Archives November 2018

Consumer Adviser Ratings website fails to attract participants

Rating advisers

Only 850 of over 18,000 financial advisers it lists have signed up to be rated by the free online Adviser Ratings service. But it has attracted 13,000 visitors in the three weeks since it was launched. The 850 participating advisers have listed their credentials and profiles. Clients can comment on and rate their advisers on the website which has been likened to advisers what TripAdvisor is to hotels.

Choosing a fixed rate

With interest rates at record lows and the next move in rates likely to be up, more borrowers are opting for fixed interest rate mortgages. Mortgage broker Mortgage Choice says fixed rate loans accounted for 26.64 per cent in October of all loans settled through the broker. That is the highest proportion of fixed rates mortgages for eight months.

Qantas dips

Foreign ownership of Qantas has slumped to 42.8 per cent, down from 47.8 per cent a month ago. The government imposed cap on foreign ownership of the airline is 49 per cent.

Trident fined

A fund manger has been fined $10,200 for publishing a misleading return. Trident claimed its income fund had returned 9.27 per cent in the half year to June 30 but ASIC said this was misleading because it failed to mention capital growth had been negative. “This meant that the actual returns were significantly lower than 9.27 per cent,” ASIC said.

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Potential suitors line up for embattled Ten Network

The beauty parade has begun for the Ten Network, with executives from US media giant Discovery Communications meeting with the struggling free-to-air broadcaster.

Talks began on Tuesday afternoon, after Fairfax Media revealed last week that Discovery was considering a joint bid for Ten with local pay TV monopoly Foxtel.

The third-ranked metropolitan commercial network will also brief US hedge fund Anchorage Capital and private equity firm Hellman & Friedman.

Discovery’s meeting with Ten came as the broadcaster’s shares snapped a week of gains, falling 1.8 per cent to 27c on Tuesday.

The company’s stock had soared almost 28 per cent in the days after it confirmed last Thursday that it had appointed Citi to assess “strategic options”.

But any acquirer is set to face a big hurdle after the network’s biggest shareholder, WIN Corporation owner Bruce Gordon, said on Monday afternoon that his 14.9 per cent stake was not for sale.

A successful bidder would need the Bermuda-based billionaire’s support to secure 90.1 per cent of shareholder acceptances, which is necessary to trigger a compulsory acquisition of all stock.

Seven West Media deputy chairman Don Voelte said Ten – which posted a $168 million loss last financial year – could survive in its current form but there were “issues around cash flow”.

“There is something to be said for three [commercial free-to-air channels],” Mr Voelte said in Sydney.

He said that was a question for Ten’s biggest shareholders – Mr Gordon, News Corporation co-chairman Lachlan Murdoch, Crown Entertainment chairman James Packer and mining magnate Gina Rinehart – who control about 40 per cent of the company.

“I suspect they’ll decide whether it gets sold or not or whether it forms part of private equity … there are so many gyrations,” Mr Voelte said.

Discovery – a $US22 bullion ($25 billion) company that launched in 1985 with the Discovery Channel – has been buying free-to-air television networks across the globe.

It has already made acquisitions in Denmark, Sweden, Norway, Italy and the Middle East, has started a free-to-air channel, Quest, in Britain and has majority control of .

Its bid would involve Foxtel, which is jointly owned by Rupert Murdoch’s News Corp and Telstra, taking a 14.9 per cent stake in the company in order to meet laws restricting concentration of ownership.

Analysts say some of Discovery’s popular content aired on Foxtel’s channels could be screened on Ten. Meanwhile, Foxtel could bring knowledge of the local market and cross-marketing opportunities through News Corp’s print and digital titles.

Time Warner is also interested Ten. It said in a letter to Ten’s adviser Citi last month that it was willing to explore a bid of 25c a share.

“We believe that Ten can once again regain its position as one of the leading channels in the Australian market,” Time Warner senior vice-president James Burtson wrote in a letter to Citi that was leaked to The Australian Financial Review on Monday. Time Warner met with Ten on September 18.

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Business confidence hits a 12-month low

Business confidence has hit a 12-month low but operating conditions are better than ever, according to a contradictory survey by  National Australia Bank.

NAB’s business survey for October found that sentiment among the some 350 respondents was at its gloomiest since just before last year’s Federal election.

However, their view on trading conditions, based on sales and profits, is at its highest point for years, after the relevant index surged a record 12 points, to 13, between September and October.

The results confounded NAB’s chief economist, Alan Oster, who noted that this was the first time since 2012 that confidence had dropped below conditions, suggesting “firms remain uncertain over near-term demand in their industry”.

He said confidence levels varied markedly across different sectors, reflecting the contrasting impact of the lower Australian dollar on different operations.

“While the falling Australian dollar may have helped many sectors, it is probably also behind the large falls in the wholesale and transport/utilities sectors,” he said.

A weaker exchange rate makes exports cheaper, and locally made goods more competitive with dearer imports.

Some local business people, however, are less equivocal about current conditions and confidence.

“Everyone knows business is down,” said Tony McGrath, founder and chairman of haulage company McGrath Newcastle.

“To alleviate competition, I’ve got a warehouse so we can value add.

“We’re not just moving product from A to B; we also pack the containers and store them for our customers.

“If you’re in this business and just transporting it’s much more difficult.”

Tuesday’s data, which coincided with further statistics confirming a slight cooling of house price growth, got a mixed reception.

The Australia dollar barely reacted, before ending local trade slightly down on Monday.

Economists were divided on what the survey was saying.

JP Morgan was among those who suggested the contradiction may reflect the fragile nature of the current pick-up.

“It appears that firms are viewing better conditions as temporary, or are at least reserving judgment on whether the improvement in outlook will transmit to their own bottom line,” the investment bank said in a note.

“Amid these uncertainties, it will be important to see whether the recovery in conditions can be sustained into year-end.”

HSBC, however, said the NAB survey results would be well-received by the Reserve Bank of Australia, whose focus is Australia’s transition away from resources-related infrastructure activity to a broader-based economy.

“The RBA is likely to be heartened by these data, as the NAB survey is one of the central bank’s preferred timely indicators of economic conditions,” chief economist for Australia and New Zealand Paul Bloxham said.

“[Tuesday] brought further signs that Australia’s great rebalancing act is under way.

He said he expected to the RBA to lift interest rates around mid-2015.

NAB said the jump in business conditions pointed to a strong start to the fourth quarter of calendar 2014, although growth would remain constrained by “weak terms of trade, soft labour market and signs of downturn in building cycle”.

The survey found expectations that unemployment would peak at 6.5 per cent, compared with 6.2 per cent now, and that the RBA would not lift interest rates until the end of 2015.

Businesses reported that sales and profitability were much better in October, but employment lagged.

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Vocation faces class action

Vocation chief executive Mark Hutchinson. Photo: Nic Walker Vocation chief executive Mark Hutchinson. Photo: Nic Walker

Vocation chief executive Mark Hutchinson. Photo: Nic Walker

Vocation chief executive Mark Hutchinson. Photo: Nic Walker

More than 30 institutional investors from both Australia and overseas are backing a class action being planned by law firm Maurice Blackburn over disclosure practices at embattled education firm Vocation.

Maurice Blackburn will on Wednesday launch an online registration page to allow retail shareholders to sign up to be part of a class action, joining the large institutions angry at the heavy losses of $350 million-plus as the share price plunged.

Maurice Blackburn class actions principal Jacob Varghese said there had been substantial interest from institutional investors in pursuing a class action, and the firm would be undertaking further investigations with a view to formally commencing proceedings by late calendar 2014 or early next year.

“It’s very clear there’s a fair degree of disquiet about what’s happened here,” he said.

The 30-plus institutions represented the interests of hundreds of thousands of investors in those funds. Retail investors in Vocation would now  be given the opportunity to join the action.

Vocation shares went into freefall after the company finally announced to the ­market on October 27 it would be stripped of $19.6 million in funding and would take a $5 million hit to its bottom-line profits in 2014-15.

The ­revelation was in contrast to the previous announcements by the company that the impact of an audit review by Victorian regulators would not be material.

The Australian Securities and Investments Commission and the Australian Securities Exchange are also examining events, and whether market disclosure by Vocation was adequate.

Mr Varghese was at the forefront of a class action against National Australian Bank over the bank’s exposure to collateralised debt obligations during the global financial crisis.

NAB agreed to pay $115 million in a settlement in late 2012 after shareholders lost about $450 million in July 2008.

Mr Varghese said Maurice Blackburn was investigating whether Vocation was being frank with the market about the extent of the Victorian government’s concerns about training courses provided by two Victorian businesses.

“We are concerned with reports that the troubles with Victorian regulators dated back to before the IPO on December 6, 2013,” he said, referring to the Vocation sharemarket float in December.

That added a fresh element to the investigation, with investors who subscribed for shares in the float potentially having paid an inflated price.

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Sydney to become official currency trading hub for China

President Xi Jinping is poised to announce Sydney as an official currency trading hub during his state visit next week, in a deal aimed at bringing down the cost of doing business with Australia’s largest trading partner as China pushes for greater international influence for the renminbi.

Along with the bilateral free trade agreement, which is still to be finalised, the designation of the clearing bank is among the major announcements expected for President Xi’s official visit after his attendance at the G20 in Brisbane this weekend.

He will address Parliament in Canberra on Monday, and pay visits to Sydney and Tasmania. Travelling with Mr Xi will be eight provincial governors and senior business delegations to meet with the leaders of Australia’s states and territories, mirroring the sizeable contingent that travelled with Tony Abbott – who is currently in Beijing for the APEC Leaders’ Summit – on his first visit to China as Prime Minister in April.

With some final technical details being ironed out in meetings on Tuesday, it is understood either the Industrial and Commercial Bank of China or the Bank of China will be the yuan clearing bank, with ANZ a front-runner to be the Australian partner. The deal will likely see the two countries set up a currency swap line in the tens of billions of dollars, with China shifting from being a capital importer to now on the cusp of being a net capital exporter next year.

Hong Kong remains the main offshore market for the yuan, but other financial centres such as Singapore and London have been competing for yuan-denominated business.

“Australia now desperately needs equivalency … with Hong Kong and Singapore in particular, so that’s key for us,” one source close to the deal told Fairfax Media. “All the indications are that this will happen – it’s part of [China’s] overall strategy and it suits us as well.”

Seeking to promote use of the renminbi, also known as the yuan, in global trade and investment in a bid to eventually make it a major reserve currency like the US dollar or euro, China in the past two years has appointed clearing banks in cities including Singapore, London, Paris, Frankfurt and Seoul. Canada and Qatar this week were announced as the first clearing houses in North America and the Middle East respectively.

According to Westpac senior international economist Huw McKay, 18 per cent of China’s trade is now denominated in yuan. This is expected to rise to 30 per cent by next year. Westpac forecasts China’s share of global foreign exchange transactions rise from 0.4 per cent in 2010 to 5 per cent in 2018, and 15 per cent by 2030.

Australian companies invoicing and settling in yuan can negotiate immediate discounts of 2 to 3 per cent, as Chinese suppliers remove the ­margin in their prices for the foreign exchange risk, according to Mr McKay.

The announcement of a Chinese clearing bank could also likely enable fund managers to directly market to Chinese investors, in line with arrangements with other offshore trading hubs.

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