News alert: Stokes and Gammell crack WAN board, Turnbull and financial crisis
February 2, 2010
Dear Mayne Reporters,
it's all happening this morning folks. Global financial stocks are plunging and Malcolm Turnbull is the new leader of the Liberal Party in a tight vote, 45 votes to 41.
So, with the investment banking model collapsing, the Liberals have turned to the former Australian managing director of Goldman Sachs, who is the second richest federal politician, after Kevin Rudd.
He just pulled off an impressive press conference - humble, visionary and combative - and will no doubt enjoy quite a honeymoon, with Brendan Nelson on the backbench alongside Peter Costello, who formally launches his memoir at the Press Club today.
Turnbull was a touch hypocritical in attacking Wayne Swan for exaggeration the problems with inflation whilst at the same declaring the current financial meltdown to be the biggest crisis in our lifetimes.
Board coup at WA News
Meanwhile, in the most important breaking news this morning for our little governance ezine, the three remaining independent directors from the April proxy fight at West Australian Newspapers have given up the ghost and relented to billionaire Kerry Stokes and his offsider Peter Gammell joining the board. Check out Seven's announcement here.
Shareholders will get to vote on their appointment at the AGM on November 5 in Perth and it will be very interesting to see whether besieged chairman Peter Mansell can survive, especially given his ridiculous workload and the debacle at OZ Minerals. For now, he seems safe.
Stokes told institutions earlier this year that he wanted to be an interim chairman to shake up WA News and Mansell now looks completely hypocritical given that he fought tooth and nail to resist Stokes joining the board based on what he called a fundamental conflict of interest.
The residual takeover premium in the sagging WAN share price will quickly disappear now that Stokes is inside the tent.
The WAN board is also looking for one more independent director so the final composition will be two representatives for Seven, three residual independents from the asleep-at-the-wheel days and two new independents, including feisty former Rentokil CEO Doug Flynn, who learnt the trade as one of Rupert Murdoch's hard men in Australia and the UK.
The West Australian's editor Paul Armstrong has finally prevailed over his bitter political enemies Alan Carpenter and Jim McGinty with the defeat of the Labor state government, but it will probably be a short-lived victory as Stokes and most independent observers clearly believe he should go.
The fate of Armstrong will be the first big test of whether Stokes is exercising control, because Armstrong ran quite a partisan campaign against the billionaire during this year's proxy battle.
Then there's the issue of Seven being more than $100 million under water on its 23% stake in WAN and the stock is down another 23c at $8.52 this morning.
Finally, check out this comprehensive package of all that happened during this year's proxy battle at WAN, plus this special package immediately after the EGM.
And have a listen to this battle with Stokes at the EGM when we slugged it on the question of whether journalists at The West Australian would feel obliged to promote his commercial interests. Don't expect a big campaign against uranium mining, given that Stokes has the lucrative Caterpillar franchise in WA.
Stocks plunging, ALP's biggest investment hit
Babcock & Brown is the biggest victim on the Australian market today, opening 40% lower at just 96c. And its most heavily indebted listed fund, B&B Infrastructure stumbled another 22% to a record low.
Macquarie remains in a league of its own but still fell 7.5% to $36.54. Its disastrous creation BrisConnections even managed to recover marginally to 4c after releasing this 28 page update to the media and market.
National Australia Bank was again the worst big bank, dropping almost 5% to an 8 year low, such that it is now worth $6 billion less than Westpac and is being severely punished for its foolish CDO exposures.
Our biggest insurer QBE opened just 1% lower and paints such a different picture to AIG. Indeed, Tony Boyd on Business Spectator reckons QBE could pick up AIG's reinsurance division. QBE CEO Frank O'Halloran has cemented himself as one of Australia's true business legends after controlling the company's finances since the late 1970s.
The same can't be said for Suncorp which has plunged another 5% to a seven year low given all its exposures to collapsing Queensland property developers.
The Labor Party won't be happy about this given that its Suncorp investment is 10 times larger than any other, as was revealed in this Sunday Age article earlier in the year. Let's hope Labor Holdings has paid back that $10 million Comsec margin loan.
A hedge fund manager's gloomy prognosis
This came in from a respected hedge fund manager in response to this morning's edition:
The reality is that the banks are the biggest hedge funds of all. Lehman was leveraged 30:1, Bear Stearns 60:1, and even those that are 10:1 could fail. The weak will now get nuked, and the process could take 12-24 months. Anyone who thinks stocks are basing here is dreaming. The reality is this will drive the next US bear leg in a 30-40% bear market. Recall, US indices are only -15%, the rest of the world is -30%, so the US plays catch up, as it did in 02-03.
Most hedge funds use far more modest leverage than 10:1. We use 1 or 2:1. We also have monthly reporting, which is complete transparency for our investors, not quarterly. We also deal transparent instruments such as foreign exchange and futures, as do most funds. Hedge funds are the safe bet at the moment. Banks are the least safe. That irony is lost on many.
Citigroup correction
Further to this morning's edition on the global credit crisis, Citigroup has called and ask that we send this correction out:
"Citibank N.A. is listed in the Lehman Brothers bankruptcy filing as an indenture trustee for bond debt of approximately $138 billion under Lehman Brothers Holdings Inc. Senior Notes. Citi wishes to clarify that our role in this issue is administrative in nature and does not represent exposure for Citi to Lehman Brothers. Any assertions to the contrary are false."
That's all for now.
I'm off to speak at this hedge fund conference but will be on 774 ABC Melbourne with Lindy Burns from 4.30pm this afternoon.
Do ya best, Stephen Mayne
* The Mayne Report is a multi-media governance website published by Stephen Mayne with occasional email editions. To unsubscribe from the emails click here.
it's all happening this morning folks. Global financial stocks are plunging and Malcolm Turnbull is the new leader of the Liberal Party in a tight vote, 45 votes to 41.
So, with the investment banking model collapsing, the Liberals have turned to the former Australian managing director of Goldman Sachs, who is the second richest federal politician, after Kevin Rudd.
He just pulled off an impressive press conference - humble, visionary and combative - and will no doubt enjoy quite a honeymoon, with Brendan Nelson on the backbench alongside Peter Costello, who formally launches his memoir at the Press Club today.
Turnbull was a touch hypocritical in attacking Wayne Swan for exaggeration the problems with inflation whilst at the same declaring the current financial meltdown to be the biggest crisis in our lifetimes.
Board coup at WA News
Meanwhile, in the most important breaking news this morning for our little governance ezine, the three remaining independent directors from the April proxy fight at West Australian Newspapers have given up the ghost and relented to billionaire Kerry Stokes and his offsider Peter Gammell joining the board. Check out Seven's announcement here.
Shareholders will get to vote on their appointment at the AGM on November 5 in Perth and it will be very interesting to see whether besieged chairman Peter Mansell can survive, especially given his ridiculous workload and the debacle at OZ Minerals. For now, he seems safe.
Stokes told institutions earlier this year that he wanted to be an interim chairman to shake up WA News and Mansell now looks completely hypocritical given that he fought tooth and nail to resist Stokes joining the board based on what he called a fundamental conflict of interest.
The residual takeover premium in the sagging WAN share price will quickly disappear now that Stokes is inside the tent.
The WAN board is also looking for one more independent director so the final composition will be two representatives for Seven, three residual independents from the asleep-at-the-wheel days and two new independents, including feisty former Rentokil CEO Doug Flynn, who learnt the trade as one of Rupert Murdoch's hard men in Australia and the UK.
The West Australian's editor Paul Armstrong has finally prevailed over his bitter political enemies Alan Carpenter and Jim McGinty with the defeat of the Labor state government, but it will probably be a short-lived victory as Stokes and most independent observers clearly believe he should go.
The fate of Armstrong will be the first big test of whether Stokes is exercising control, because Armstrong ran quite a partisan campaign against the billionaire during this year's proxy battle.
Then there's the issue of Seven being more than $100 million under water on its 23% stake in WAN and the stock is down another 23c at $8.52 this morning.
Finally, check out this comprehensive package of all that happened during this year's proxy battle at WAN, plus this special package immediately after the EGM.
And have a listen to this battle with Stokes at the EGM when we slugged it on the question of whether journalists at The West Australian would feel obliged to promote his commercial interests. Don't expect a big campaign against uranium mining, given that Stokes has the lucrative Caterpillar franchise in WA.
Stocks plunging, ALP's biggest investment hit
Babcock & Brown is the biggest victim on the Australian market today, opening 40% lower at just 96c. And its most heavily indebted listed fund, B&B Infrastructure stumbled another 22% to a record low.
Macquarie remains in a league of its own but still fell 7.5% to $36.54. Its disastrous creation BrisConnections even managed to recover marginally to 4c after releasing this 28 page update to the media and market.
National Australia Bank was again the worst big bank, dropping almost 5% to an 8 year low, such that it is now worth $6 billion less than Westpac and is being severely punished for its foolish CDO exposures.
Our biggest insurer QBE opened just 1% lower and paints such a different picture to AIG. Indeed, Tony Boyd on Business Spectator reckons QBE could pick up AIG's reinsurance division. QBE CEO Frank O'Halloran has cemented himself as one of Australia's true business legends after controlling the company's finances since the late 1970s.
The same can't be said for Suncorp which has plunged another 5% to a seven year low given all its exposures to collapsing Queensland property developers.
The Labor Party won't be happy about this given that its Suncorp investment is 10 times larger than any other, as was revealed in this Sunday Age article earlier in the year. Let's hope Labor Holdings has paid back that $10 million Comsec margin loan.
A hedge fund manager's gloomy prognosis
This came in from a respected hedge fund manager in response to this morning's edition:
The reality is that the banks are the biggest hedge funds of all. Lehman was leveraged 30:1, Bear Stearns 60:1, and even those that are 10:1 could fail. The weak will now get nuked, and the process could take 12-24 months. Anyone who thinks stocks are basing here is dreaming. The reality is this will drive the next US bear leg in a 30-40% bear market. Recall, US indices are only -15%, the rest of the world is -30%, so the US plays catch up, as it did in 02-03.
Most hedge funds use far more modest leverage than 10:1. We use 1 or 2:1. We also have monthly reporting, which is complete transparency for our investors, not quarterly. We also deal transparent instruments such as foreign exchange and futures, as do most funds. Hedge funds are the safe bet at the moment. Banks are the least safe. That irony is lost on many.
Citigroup correction
Further to this morning's edition on the global credit crisis, Citigroup has called and ask that we send this correction out:
"Citibank N.A. is listed in the Lehman Brothers bankruptcy filing as an indenture trustee for bond debt of approximately $138 billion under Lehman Brothers Holdings Inc. Senior Notes. Citi wishes to clarify that our role in this issue is administrative in nature and does not represent exposure for Citi to Lehman Brothers. Any assertions to the contrary are false."
That's all for now.
I'm off to speak at this hedge fund conference but will be on 774 ABC Melbourne with Lindy Burns from 4.30pm this afternoon.
Do ya best, Stephen Mayne
* The Mayne Report is a multi-media governance website published by Stephen Mayne with occasional email editions. To unsubscribe from the emails click here.