Category: Business

Almost a year after the Melbourne Star stopped turning, the liquidator charged with selling one of the world’s largest observation wheels says it is making progress on the sale with “various stakeholders”.

But the Docklands Chamber of Commerce has called for faster action, saying the local business community needed certainty on the future of the former tourist attraction.

The Melbourne Star Observation Wheel, which has been a feature of Melbourne’s city skyline for more than a decade, was one of the city’s most high-profile victims of repeated COVID-19 lockdowns, closing last year with multimillion-dollar debt.

MB Star Properties announced the immediate closure of the wheel in September 2021, saying the pandemic-induced travel restrictions and lockdowns had made it “impossible to sustain the business”. The owners said those challenges had come on top of pre-existing difficulties, with “increased high-rise development and changes in the Docklands area”.

Weeks later, liquidator Grant Thornton filed a creditors report with the Australian Securities and Investment Commission showing the wheel had racked up more than $3.9 million in debt.

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At the time, a spokeswoman said the liquidators would consider all possibilities, including selling the wheel and surrounding land or dismantling it.

Docklands Chamber of Commerce executive officer Shane Wiley said he knew of at least two consortiums that had made credible offers to buy the liquidated assets associated with the wheel, including the wheel itself.

“We want to know if it is going to stay or go or be taken down and scrapped,” he said.

Slapping CBA with a $1 billion capital penalty, APRA lambasted a “widespread sense of complacency”, overconfidence, excessive complexity and insularity. It said CBA had not learned from experiences and mistakes, and “turned a tin ear to external voices and community expectations about fair treatment”.

Devastatingly, it chastised CBA for a “slow, legalistic and reactive, at times dismissive, culture”, and declared “an overly collegial and collaborative working environment [had] lessened the opportunity for constructive criticism, timely decision-making and a focus on outcomes”.

If that was not a call to action for Livingstone, then nothing would be.

‘Much better organisation’

She took one of the biggest risks of her career by appointing Matt Comyn as CEO in late January 2018, given Comyn had led the retail bank where the money laundering problems had emerged.

But just two years later, after plenty of blood, sweat and tears had been spilled, CBA had fundamentally changed for the better as a result of Livingstone’s determination to fix the place.

As Promontory, which reviewed the response to APRA, reported in 2020: “Accountabilities have been sharpened. The ‘voices’ of risk and compliance have been elevated, and are being heard. There has been considerable improvement in the ownership and understanding of non-financial risk.”

Looking over to the Opera House and Sydney Harbor Bridge on Wednesday night, Comyn described Livingstone’s chairmanship as “coinciding with a very challenging time for our organization and the broader industry”.

But “under her leadership, we became a simpler, better bank with an unwavering focus on our customers, our shareholders and our people, and, as a result, we are a much better organisation”, he said.

Incoming CBA chairman Paul O’Malley also spoke at the soirée, describing Livingstone as not only a leader of the banking sector but corporate Australia more broadly, acknowledging her time as chair of Telstra, which she navigated through challenges including the construction of the national broadband network.

Livingstone, who took home $900,000 this year for her efforts, wrote in the annual report released on Wednesday that she had served as chairman at “a time when the bank has addressed a number of complex challenges and subsequently rebuilt its reputation”.

Earlier in her last day on the job, she had done the rounds with senior executives and staff at the bank’s Darling Harbor office, including participating in an interview with Comyn in front of staff.

Strategic moves

As well as the response to APRA and AUSTRAC, she told them another crowning achievement was overseeing CBA’s firm financial footing to allow it to support customers through the pandemic.

“I don’t think we would have been able to serve our customers at the rate that we did had it not been for the work done on the underlying systems and processes,” she said.

She also presided over strategic moves, including reducing complexity through a series of asset sales, including selling insurance and wealth management operations. These deals culminated this week when CBA announced it had sold a 10 per cent shareholding in the Bank of Hangzhou in China. Meanwhile, she insisted CBA keep investing to ensure it can fight the forces of digitization.

Those who have watched Livingstone grow as a director suggest other leaders of corporate Australia study her qualities.

Angus Armor​CEO of the Australian Institute of Company Directors, says he first encountered Livingstone in a boardroom in the 1990s, where his leadership qualities were immediately evident.

“She’s incredibly smart and experienced, but always curious and learning,” Armor said on Thursday. “She’s persistent in chasing outcomes and passionate about getting there. Catherine is resilient with a very strong set of values, and she cares deeply about the future of Australia. In the boardroom, she intently listens to different views so when she starts to ask questions, it focuses your mind.”

But she shunned the public spotlight. She has declined multiple requests for an exit interview. Her performance by Ella at the Hayne royal commission came under scrutiny when she failed to recall dates or context during her first day of giving evidence, only to return the next day with greater clarity. At rare public appearances at CBA annual general meetings, she was typically steely and defensive, fending off attacks from environmental activists.

‘Strong strategic franchise’

But her scientific background helped her understand the environmental, social and governance forces before other banks. She struck a deal with Market Forces in 2019 to cut lending to the coal sector and, last year, CBA was the first major bank to issue “glide paths” to show planned reductions in lending to emissions-intensive industries. On Wednesday, it was the first bank to issue a dedicated “climate report”.

“Today, CBA is a better bank with a more accountable culture, anchored in strong values ​​and a renewed purpose,” she wrote in this week’s annual report. “The bank has a clear strategy for the future that places the organization in good stead to face the challenges and opportunities ahead.”

This has won the respect of other major bank chairmen.

John McFarlane, chairman of Westpac, says leadership is primarily about results and, during her tenure, CBA “has become one of the largest banks in the world by value, is trading at a significant premium to equivalent competitors and producing higher returns”.

“It has a strong strategic franchise, has exited non-core businesses, has retained its leading position with customers and has largely put the issues from the royal commission behind it. That says it all,” McFarlane said in late April.

They are big shoes to fill for Paul O’Malley, the former Bluescope Steel CEO who has been a director of CBA since early 2019 and assumed the chair on Thursday. He will hold his first board meeting next month.

As Promontory has said, CBA’s governance journey is far from over and its “greatest overall challenge” will be ensuring the changes that respond to APRA, AUSTRAC and Hayne are sustained.

These days, AMP is a small cap trying to sell a turnaround story with a business model abandoned by every other local financial institution except Macquarie Group. Only AMP and Macquarie have financial advice and banking under the one roof.

Chanticleer has picked five key topics for the purposes of this discussion about the profound changes in Australian business and in AMP over the past three decades.

outflows

The all male, 12-member board of AMP in 1992, which was led by chairman Ian Burgess and managing director Ian Salmon, had every reason to believe AMP would dominate the financial landscape for decades to come.

AMP had $12 billion in total income, $60 billion in policyholders’ funds, provided $176 billion in life insurance protection, and paid out $7 billion to policyholders and beneficiaries.

But scratches below the surface and cracks were appearing in its business model.

George’s employer, BT, which in 1992 had added $12 billion in funds under management since the 1987 stockmarket crash, was stealing AMP’s big superannuation clients.

In the two years to December 1993, AMP’s premium revenue slumped by about $800 million to $7.3 billion, and management said it was seeking to “restore investor confidence and arrest the trend”.

Today, George is dealing with far more severe outflows than in the 1990s.

A catastrophic loss of confidence in AMP caused by the Hayne royal commission has led to $23.7 billion of cumulative cash outflows from AMP’s wealth management arm since 2018.

In the six months to June this year, AMP’s wealth management outflows were a relatively modest $1.9 billion, an improvement on the $3.6 billion in outflows in the first half of last year. George tells Chanticleer she is hoping to have positive flows by “the back end of 2023”.

Like most large businesses in the 1990s, AMP was a male-dominated workplace with no women in senior executive positions and none on the board.

Diversity and culture

AMP’s workplace culture was out of step with progressive workplaces such as BT, where George was at the vanguard of a deliberate policy to employ women, according to Gideon Haigh’s book on BT – One of a Kind, The Story of Bankers Trust Australia, 1969-1999.

Haigh pointed out that senior male executives at BT recognized it had a “locker room atmosphere” and it had to change.

BT’s leading female executive, Jillian Broadbent, was quoted in the book as saying BT was initially slow to confront the testosterone-fueled behavior in the dealing room.

It is staggering that 30 years after others recognized the importance of inclusion and diversity, AMP fell into the trap of turning a blind eye to unacceptable male behaviour. This weakness came through in the controversy over the appointment of Boe Pahari to head AMP Capital in 2020.

George is leading AMP’s cultural transformation, which she defines as “improving inclusion, diversity and strengthening accountability and performance”.

With the assistance of chairwoman Debra Hazelton, they have pushed through the 40:40:20 target for gender diversity for the board, executive management, middle management and the workforce generally. This move would have made the directors of the AMP board in 1992 blank.

advice

George is confident that AMP’s financial advice model is suited to providing affordable advice to Australians and will work well for shareholders of AMP.

She says wealth management and banking are suited to being under one roof, although AMP operates the businesses separately. She says superannuation and the family home are the two biggest assets of Australian households, and AMP can bring its advice expertise to that equation.

The AMP of the 1990s was basically built on the sale of life insurance policies through a network of 8000 life insurance agents, many of whom were paid more than the CEO.

AMP’s accounts showed the extent to which its business model was unsustainable. It was paying out almost $600 million a year in commissions to life insurance agents.

But these commissions had not earned the loyalty of customers, judging from the fact that policy surrender rates were rising at an alarming rate in the early 1990s because of poor investment performance and the lure of fund managers such as BT.

George says the only commissions paid by AMP today are to mortgage brokers, who distribute about 90 per cent of the home loans sold by AMP Bank.

Regulatory structures

AMP’s business is heavily regulated to the point where it may not be able to offer advice to people who need it.

But George says its success does not rely on regulatory change by the Albanese government.

She welcomes the comments made by Assistant Treasurer and Minister for Financial Services Stephen Jones about law reform to make advice more accessible.

“I think regulatory change would be good for advice, particularly, but our strategy certainly doesn’t depend on it, and I’m not going to make it depend on it,” she says.

“I do, however, think that the new government has leaned into this problem of affordable and accessible advice. I think it was probably coming to a head anyway because clearly the traditional advice businesses that have existed in Australia have moved up into the high net wealth space.

“The statistics would show that there’s a real need in middle Australia for advice. I think this government has continued to lead into that.”

George said she was pleased that Jones reaffirmed the first phase of the quality of advice review would continue.

“But you also saw the minister’s comments over the last weeks, about areas where he wants to improve things.”

The AMP of the 1990s had relatively benign regulatory oversight of its business. But its business was threatened by the government’s encouragement of compulsory superannuation.

The default payment of superannuation into industry funds changed the flow of money away from commission-driven salespeople, and preferential treatment was given to direct debiting of money into funds.

That has fundamentally changed the power across the financial system. It has shifted from shareholder-owned organizations to mutually owned organisations.

Ironically, the mistake made by the board of the AMP Society in the late 1990s was to trade its position as the world’s fifth-largest mutual life office with more than 5 million policyholders to become a shareholder-owned entity beholden to fickle capital markets.

“There also continues to be a lack of accountability within the NBN for the significant time, effort and expense wasted across industry over the past 14 months to address the failings of the previous SAU proposal. The fact NBN did not share its new proposal with industry prior to distributing to the media first, highlights its views on so-called collaboration.”

The federal government last month confirmed NBN Co would remain in public hands “for the forseeable future”, a move which forced it back to the drawing board on a regulatory mechanism known as the Special Access Undertaking, which determines the quality of its services and how it charges wholesale customers such as Telstra, Optus and TPG Telecom.

Under a previous proposal, NBN Co planned to lock in price rises until 2040, and double the price of entry-tier plans over the next decade. Australia’s telcos have long argued the pricing structure of the NBN hurts margins and makes it difficult to predict monthly costs. The new proposal suggests removing the connectivity virtual circuit (CVC) charge, which increases with peak internet usage periods, by mid-2026.

But despite the initial drop in pricing, consumers and businesses will have to brace for yearly price increases linked to inflation, which NBN Co claims are needed to hit financial targets.

The proposal also includes larger discounts to wholesale prices for high-speed tiers by mid next year. The reductions are between 8 per cent and 14 per cent across the various speeds when compared with the initial proposal NBN Co put forward in March.

NBN Co also released a set of benchmark services standards on end-use connections, service transfers and performance incidents, and proposed giving new powers to the competition regulator to reset the NBN’s revenue and pricing framework from 2032.

Optus’ vice president of regulatory and public affairs, Andrew Sheridan, said the paper gave the telco reassurance NBN Co was heading in the right direction. If NBN and industry continue to work constructively, Optus is confident we can provide Australian customers with the outcomes they deserve,” Sheridan said.

A Telstra spokesman said there were positive steps but some areas needed attention, including service quality.

“Our ambition through the process will continue to be ensuring the wholesale terms deliver better outcomes for our customers, sustainable industry economics and increased use of an important national asset,” the spokesperson said.

The discussion paper is subject to regulatory and industry consultation later this month.

On bitstamp.net, bitcoin was 0.9 per cent higher to $US24,187 near 8.05am AEST.

The yield on the US 10-year note was 11 basis points higher than 2.89 per cent at 4.59pm in New York.

On Wall Street, shares reversed direction late. Health care paced six of the S&P500’s 11 industry sectors lower. The NYSE Fang Index slid 0.6 per cent. The VIX rose 2.2 per cent to 20.18.

Today’s schedule

Local: BusinessNZ manufacturing PMI July

Overseas data: Euro zone June industrial production; UK second quarter preliminary GDP, June industrial production; US July import and export prices, August preliminary University of Michigan consumer sentiment

market highlights

ASX futures down 20 points or 0.29 per cent to 6946 near 7am AEST

• AUD +0.2% to 71.06 US cents
• Bitcoin +0.9% to $US24,187 near 8.05am AEST
• On Wall St: Dow +0.1% S&P500 -0.1% Nasdaq -0.6%
• In New York: BHP +0.8% Rio +1.6% Atlassian -3.6%
• Tesla -2.6% Apple -0.4% Amazon -1.4% Microsoft -0.7%
• In Europe: Stoxx 50 +0.2% FTSE -0.6% CAC +0.3% DAX -0.1%
• Spot gold -0.3% to $US1787.98 an ounce at 2.18pm New York time
• Brent crude +2.5% to $US99.82 a barrel
• Iron ore +2% to $US110.60 a tonne
• 10-year yield: US 2.89% Australia 3.28% Germany 0.97%
• US prices as of 4.59pm in New York

United States

The US producer price index for final demand declined 0.5 per cent last month, the first negative monthly reading since April 2020, the Labor Department said. The PPI climbed 1.0 per cent in June. In the 12 months through July, it increased 9.8 per cent after advancing 11.3 per cent in June.

Economists polled by Reuters had forecast the PPI would rise 0.2 per cent in July and increase 10.4 per cent on a year-on-year basis.

Excluding the volatile food, energy and trade services components, producer prices rose 0.2 per cent in July. The so-called core PPI increased 0.3 per cent in June. In the 12 months through July, the core PPI advanced 5.8 per cent after rising 6.4 per cent in June.

The Federal Reserve is mulling whether to raise its benchmark overnight lending rate by another 50 or 75 basis points at its next policy meeting on Sept. 20-21 in its bid to tame inflation running at more than three times its 2 per cent target.

Europe

The pan-European STOXX 600 index rose 0.1 per cent, after clocking its best session in nearly two weeks on Wednesday.

Oil stocks led gains as crude prices rose by over 1 per cent after the International Energy Agency raised its oil demand growth forecast for the year.

Healthcare shares led losses, dragged by declines in GSK, Sanofi and Haleon amid growing concerns about US litigation focused on a heartburn drug that contained a probable carcinogen.

Miners also fell 0.8 per cent on weak results from Antofagasta. The company’s shares declined 2.2 per cent and dragged peer Rio Tinto down 3.7 per cent.

The STOXX 600 is down about 10 per cent so far this year.

commodities

In its monthly oil report, the IEA struck a bullish tone: “Soaring oil use for power generation and gas-to-oil switching are increasing demand. In this report, we have raised our estimates for 2022 global demand growth by 380,000 barrels a day, to 2.1 million barrels a day.

“Gains mask relative weakness in other sectors, and a slowdown in growth from 5.1 million barrels a day at the start of the year to less than 100,000 barrels a day by 4Q22. World oil demand is now forecast at 99.7 million barrels a day in 2022 and 101.8 mb/d in 2023.”

The IEA said while some new supply could help ease market tensions “with supply increasingly at risk to disruptions, another price rally cannot be excluded”.

In contrast, OPEC cut its 2022 forecast for growth in world oil demand for a third time since April, citing the economic impact of Russia’s invasion of Ukraine, high inflation and efforts to contain the coronavirus pandemic.

In its latest monthly report, OPEC said it expects 2022 oil demand to rise by 3.1 million barrels per day (bpd), or 3.2 per cent, down 260,000 bpd from the previous forecast.