Market collapse, Iceland precedent, pay revolt, portfolio hit, RRR and collapsed companies
February 2, 2010
Oh Dear Mayne Reporters,
What a week! We've just experienced the biggest wipe-out in global wealth with typical losses settling at about 20% over the past five days. The All Ords closed more than 300 points at 3985, but others did worse.
The Japanese market has slumped more than 10% after a huge life insurance company fell over with debts of $US26 billion, along with a major Japanese real estate trust. These are the first two major financial casualties in Japan and points to spreading international contagion.
Singapore has today joined New Zealand as the second Asian country now officially in recession with a 6.4% retreat in economic activity over the September quarter, so it now seems inevitable that global economic activity will contract in the 2008-09 financial year.
The yen surged against the Australian dollar to a multi-year high as the carry trade was unwound by Japanese lenders who are shoring up reserves at home and no longer chasing our high official interest rates. Even against the US dollar, we've tumbled back to US65c in afternoon trade.
The Indians have just opened 10% lower so stand by for another wipe-out in Europe tonight before all eyes turn to Wall Street and the G20 meeting in Washington this weekend, along with the US plan to follow the UK lead and take direct stakes in their major banks.
If you're in Sydney, listen in to Richard Glover at 5.35pm on 702 ABC Sydney when we'll be taking his listeners through a summary of this unprecedented situation.
The precedent for Iceland
A seasoned political observer called today with a fascinating historical anecdote as the world gasps at the Iceland collapse.
Whilst many nations have defaulted on their debts before, the last country to actually collapse in this manner was Newfoundland. It first won independence from England in 1907 but by 1934 was broke and back relying on their old colonial rulers for financial support. In 1949, the Canadians secured Newfoundland as a province after bribing its citizens with promises of all sorts of benefits that saw them turn their back on both the British and independence.
As the Brits sue Iceland and freeze their assets in the UK, they must be shocked to see Moscow coming into play, even though it has been savaged by the financial crisis.
Does this mean Iceland could become part of Russia? When corporates collapse, the system can deal with it, but what happens to weak sovereign states when all the strong sovereigns are suffering financial collapses of their own? The IMF has sent a team to Iceland but with all countries trying stabilise their own systems, who is there to pick up the bankrupt sovereign states?
Backlash on executive pay
Click here to watch Thursday's Today Tonight story on CEO pay. Helen Wellings did a good job and you can just feel the backlash against fat cats that is coming.
Even John Hewson has been advocating in The AFR and on ABC radio that powerful corporates such as the banks, Woolworths and Telstra should cut their prices to help the community cope with financial stress.
Whilst a normal response in this situation would be to buy defensive and high-yield stocks such as Woolies and the banks, I reckon they face significant regulatory risk in these financially straitened times.
Any powerful corporate with excessive market strength declaring huge profits next year will face huge pressure to share it around. Sadly for Australia, our corporate sector is concentrated around service sector oligopolies, real estate plays and mining, all of which are getting clobbered at the moment.
Protest at United Group
The first big protest against pay happened at the United Group AGM yesterday when the remuneration report received 37.5% against. Check out this list to see where it ranks with other protests over the past three years, but clearly investors are unhappy with CEO Richard Leupen scoring a 20% pay rise to more than $5 million in these tough times when the share price has tumbled.
The next big protest will be Asciano group next week where CEO Mark Rowsthorn has his hand out for some options that use a performance hurdle based on earnings before interest and tax. Naughty boy. Debt-laden companies should not give out bonuses based on EBIT, especially in this debt-obsessed world.
ComBank shafts its small shareholders
It's one thing being a Commonwealth Bank customer getting constantly shafted by the biggest bank in the world's most expensive banking system, but now this financial giant has decided to treat its huge army of 700,000 retail shareholders with disdain. Can you believe they've done a selective placement with no follow-up share purchase plan for us little folk. I complained directly on the phone to investor relations boss Warwick Bryan and followed up with this email:
Hi Warwick, further to our conversation, please pass on to the board in the strongest possible terms my disappointment that CBA is not offering its loyal retail shareholder base a $5000 share purchase plan on the same terms as the $38 private placement done with the big end of town. CSL certainly did the right thing in identical circumstances just last month, in stark contrast to CBA.
The vast majority of major companies offer a follow-on SPP in these circumstances and it is very disappointing that CBA, as the largest professional investor in Australia, has chosen to take the governance low road.
For your information, placements without an SPP is an issue I've raised at several public company AGMs as follows:
* Becton: audio
* Babcock & Brown: audio
* Skilled Engineering: video
Here's a list of SPPs I've been offered since 2007, plus at the bottom is a link to a shame file of companies which don't look after the small shareholders. I hope CBA won't be joining this shame file and that this isn't an issue that we'll have to raise at the AGM in Melbourne on November 13.
Regards, Stephen Mayne
Commonwealth Bank shareholder
A fun debate with Tom Elliott
Headley Gritter has been hosting The Party Show on Melbourne's champion community radio station RRR for more than 20 years each Saturday night from midnight until 2am. He's got an amazing ability to pull in interesting guests who sit there and drink Crown Lagers whilst going into far more detail on issues than most other electronic media.
Last Saturday night was no exception, so we've edited it down to our four favourite exchanges:
Asking departing Melbourne Lord Mayor John So if there is still $100 million in cash sitting in the council's coffers.
Debating hedge funds with Tom Elliott from MM&E Capital
Tom Elliott reveals he was asked by the Reserve Bank to stop raising doubts about ING deposits
Telling Tom Elliott to become the next Neil Mitchell, not some hedge fund paper shuffler
Collapsed or suspended companies in the portfolio
The world's biggest small share portfolio of 750 stocks worth less than $150,000 is looking very beaten up as losses now top $100,000, although I keep telling the better half that there was about $60,000 of crystallised capital gains over the past three years.
Check out the full bloodbath here, but it might be a little overstated because every suspended stock is listed as being worthless. Here is a list of all those suspended or collapsed securities currently in the portfolio, plus the size of the hit. In some instances, such as ABC Learning, we got out for a profit, a handful will return some value but most are just bad news:
ABC Learning Centres: 1 share, loss $6.47
ABC Learninfg unsecured note: 6 units, loss $594
Amazing Loans: 1450 units, loss $507.50
Commander Communication: 50 units, loss $91.25
CFK Childcare: 100 units, loss $41.50
CP1 Limited: 518 units, loss $227.92
Euroz Ltd: 129 units, loss $503.10
Mintails: 834 units, loss $500.40
Nylex: 224 units, loss $504
Octaviar/MFS: 15 units, loss $74.40
Octaviar/MFS notes: 7 units, loss $525
Palamedia: 100 units, loss $200
Resolute Mining: 132 units, loss $198
Tamaya Resources: 2450 units, loss $306.25
Buying in a storm
Meanwhile, we've bravely added the following to the portfolio over the course of this week:
October 10
Gunns notes: bought 7 at $75.11
Challenger Wine Trust: bought 1031 at 48.5c
Seven Network prefs: bought 6 at $90.50
October 9
Oncard International: bought 4500 at 11c
National Australia Bank floating rate notes: bought 7 at $82
Paperlinx SPS Trust: bought 9 at $59
October 8
News Corp: bought 50 at $14.42
Lypocodium: bought 130 at $3.85
Goodman Plus Trust: bought 7 at $76
Macquarie Bank income securities: bought 8 at $68
October 7
Multiplex Sites Trust: bought 9 at $57
Myer Group unsecured notes: bought 7 at $76
Hansen Technologies: sold 1200 at 33c
October 6
Suncorp-Metway: bought 8 float rating notes at $74.47
Australand Assets Trust: bought 8 of these hybrids at $75.10
That's all for now.
Do ya best not to think about your financial position and just have a good weekend.
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.
What a week! We've just experienced the biggest wipe-out in global wealth with typical losses settling at about 20% over the past five days. The All Ords closed more than 300 points at 3985, but others did worse.
The Japanese market has slumped more than 10% after a huge life insurance company fell over with debts of $US26 billion, along with a major Japanese real estate trust. These are the first two major financial casualties in Japan and points to spreading international contagion.
Singapore has today joined New Zealand as the second Asian country now officially in recession with a 6.4% retreat in economic activity over the September quarter, so it now seems inevitable that global economic activity will contract in the 2008-09 financial year.
The yen surged against the Australian dollar to a multi-year high as the carry trade was unwound by Japanese lenders who are shoring up reserves at home and no longer chasing our high official interest rates. Even against the US dollar, we've tumbled back to US65c in afternoon trade.
The Indians have just opened 10% lower so stand by for another wipe-out in Europe tonight before all eyes turn to Wall Street and the G20 meeting in Washington this weekend, along with the US plan to follow the UK lead and take direct stakes in their major banks.
If you're in Sydney, listen in to Richard Glover at 5.35pm on 702 ABC Sydney when we'll be taking his listeners through a summary of this unprecedented situation.
The precedent for Iceland
A seasoned political observer called today with a fascinating historical anecdote as the world gasps at the Iceland collapse.
Whilst many nations have defaulted on their debts before, the last country to actually collapse in this manner was Newfoundland. It first won independence from England in 1907 but by 1934 was broke and back relying on their old colonial rulers for financial support. In 1949, the Canadians secured Newfoundland as a province after bribing its citizens with promises of all sorts of benefits that saw them turn their back on both the British and independence.
As the Brits sue Iceland and freeze their assets in the UK, they must be shocked to see Moscow coming into play, even though it has been savaged by the financial crisis.
Does this mean Iceland could become part of Russia? When corporates collapse, the system can deal with it, but what happens to weak sovereign states when all the strong sovereigns are suffering financial collapses of their own? The IMF has sent a team to Iceland but with all countries trying stabilise their own systems, who is there to pick up the bankrupt sovereign states?
Backlash on executive pay
Click here to watch Thursday's Today Tonight story on CEO pay. Helen Wellings did a good job and you can just feel the backlash against fat cats that is coming.
Even John Hewson has been advocating in The AFR and on ABC radio that powerful corporates such as the banks, Woolworths and Telstra should cut their prices to help the community cope with financial stress.
Whilst a normal response in this situation would be to buy defensive and high-yield stocks such as Woolies and the banks, I reckon they face significant regulatory risk in these financially straitened times.
Any powerful corporate with excessive market strength declaring huge profits next year will face huge pressure to share it around. Sadly for Australia, our corporate sector is concentrated around service sector oligopolies, real estate plays and mining, all of which are getting clobbered at the moment.
Protest at United Group
The first big protest against pay happened at the United Group AGM yesterday when the remuneration report received 37.5% against. Check out this list to see where it ranks with other protests over the past three years, but clearly investors are unhappy with CEO Richard Leupen scoring a 20% pay rise to more than $5 million in these tough times when the share price has tumbled.
The next big protest will be Asciano group next week where CEO Mark Rowsthorn has his hand out for some options that use a performance hurdle based on earnings before interest and tax. Naughty boy. Debt-laden companies should not give out bonuses based on EBIT, especially in this debt-obsessed world.
ComBank shafts its small shareholders
It's one thing being a Commonwealth Bank customer getting constantly shafted by the biggest bank in the world's most expensive banking system, but now this financial giant has decided to treat its huge army of 700,000 retail shareholders with disdain. Can you believe they've done a selective placement with no follow-up share purchase plan for us little folk. I complained directly on the phone to investor relations boss Warwick Bryan and followed up with this email:
Hi Warwick, further to our conversation, please pass on to the board in the strongest possible terms my disappointment that CBA is not offering its loyal retail shareholder base a $5000 share purchase plan on the same terms as the $38 private placement done with the big end of town. CSL certainly did the right thing in identical circumstances just last month, in stark contrast to CBA.
The vast majority of major companies offer a follow-on SPP in these circumstances and it is very disappointing that CBA, as the largest professional investor in Australia, has chosen to take the governance low road.
For your information, placements without an SPP is an issue I've raised at several public company AGMs as follows:
* Becton: audio
* Babcock & Brown: audio
* Skilled Engineering: video
Here's a list of SPPs I've been offered since 2007, plus at the bottom is a link to a shame file of companies which don't look after the small shareholders. I hope CBA won't be joining this shame file and that this isn't an issue that we'll have to raise at the AGM in Melbourne on November 13.
Regards, Stephen Mayne
Commonwealth Bank shareholder
A fun debate with Tom Elliott
Headley Gritter has been hosting The Party Show on Melbourne's champion community radio station RRR for more than 20 years each Saturday night from midnight until 2am. He's got an amazing ability to pull in interesting guests who sit there and drink Crown Lagers whilst going into far more detail on issues than most other electronic media.
Last Saturday night was no exception, so we've edited it down to our four favourite exchanges:
Asking departing Melbourne Lord Mayor John So if there is still $100 million in cash sitting in the council's coffers.
Debating hedge funds with Tom Elliott from MM&E Capital
Tom Elliott reveals he was asked by the Reserve Bank to stop raising doubts about ING deposits
Telling Tom Elliott to become the next Neil Mitchell, not some hedge fund paper shuffler
Collapsed or suspended companies in the portfolio
The world's biggest small share portfolio of 750 stocks worth less than $150,000 is looking very beaten up as losses now top $100,000, although I keep telling the better half that there was about $60,000 of crystallised capital gains over the past three years.
Check out the full bloodbath here, but it might be a little overstated because every suspended stock is listed as being worthless. Here is a list of all those suspended or collapsed securities currently in the portfolio, plus the size of the hit. In some instances, such as ABC Learning, we got out for a profit, a handful will return some value but most are just bad news:
ABC Learning Centres: 1 share, loss $6.47
ABC Learninfg unsecured note: 6 units, loss $594
Amazing Loans: 1450 units, loss $507.50
Commander Communication: 50 units, loss $91.25
CFK Childcare: 100 units, loss $41.50
CP1 Limited: 518 units, loss $227.92
Euroz Ltd: 129 units, loss $503.10
Mintails: 834 units, loss $500.40
Nylex: 224 units, loss $504
Octaviar/MFS: 15 units, loss $74.40
Octaviar/MFS notes: 7 units, loss $525
Palamedia: 100 units, loss $200
Resolute Mining: 132 units, loss $198
Tamaya Resources: 2450 units, loss $306.25
Buying in a storm
Meanwhile, we've bravely added the following to the portfolio over the course of this week:
October 10
Gunns notes: bought 7 at $75.11
Challenger Wine Trust: bought 1031 at 48.5c
Seven Network prefs: bought 6 at $90.50
October 9
Oncard International: bought 4500 at 11c
National Australia Bank floating rate notes: bought 7 at $82
Paperlinx SPS Trust: bought 9 at $59
October 8
News Corp: bought 50 at $14.42
Lypocodium: bought 130 at $3.85
Goodman Plus Trust: bought 7 at $76
Macquarie Bank income securities: bought 8 at $68
October 7
Multiplex Sites Trust: bought 9 at $57
Myer Group unsecured notes: bought 7 at $76
Hansen Technologies: sold 1200 at 33c
October 6
Suncorp-Metway: bought 8 float rating notes at $74.47
Australand Assets Trust: bought 8 of these hybrids at $75.10
That's all for now.
Do ya best not to think about your financial position and just have a good weekend.
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.