ASIC under fire again...

A leading consumer activist claims the corporate regulator has not only failed to investigate hundreds of cases of loan fraud put before it but, as a consequence, has covered up a systemic banking failure.(here)

More farewells to manufacturing and jobs...

The future of more than 500 people in Orange who work for Australia's last refrigerator manufacturing plant may be decided on Thursday night (AEST) at a company boardroom in Stockholm.
A spokesman for Electrolux which employs 544 workers at the Orange plant said its future was ''high up on the agenda'' for discussion at the board meeting in Sweden. It is expected the board will decide whether to close the plant which injects an estimated $33 million into the local economy each year.
(here).

But not to worry there's more froth to be added to the housing bubble with keen rival MacBank ready to crash the party (Macquarie eyes a slice of Australian banks' home mortgage pie).  At a time when teenagers and toddlers are having houses and apartments bought for them in panic !

A must read for all investors

Those not subscribing to the largest hedge funds in the US would do well to heed the voices of Wall Street as to the Australian economy and in particular the banks which announced record profits.  The following interview piece, in respect of expat fund manager Matthew McLennan explains just why the banks are risky and with low capitalisation (amongst record high private sector debt levels):

Asked if he had invested in Australian banks, which are highly profitable by overseas standards, Mr McLennan said he was put off by the major banks’ lofty leverage, which averages 27 times their underlying equity capital, and their exposure to fickle wholesale bond markets. 

“We haven’t been investors in the Aussie major banks, because the raw equity-to-asset ratios . . . are lower than our comfort zone,” he said. 

While the banks have profited from a “fair amount of cumulative credit growth over the last generation” Mr McLennan said their “reserves-to-loan losses” appeared to be “pretty low in the scheme of things”. 

He warned the Australian economy, which was dubbed by The Economist magazine as the “wonder Down Under” for 22 years of uninterrupted growth, may soon start to struggle.(here).

More on those lofty banks here. 

Everything is not alright - Australian businesses

So the Chinese economic miracle has come to Australia?  In the form of the mining boom and... the real economy bust... or was that fair competition:

STRUGGLING Australian fruit processor SPC Ardmona has urgently appealed to the Coalition government to give it $25 million promised by Kevin Rudd four weeks ago or risk watching the company go broke. 

SPCA chief executive Peter Kelly said that it was already "five minutes to midnight" and that the Shepparton-based business, despite being owned by giant Coca-Cola Amatil, could not keep going much longer. 

He said SPC, as one of the largest food processing businesses in Australia, had a much brighter future than the moribund Australian car industry and needed much less government assistance. But Mr Kelly bluntly warned yesterday that time was running out. 

"The pain is wearing thin; if this business wasn't owned by CCA we would be shut already," a defiant Mr Kelly said.
"Without ($25m from government) we are in trouble; and that's not just a problem for SPC but for our people, the town, the region and the nation."(here)

One interesting point from the article is the political aspect - who survives depends on who has political connections.  An interesting game indeed!

Everything is going to be alright - JP Morgan

See the below and attached link to judge for yourself the pronouncement from JP Morgan.  Let's all hope their right (but see the next post): 

THE major banks are well placed to endure the end of the mining investment boom, with a new report finding no smoking gun from the hit caused by Western Australia's cooling mining market on small businesses. 

The report by JPMorgan and Digital Finance Analytics (DFA) also says the economy's transition away from mining investment growth will be "bumpy" but less painful than expected. 

The findings, which downplay fears of a big spike in bad debts for the banks, came as business confidence last month surged to a more than three-year high, reducing the chances of interest rate cuts by the Reserve Bank this year (here).

Bankers blowing hot air

Nothing like some reassurance from bank bosses.  Seems to be the fashion at the moment. Not that the heads of Australia's Big 4 banks would be concerned about business conditions is it? 

Can the bankers really be trusted to proclaim that there is no problem in the markets which they profit from?

From ANZ (in respect of the New Zealand market but you can bet the thinking is the same in Australia):

ANZ chairman John Morschel has labelled New Zealand's new rules to cool its property market a "sledgehammer to crack a walnut", but conceded the Reserve Bank of Australia was potentially staring down a similar problem, in a wide-ranging speech today (here).

Then from the head of the big cheese, Commonwealth Bank helpfully suggesting the good times might not last:

Commonwealth Bank of Australia Chief Executive Officer Ian Narev, head of the country’s largest mortgage lender, said the nation’s banking industry needs to be watchful of house price increases to avoid a bubble.
While current home price gains are justified by supply and demand fundamentals, the impact of an extended period of low interest rates should be monitored, Narev told reporters after a speech in Melbourne today.
“We’ve got to realize that if we are in a sustained period of low interest rates, it is something we have to keep our eyes on,” he said. (here)

And then giving the game away perhaps is NAB head, Cameron Clyne begging for no interest rate rises (which could be a fair call but for other reasons related to hot money flows):

National Australia Bank chief executive Cameron Clyne said the central banks must adopt a neutral stance until it gets some clear evidence the recent lift in business and consumer confidence, following the election of the new Coalition government, is translating into real economic activity. 

So, Australia's supposedly strong banks might just be a bit worried about a coming housing slowdown.  Of course they wouldn't want to come out and just say it would they? 

Wannabe regulator No. 2 - Introducing ASIC

Many people around the world will be familiar with the storied ASICS trainer, the Japanese produced shoes being widespread in many sports famous for their quality, performance and reasonable prices.  The same cannot be said for the similarly named Australian securities industry regulator ASIC (short for Australian Securities and Investments Commission) which in the last week has faced an array of criticism on many fronts.  Given the looming slowdown and the need for a strong regulator to coordinate the Australian investment markets, recent releases do not seem to bode well for the medium term.

So first up the ASIC head Greg Medcraft defending the body's handling of foreign bribery allegations involving a large Australian construction firm:

Last month, Greens deputy leader Adam Bandt said his party would ask ASIC to explain to Federal Parliament why it had "failed to investigate serious and repeated claims of illegality within the RBA's corporate activities".
ASIC has also been criticised for not investigating allegations Leighton Holdings used bribery to win an oil pipeline contract in Iraq.
In a fiery speech titled Setting The Record Straight, chairman Greg Medcraft on Friday said it was the role of police to investigate such matters and hit out at "ill-informed" media coverage of the regulator's role investigating the allegations.(here).

And then, there was that story about investors not having knowledge of an ASIC investigation (not that it would be for investors to get information in a timely manner or anything).  Link here.  But of more concern perhaps is the exemption ASIC granted for big banks reporting their derivative transactions - a reasonable allowance or a weak regulator?  Certainly it is likely the regulator is to face more criticism if the state of the markets worsens.