouraged to see the corporate regulator talking tough over inside trading.
On matters of policy, The Sydney Morning Herald's Ross Gittins takes both the major parties to task over their approach to health insurance.
And finally, The Australian's David Uren says the two defining factors for the Australian economy this year will be the continuation of the largest investment boom in at least a century and the related rise in the Australian dollar.