Rob Gerard's dodgy tax, RBA directors curse, RACV sale, Anne Keating

1. The Reserve Bank director and the tax office: ouch



By Stephen Mayne

Morgan Mellish had a cracking five page "special investigation" in The AFR today about Rob Gerard's dodgy tax arrangements. The story will have severely embarrassed Treasurer Peter Costello, who appointed the Adelaide Rich Lister and prominent Liberal party donor to the Reserve Bank board in March 2003.

Using what looks like a combination of court documents and leaks from the ATO, Mellish has delivered a knock-out punch which will surely put pressure on Gerard to either resign from the Reserve Bank board or be sacked.

How on earth could Peter Costello appoint someone to the Reserve Bank board who has been in dispute with the tax office for 14 years and only later admitted his liability and stumped up $150 million, which is one of the largest ever settlements by an individual?

Mellish has some devastating quotes from the ATO's investigatory reports, including that Gerard had made false and misleading statements and should face the highest possible penalties. There was everything from round robin insurance payments in Bermuda dressed up to be FAI Insurance and film schemes that cost $9.5 million but saw Gerard's outfit claim $56 million in tax deductions.

After one of the longest fights in Australian history, Gerard eventually surrendered and agreed to sell his 50% owned Clipsal electrical empire to French multinational Schneider for $750 million a few months after he joined the Reserve Bank board. Schneider wrote out a cheque for $150 million that went straight to the tax office, so BRW's estimate that Gerard is worth $384 million is probably on the high side.

The story has been keenly followed this morning and will undoubtedly get a decent airing during Question Time this afternoon. Check out ABC Online, AAP and AM from this morning.

The key question for Costello is his knowledge of Gerard's poisonous fight with the ATO at the time of the RBA appointment. The Treasurer told The AFR that "prior to his appointment, Mr Gerard had provided confirmation from the ATO that he had no current disputes with the ATO in respect of his personal tax affairs."

That might be a cute way of saying that all the scandal was in the Gerard Industries corporate structures. However, the same story quotes Gerard saying: "I told the Treasurer to check with all the departments before I went on the board. He rang me back and said, 'I know there's an issue with the Tax Office but I don't have a problem with you on the board'."

Hmmm, so Peter Costello is on his high horse about James Hardie not receiving special treatment to tax deduct its ongoing asbestos compensation payments, but many years of very dubious tax scheming in places like Bermuda by Rob Gerard is no problem at all. Cynics rightly point out that Gerard has donated $1.1 million to the Liberal Party since 1998 and not a dollar to Labor. Are our politicians really that cheap? Attempts to diddle the taxpayer seem to be ignored when big cheques are sent to a political party.

Rob Gerard is undoubtedly one of Australia's most successful industrialists, but Peter Costello should not have elevated him to the pinnacle of Australian business when he also appears to be one of the nation's bigger tax rorters.

Even worse, when caught he tried to cover it up. Let's hope Cossie doesn't try to cover up his own mistake by allowing Gerard to serve out his full five year RBA term until March 2008. Gerard should be gone by the end of the week.




2. The roll call of controversial RBA directors



By Stephen Mayne

Is there some sort of curse on Reserve Bank directors? For 20 years now we've seen Paul Keating, John Howard and Peter Costello stack the central bank's board with mates, but bad things seem to happen to the chosen few. Try this list for size:

Brian Quinn: Reserve Bank director for much of the 1990s, the former Coles Myer executive chairman did time for fraud in the 1990s.

Solomon Lew: RBA director for five years until 1997 then was booted off Coles Myer board by shareholders in 2002.

Alan Jackson: RBA director from 1991 until 2001 but then ousted from Austrim Nylex shortly after quitting the board when he started punching the CEO at a Christmas drinks function.

Rob Gerard: Appointed to board in March 2003, after which he caved in and paid the full whack of $150 million to settle a long dispute with the ATO.

Donald McGauchie: Joined RBA board in March 2001 and in the following four years has been engulfed with controversy at Telstra and as a director of James Hardie.

Hugh Morgan: Was removed from the RBA board by the Hawke government in 1984 for making bigoted remarks about indigenous Australians, but then got back on in 1996, after which he fell out with long-time partner Alcoa and then broke up his beloved WMC Resources and watched BHP Billiton take it over last year.

Frank Lowy: appointed to the RBA board in 1995 and within four years had suffered public humiliation over the bogus community group campaign at the old Arnotts factory in Sydney. Nevertheless, he survived and prospered reaching unprecedented heights with this month's soccer successes.

Dick Warburton: did two terms up until 2002 but then 2003 was a shocker when he quit as David Jones chairman after a shareholder protest and also bailed from Southcorp ahead of a shareholder protest. However, life has looked up since then.

Janet Holmes a Court: appointed by Paul Keating in 1992 just as she was going through a major workout with her bankers, which included failed Victorian merchant bank Tricontinental.



7. Is the RACV negotiating a $1bn insurance sale?



By Stephen Mayne

RACV chairman Clive Hall played down the prospect of Australia's most valuable mutual selling its $1 billion insurance business at this month's AGM, but Crikey is reliably informed that negotiations for a sale are now under way.

Our spies north of the river claim Insurance Australia Group is likely to shell out cash and shares for the 30% of the Insurance Manufacturers of Australia (IMA) joint venture that it doesn't own.

If the deal is consummated, it will crystallise a profit of more than $800 million for the RACV, a sleepy but increasingly rich mutual which claims to only have net assets of about $750 million.

Responding to my questions, Hall told the AGM that it was important for RACV to control distrubution of its brand in Victoria, therefore a sale was not likely. However, there are ways that RACV can restrict how its brand is used in Victoria as part of any deal that will lift IAG's stake in the IMA joint venture from 70% to 100%.

The move would be a good one for RACV policyholders because the insurance perfect storm of low claims, higher premiums and booming investment returns won't continue forever.

The highly entrenched board will be feted for its vision in securing the joint venture six years ago and turning it into a massive windfall, but there may well be quite a debate about what RACV should do with the money. RACV received a dividend of $96 million from IMA in 2004-05, suggesting its book value of $158 million is massively undervalued.

IAG is cashed up and would cement itself as Australia's biggest general insurer if it can close the deal. A joint venture between a for-profit publicly listed company and a not-for-profit mutual was always going to be an odd arrangement over the longer term, so unscrambling the egg while relations and profits are good would be a sensible outcome for all concerned.




26. Crikey vs the Primelife boys



By Stephen Mayne, loss-making Primelife shareholder

Ron Walker is clearly a dedicated Primelife deputy chairman. Despite only attending 10 of the 15 board meetings in 2004-05, the big red head sprinted home from his Commonwealth Games talk at the CHOGM meeting in Malta on Saturday to attend the AGM of the struggling retirement village company in Sydney yesterday.

And he must have been delighted when Crikey walked into the Wesley Centre shortly after 2pm and started asking questions about his attendance record and how many times he had showed up in the boardroom, rather than just attended by phone as he apparently usually does with Football Federation of Australia board meetings.

Primelife chairman Robert champion de Crespigny was far more polite to Crikey than Walker at the John Fairfax AGM in Sydney ten days ago, but the former Normandy Mining boss did manage to wriggle out of answering quite a few questions.

Asked whether he and Ron were ever going to get to the mooted 19.9% Primelife stake that was trumpeted at the time they came on board, Crespigny said that was a matter for the two individual concerns. Er, yes, that's why I was asking.

However, corporate governance is slowly progressing at Primelife. CEO Jim Hazel revealed the company had just given Walker and Crespigny notice that their $6 million loan, complete with an attractive 11.5% interest rate, would be repaid shortly.

The lack of a full takeover bid for Primelife when Babcock & Brown got together with its favourite rich client, Joe Ross, to take out Ted Sent's 25% two years ago stake was another issue on which Crespigny and B&B representative Peter O'Connell both refused to bite. ASIC should be all over Babocks and Ross for the way they appear to have acted in concert on plays including Ausdoc, Commander Communications and Primelife.

Danny Simmonds from law firm Atanaskovic & Hartnell put together the two vehicles that carved up Sent's stake and they also had the same structure and financier. Babcock's CEO Phil Green told The Australian a few weeks back that "if the board was concerned they would have disclosed."

Australian law limits associated shareholders from going above 20% without making a full takeover bid, so I asked about board concerns yesterday and Crespigny would only say that this was a matter for others. Indeed, let's hope the corporate plod is all over it.

Primelife finally got around to announcing a new project in Bunbury yesterday, but they won't have a tough and controversial Hudson Conway veteran to look after it. Crikey was about to ask about Graham Manie, Primelife's general manager of construction, yesterday but Crespigny pre-empted the question by saying he had resigned that morning after doing a great job cleaning up Ted Sent's mess.

Manie featured on the front pages of the Melbourne papers 10 years ago when the Victorian Fraud Squad was investigating Hudson Conway over alleged blackmail threats involving the aborted new headquarters for the now broken up and privatised Gas & Fuel Corporation.

Alas, nothing ever came of it so Manie's name was cleared and he was free to oversee the construction of Crown Casino and then join his old mate Ron Walker to help clean up the hugely aggressive building plans of Primelife, which is still quite a can of worms.




27. Anne Keating defends her Macquarie independence



By Stephen Mayne, very recent Macquarie Leisure shareholder

Anne Keating must think she's being stalked by Crikey. The former PM's sister has faced questions at the AGMs of IAG and John Singleton's STW Holdings over the years, and yesterday it was her re-election to the board of Macquarie Leisure that saw some public debate between us.

Unlike some other Millionaire Factory satellites such as Macquarie Infrastructure Group, Macquarie Leisure does appear to have a clear majority of independent directors, led by the father figure of Australian television production, chairman Neil Balnaves.

My question for Anne Keating yesterday was about her multiple roles inside the Macquarie empire. If she was merely an independent at Macquarie Leisure, that would be fine, but she's also taking some coin on the board of Macquarie Goodman. Would she be reluctant to sack Macquarie Bank as the manager of Macquarie Leisure for fear of losing her other gig with the Millionaire Factory? Naturally, she said there was no problem and she was completely independent.

The same goes for the 75-year-old former chairman of KPMG, George Bennett, who sits on Macquarie Leisure and Macquarie Office Trust as an independent director.

The only independent I didn't have a go at was a chap called Bruce Scott, who sidled up after the meeting and said he lived next door to my aunt and uncle in Brisbane and attended my cousin's wedding last year. Phew, that was a close call.

Macquarie Leisure has certainly been a stand-out performer over the past four years as its share price has more than quadrupled since it bottomed at about 50c in September 2001. And it's no coincidence about S11 because the last four years has seen renewed focus on domestic tourism, something that has particularly helped the Gold Coast, where Dreamworld is going from strength to strength.

The securities surged another 10c to $2.26 yesterday after the announcement of a $56 million water-based theme park next to Dreamworld, which will compete with Village Roadshow's Seaworld and Movieworld.

Conflict of interest is never far from the surface at Macquarie, and Balnaves put his hand up yesterday and declared that he was not involved in the current negotiation to extend Big Brother's deal with Dreamworld for another three years. Balnaves was the founder of Big Brother producer Southern Star and remains a big shareholder in its new owner, Southern Cross Broadcasting.

Macquarie Leisure CEO Greg Shaw said he hoped to have a new deal with Big Brother inked in the next couple of weeks. Big Brother has been a bonanza for Macquarie Leisure and the clowns at Fox Studios who missed out on the original tender by refusing to put enough money in must be really regretting their short-sightedness. The write-downs of more than $200 million could have been partially avoided, it seems.

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