Tax and slash coming, CBA rip-off, Suncorp conflicts, PMP stinker, Asciano, Boral, ASIC and Rich List
February 2, 2010
Dear Mayne Reporters,
Sitting here last night watching CNBC, we had Bank of England Governor Merv King beamed in live from London with even more gloomy forecasts on the British and global economy.
It's hard to have confidence in Merv given the story of his visit to Australia last summer where he played social tennis here in Melbourne at the prestigious Royal South Yarra and Kooyong clubs with his shorts on back to front.
Man the barricades, chaps, the global financial crisis is not in good hands. As we all lose our shirts, we're being guided by a bloke who can't even put his shorts on properly.
Stand by for huge tax rises and cuts to government spending
Financial Times columnist Martin Wolf spooked a lot of people yesterday with this extraordinary column predicting that Barack Obama was blundering badly by not recognising the fundamental nature of the debt crisis we're facing.
Combine that with Alan Kohler's column on Business Spectator yesterday, plus these observations on Tuesday:
The focus of official policy in the US now is to keep the great Ponzi scheme of the US financial system going. That it was, and is, a colossal Ponzi scheme there is no doubt: new money continually fed the returns on old money. Securities like collateralised debt obligations (CDOs) and synthetic CDOs, and CDOs of CDOs, were created out of thin air and sold to simply keep the machine running. And as with all Ponzi schemes, when the money stops flowing in there is nothing but thin air.
Sadly, I've joined these observers in the extremely bearish camp, although the Australian economic position will rise in relative terms to be a slightly bigger slice of a much smaller global pie.
Obama seemingly hasn't yet realised that the debt-funded consumption party is over and thinks he can spend his way out of the trouble created by his many and various predecessors. You see, the US ran budget deficits equivalent to 2% of GDP for 40 years accumulating a $US10 trillion debt and are now stacking on the debt at a rate which could hit $US2 trillion this year.
And with nations all over the world going on copy cat spending sprees, governments are crowding out private borrowers and draining world savings in an unprecedented manner.
The weaker nations like Ireland are already slashing spending and it is only a matter of time before the debt-addicted consumer societies such as Australia, the UK and US are forced to join in.
Citizens in the West have to prepare to get by on lower income - and that covers everyone from the Bill Gates to the old age pensioner. The ever-expanding wealth pie was a fiction, the Ponzi scheme is exposed and we've all got to get used to having a lot less to share around.
PMP chairman in timely share sale
Faltering print company PMP produced a shocking half year loss yesterday which sent its shares plunging another 20% to a six-year low of just 31.5c.
And grumpy shareholders won't be at all pleased to know that chairman Graeme Reaney dumped 350,000 shares for $427,000 or an average $1.22 each as recently as last October. Check out his major disclosure statement.
Coincidentally, PMP announced a share buy back last August and purchased 310,000 shares for about $300,000 over the six months to December 31, 2008.
Whilst buybacks can temporarily help the share price, this wasn't such a smart move during a global crunch given PMP has now just recorded an $11.1 million interim loss and investors are a bit nervous about the company's $250 million in debt.
The balance sheet is also lacking in credibility. Auditor G Couttas from Deloitte agrees with Reaney's board that PMP has net assets worth $376 million, yet investors have today knocked its market capitalisation down to just $107 million.
Of course, none of these problems are caused by Reaney and he had no idea the storm was coming. That's why CEO Brian Evans was summarily flicked on January 28, just four months after he signed this new contract.
Given that CEOs and chairs of troubled companies tend to go in quick succession, it is clearly time Reaney departed after seven years in the chair. At 65, he's ripe for the pipe and slippers and just hasn't been up to the challenges caused by the global financial crisis. And as for those share sales. Hold your nose, folks.
ComBank treats small shareholders with contempt
This email was sent to various heavies at Which Bank yesterday:
Gentlemen, what doesn't the CBA understand about treating its 750,000 retail shareholders equitably with the top end of town?
Last year you were one of the few ASX100 public companies that did a share placement without offering a follow-on share purchase plan to small investors on the same terms. Sure, you needed the $2 billion quickly to fund the BankWest acquisition, but that was still no reason to ignore us small shareholders.
This issue was raised at the AGM in October and the chairman appeared to get the message.
You then do the second $2 billion placement at $26 a share in December and promised an SPP to be announced with the interim results.
Today we get the detail and discover retail shareholders will be paying the same $26 price for the shares but miss out on the $1.13 fully franked interim dividend which will be paid to the institutional recipients of the December placement handled by UBS for a typically huge fee.
This means retail are effectively paying a 4.2% premium, before considering franking credits. This is grossly unfair and inequitable. You are treating small shareholders as second class citizens, yet you claim to manage the superannuation savings of millions of Australians.
Why on earth don't you ask your existing small shareholders for funds without all those huge transaction costs and on the same terms as the big boys?
I look forward to a reply from CBA and am seriously considering running for your board on this issue at the 2009 AGM seeing as you are so intransigent when it comes to small shareholder rights.
Stephen Mayne
CBA shareholder
Suncorp joins Wesfarmers with open ended retail offer
Alan Kohler had a strange line on ABC television the other night when he criticised Suncorp for joining what he claimed was a range of companies doing heavily discounted capital raisings that diluted small shareholders.
The facts of the matter are that all major companies with the exception of Westfield, which we're still in dialogue with, have offered a shareholder purchase plan (SPP) after a placement. Sure, they are heavily discounted issues and ComBank has pulled a swifty as is explained above, but in some situations small shareholders can actually improve their relative position.
The Suncorp offer is one such example because it has served up an opportunity for retail investors to make a quick 20% stag profit on any additional shares they buy. The struggling Queensland bancassurance outfit has followed the Wesfarmers lead of allowing retail investors to apply for additional shares, all of which was explained in this Mayne Report edition.
I sent the usual emails off to Suncorp executive Ron Burke trying to establish the terms of the deal and after he initially suggested otherwise, we were pleased to get this email on Monday, February 9:
Stephen, following your note, I made further inquiries regarding the retail shareholder opportunities. Retail shareholders may apply for shares in excess of their entitlement. The total number of shares to be issued will be subject to the company's discretion. Also – it is a non renounceable issue. All shareholders are treated equally if they decide not to take up their entitlement.
With Suncorp shares closing at $5.70 last night, this means a small Suncorp shareholder like myself with just 21 units can apply for an unlimited amount of new shares at $4.50, provided enough of the other punters don't apply such that the total retail allocation remains under the cap of $502 million.
If logic prevailed, the $855 million institutional Suncorp capital raising at the bargain basement price of $4.50 would finish at $1.3 billion, provided that potential 20% windfall remains in place and enough of Suncorp's 228,000 shareholders, including 107,000 in Queensland, realise how this all works and crank up the margin loans.
The scandal of conflicted advisers scooping billions from underwriting
The real scandal here is that Suncorp chose to place $390 million worth of new shares with clients of its advisers at the knockdown price of just $4.50 as part of the emergency raising. Based on last night's close, these new Suncorp investors have already made a quick $103 million paper profit which has come straight from the pockets of the original shareholder base.
Swiss giant UBS has been cleaning up more than anyone with all these outrageous underwriting fees during this lastest blitz of emergency capital raisings, yet surely they have got a huge conflict of interest advising companies to raise capital and then clipping the ticket on the way through. The Wesfarmers capital raising fees came to a staggering $200 million.
For mine, several of these emergency capital raisings have been rushed, poorly structured and ill-advised, not that the conflicted investment bankers would care less.
Finally, it is worth pointing out that Suncorp's much-maligned finance director Chris Skilton had the foresight to sell 146,252 Suncorp shares at $13.93 a pop in April last year, pocketing a tidy $2 million. Lucky for some.
Rupert leads in the write-downs avalanche
After all our belly-aching about companies not recognising the new world and writing down their assets, we're starting to see some belated progress. Rupert Murdoch showed the way with that $US8.4 billion hit on goodwill and intangibles last Friday and it was good to see Stockland come clean with more than $1 billion in write-downs yesterday.
However, Stockland really didn't make much progress in declaring that $726 million net loss because it only slashed claimed net assets from $8.48 billion to $8.04 billion when the market capitalisation is down to $4.3 billion.
Go here to check out the full list of write-downs as they've unfolded since August last year. We're expecting a huge effort from Rio Tinto later today.
And we've updated our list looking at companies trading at the biggest discounts to claimed net assets in their annual reports and can now report there are still 18 which are over $2 billion, as follows:
News Corp: $18 billion discount now cut to about $8 billion
Wesfarmers: $9 billion
Westfield: $7.5 billion with $3 billion asset value cut mooted although this will be more than offset by currency moves
GPT: $4.7 billion
Centro Properties Group: $4 billion
Stockland: $4.1 billion now cut to $3.7 billion
Macquarie Countrywide: $3 billion
Fairfax Media: $3 billion
Centro Retail: $2.7 billion
Goodman International: $2.7 billion
Babcock & Brown Infrastructure: $2.7 billion
Macquarie Office: $2.6 billion
Mirvac: $2.5 billion
Babcock & Brown: $2.4 billion
Macquarie Infrastructure Group: $2.2 billion
Macquarie Airports: $2.2 billion
Valad Property Group: $2.2 billion
Gunns: $2 billion
So far, News Corp is a lonely genuine mover although the next two weeks will prove fascinating, especially for the various beaten up property plays.
Will The Wall Street Journal report Rupert's $4 billion Dow Jones write-down?
Meanwhile, check out the full 75-page News Corp half year earnings statement released to the ASX on Monday morning because it finally provided the detail on the write-downs that didn't emerge on Friday:
Intangible asset writedowns:
* US TV licences: cut from $US7.02 billion to $US2.41 billion
* Newspaper mastheads: cut from $US2.68 billion to $US2.04 billion
Goodwill asset writedowns:
* US Television: cut from $US3.33 billion to $US2.73 billion
* Dow Jones: cut from $US5.83 billion to $US3.03 billion
I wrote a story for Crikey on Monday pointing out that the News Ltd press was yet to report that $US2.8 billion of this $US8.4 billion in write-downs related to the $US5 billion Dow Jones acquisition just 14 months ago.
Even The Wall Street Journal's own report on the huge loss didn't reveal this embarrassing fact. Who would have ever thought the world's most prestigious financial newspaper would finish in the hands of the world's biggest tabloid muck raker who would then come a cropper to the tune of $4 billion, but somehow not see this actually reported to Wall Street's elite?
Boral fails to accept reality and where was the auditor?
Building products company Boral is a classic example of a company with an entrenched chairman and CEO who have failed to accept the reality of the new world.
Despite watching its market capitalisation plunge to just $1.8 billion, the Boral board and audit signing partner, David Rogers from KPMG, has not taken an axe to the balance sheet.
Yesterday's half year earnings release actually claims that "property, plant and equipment" rose in value from $3.1 billion to $3.27 billion over the period.
This inflated figure allows Boral to still claim it has net assets of $2.77 billion and a gearing ratio of 79%. If the $1 billion write-down had been taken given the disastrous state of the Australian and US construction markets, the gearing ratio would have blown out to more than 120% because Boral is saddled with $2.27 billion in debt.
Wesfarmers chairman Bob Avery is a Boral director so this does not provide any encouragement that the Perth-based conglomerate will come clean and take a huge write-down on its ill-fated $15 billion-plus Coles takeover in 2007.
Boral chairman Ken Moss is a plodder who has been in charge for 10 years and wants to do a John Howard in seeking another 3 year term at this year's AGM.
Let's hope major shareholders such as MIR, Barclays, CBA, NAB and Capital Group let him know that it's time for new blood.
As this list demonstrates, the chairs and CEOs of troubled companies tend to depart in quick succession, so don't be surprised if we also see Boral CEO Rod Pearse head for the exits this year as well, especially after that 60% protest vote against his ridiculous $5 million-plus salary package last year.
Will Asciano's auditor stand firm?
Infrastructure giant Asciano is another company which is currently wrestling with its auditor, Duncan McLennan from KPMG, about asset write downs.
The ASX queried Asciano earlier in the week, eliciting this response and we were most interested in the following:
Asciano is currently undertaking impairment testing of its asset values in light of current market and economic conditions. This process is ongoing and incomplete, and subject to review by Asciano's auditors. In the event that any impairment charges are incurred, it is expected that these charges would not have a material impact on Asciano's total assets. Any potential impairment would be a depreciation and/or amortisation expense and depending on the materiality of the item, could also be presented as an individually significant item.
We had previously left Asciano off our list of companies trading at big discounts to net assets but the fact remains that it is now capitalised at about $600 million when it claims to have net assets of $1.98 billion.
Asciano shares have crashed from more than $10 to 70c, so let's hope the board admits there has been some serious impairment of asset values when it comes clean with its results on February 25.
At the very least, dividend payments should be abandoned until the $4 billion-plus debt is brought under control. And if the senior lenders are really that scared, why not pay dividends in the form of convertible notes which rank behind the trembling bank syndicates?
ASIC still to open its jailing account in 2009
Is ASIC an effective corporate cop? Last year the plod sent 24 white collar crooks to jail, as you can see from this comprehensive list which goes all the way back to 1991.
Yet despite all the malfeasance and huge losses since the global financial crisis blew up, ASIC has started 2009 in somewhat of a torpor and is yet to open its jailing account.
Here's a summary of plod's major prosecution press release action for 2009:
February 10, 2009: as was reported in The SMH, Westpoint's most prolific financial planner, Neil Burnard, has managed to escape jail. The lad was found guilty in May last year of nine charges, but only got a 12-month good behaviour bond and a $50,000 fine. Burnard appealed and ASIC called on the DPP to lock him up, but both appeals were dismissed yesterday.
February 4, 2009: the former Queensland Gas company secretary Mukesh Panchal pleaded guilty to four insider trading charges arising from an ASIC investigation into his purchase of 400,000 shares for $1.3 million. Given the BG takeover, the lad would have doubled his money if he'd escaped detection.
February 5, 2009: a 54 year old chap called Chatfield was charged with dishonestly using his position as CEO of CS Energy with the intention of indirectly gaining an advantage for himself.
February 3, 2009: Phillip Dryer and Colin Littlemore have been banned by ASIC from providing financial services for four years and one year respectively because they previously flogged the likes of professional indemnity, public liability and motor vehicle insurance to punters without the necessary licences.
If ASIC can't do any better than banning dodgy insurance salesmen then we're all in trouble when it comes to prosecuting the hoards of crooks that will emerge after the dust settles on this crisis.
There's still plenty of hot air around this supposed rumourtrage crackdown, including a big front page splash in The AFR yesterday, but we're yet to see anyone charged.
And the tip that we passed on two weeks ago from a former ASX 100 CEO that a senior finance journalist was about to be charged for taking payments from a hedge fund doesn't appear to carry much weight either. Frankly, it always seemed very hard to believe.
Stockland joins the biggest losers list
The Mayne Report has two lists tracking record losses:
The $100m loss club by financial year
$100 million loss club - biggest to smallest
News Corp and Stockland are the two most dramatic new additions so far this month, but we're expecting at least another 10 before summer is over.
The Mayne Report Rich List
Following an extensive update and overhaul, we are now continuing our research adding new names each week to The Mayne Report Rich List, even as we witness the greatest destruction of wealth in history. It is still our most popular article with nearly 3000 people visiting so far in 2009, on the back of the 30,000 visits in 2008. Our huge list now includes those who have fallen below the $10 million threshold, but here are the latest additions, including a famous former billionaire's wife who has revealed details of her ill-gotten stash in the latest Women's Weekly:
Len Poulter: founder of Australia's largest specialty meat retailer Lenards. Celebrating their 20th year, after opening his first store in Brisbane in 1987, he successfully franchised the business into 184 stores Australia wide.
Fisken family: Archibald Fisken, a Scottish immigrant, first acquired some property with his uncle near Ballarat. He built a homestead in 1858 and was a great horseman. He tended cattle there and regularly mustered them 20km to market, selling them to hungry gold miners. Since, 'Lal Lal Estate' has been operated by 4 generations of Fiskens producing high quality wool. Higher rainfall and location has helped the Fisken family expand their dynasty into around 12,500 Merinos.
Josephine Armstrong: a former school teacher and substantial Liberal Party benefactor who in the recent Federal election donated $600,000 over two installments. She made more than $30 million from a 2006 sale of land in Perth at the peak of the market.
Eileen Bond: known as 'big red', the former wife of disgraced Alan Bond is living in a 108-year-old mansion in Perth's exclusive Peppermint Grove. With a couple of cottages in England and a property in Sydney, combined with an impressive private art collection that would not be out of place in any gallery, her wealth is well above $10 million, much to the chagrin of former Bond Corp shareholders.
James Simpson: formally of Platinum Asset Management, was Kerr Neilson's right hand man who left the register with $32 million in cash and then purchased a $7.1 million new house in Birchgrove NSW.
John Blewitt and Tony Muston: ran away with $38 million in cash when they sold RetireInvest to ING in 1995. Muston has a home in Point Piper, Port Melbourne and East Gippsland using his main investment vehicle - Jones Bay investments. Blewitt has a house in Mosman and a home in Belgravia, London. Now trades in hybrids and other fixed securities under various guises.
The Castricum family: Jack and his brothers have been making megabucks since they have renewed meat export contracts with their Japanese customers locking in prices before the commodity plunge.
Peter MacGregor: the former planning lawyer owns a $200 million Queensland residential property development Seaspray on the Capricorn coast. He has sold almost half the 400 dwellings for between $400,000 and $750,000.
Danny Goldberg: purchased beach front property in Byron Bay in 2006 for a record breaking $15.6 million. He was approved to develop the world-class site but has since shelved those plans.
Eddie Phillips: a significant holder of residential and commercial property in the Byron Bay region, he is currently selling a $15 million property there but, with the market down, expects offers of less than $12 million.
Fitch family: this Adelaide-based family recently purchased the Golden Grove Village shopping centre in South Australia from the listed CFS Retail Property Trust for a reported $100 million. This sale was largest retail property transaction in Australia for the previous 12 months.
Tracking major capital raising
In the past 6 months there has an unprecedented amount of capital raising by ASX listed companies, draining cash from investors. This is a quick summary of the bigger raisings which are now in huge competition with the Federal Government if any more capital is needed to pay down corporate debt.
Paul Keating's unique 9% compulsory superannuation tax used to create enormous problems in Australia known as the "weight of capital". Combined with global banks desperate to lend money, it led to our various asset bubbles and encouraged enormous debt-funded consumption based on this partially fictional wealth.
Now we've gone into reverse, although those conscripted super savings might yet prove to be our biggest asset.
The big question is whether the highly conservative super funds are reducing their estimated $200 billion worth of cash holdings given the plunging returns courtesy of The Reserve Bank.
Radio and TV interviews
Check out this interview on ABC Newsradio about the News Corp loss last Friday.
This rigorous exchange with The Age's Michelle Grattan and The Australian's Lenore Taylor broadcast on Radio National last Friday was our most popular audio for some time with more than 600 downloads.
The Sky News Business journos chat show Business View is back on air this week so tune in from 2pm Friday or 9am Saturday if you get a chance as we're on the panel with Greg Peel and Janine Perrett.
That's all for now.
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.
Sitting here last night watching CNBC, we had Bank of England Governor Merv King beamed in live from London with even more gloomy forecasts on the British and global economy.
It's hard to have confidence in Merv given the story of his visit to Australia last summer where he played social tennis here in Melbourne at the prestigious Royal South Yarra and Kooyong clubs with his shorts on back to front.
Man the barricades, chaps, the global financial crisis is not in good hands. As we all lose our shirts, we're being guided by a bloke who can't even put his shorts on properly.
Stand by for huge tax rises and cuts to government spending
Financial Times columnist Martin Wolf spooked a lot of people yesterday with this extraordinary column predicting that Barack Obama was blundering badly by not recognising the fundamental nature of the debt crisis we're facing.
Combine that with Alan Kohler's column on Business Spectator yesterday, plus these observations on Tuesday:
The focus of official policy in the US now is to keep the great Ponzi scheme of the US financial system going. That it was, and is, a colossal Ponzi scheme there is no doubt: new money continually fed the returns on old money. Securities like collateralised debt obligations (CDOs) and synthetic CDOs, and CDOs of CDOs, were created out of thin air and sold to simply keep the machine running. And as with all Ponzi schemes, when the money stops flowing in there is nothing but thin air.
Sadly, I've joined these observers in the extremely bearish camp, although the Australian economic position will rise in relative terms to be a slightly bigger slice of a much smaller global pie.
Obama seemingly hasn't yet realised that the debt-funded consumption party is over and thinks he can spend his way out of the trouble created by his many and various predecessors. You see, the US ran budget deficits equivalent to 2% of GDP for 40 years accumulating a $US10 trillion debt and are now stacking on the debt at a rate which could hit $US2 trillion this year.
And with nations all over the world going on copy cat spending sprees, governments are crowding out private borrowers and draining world savings in an unprecedented manner.
The weaker nations like Ireland are already slashing spending and it is only a matter of time before the debt-addicted consumer societies such as Australia, the UK and US are forced to join in.
Citizens in the West have to prepare to get by on lower income - and that covers everyone from the Bill Gates to the old age pensioner. The ever-expanding wealth pie was a fiction, the Ponzi scheme is exposed and we've all got to get used to having a lot less to share around.
PMP chairman in timely share sale
Faltering print company PMP produced a shocking half year loss yesterday which sent its shares plunging another 20% to a six-year low of just 31.5c.
And grumpy shareholders won't be at all pleased to know that chairman Graeme Reaney dumped 350,000 shares for $427,000 or an average $1.22 each as recently as last October. Check out his major disclosure statement.
Coincidentally, PMP announced a share buy back last August and purchased 310,000 shares for about $300,000 over the six months to December 31, 2008.
Whilst buybacks can temporarily help the share price, this wasn't such a smart move during a global crunch given PMP has now just recorded an $11.1 million interim loss and investors are a bit nervous about the company's $250 million in debt.
The balance sheet is also lacking in credibility. Auditor G Couttas from Deloitte agrees with Reaney's board that PMP has net assets worth $376 million, yet investors have today knocked its market capitalisation down to just $107 million.
Of course, none of these problems are caused by Reaney and he had no idea the storm was coming. That's why CEO Brian Evans was summarily flicked on January 28, just four months after he signed this new contract.
Given that CEOs and chairs of troubled companies tend to go in quick succession, it is clearly time Reaney departed after seven years in the chair. At 65, he's ripe for the pipe and slippers and just hasn't been up to the challenges caused by the global financial crisis. And as for those share sales. Hold your nose, folks.
ComBank treats small shareholders with contempt
This email was sent to various heavies at Which Bank yesterday:
Gentlemen, what doesn't the CBA understand about treating its 750,000 retail shareholders equitably with the top end of town?
Last year you were one of the few ASX100 public companies that did a share placement without offering a follow-on share purchase plan to small investors on the same terms. Sure, you needed the $2 billion quickly to fund the BankWest acquisition, but that was still no reason to ignore us small shareholders.
This issue was raised at the AGM in October and the chairman appeared to get the message.
You then do the second $2 billion placement at $26 a share in December and promised an SPP to be announced with the interim results.
Today we get the detail and discover retail shareholders will be paying the same $26 price for the shares but miss out on the $1.13 fully franked interim dividend which will be paid to the institutional recipients of the December placement handled by UBS for a typically huge fee.
This means retail are effectively paying a 4.2% premium, before considering franking credits. This is grossly unfair and inequitable. You are treating small shareholders as second class citizens, yet you claim to manage the superannuation savings of millions of Australians.
Why on earth don't you ask your existing small shareholders for funds without all those huge transaction costs and on the same terms as the big boys?
I look forward to a reply from CBA and am seriously considering running for your board on this issue at the 2009 AGM seeing as you are so intransigent when it comes to small shareholder rights.
Stephen Mayne
CBA shareholder
Suncorp joins Wesfarmers with open ended retail offer
Alan Kohler had a strange line on ABC television the other night when he criticised Suncorp for joining what he claimed was a range of companies doing heavily discounted capital raisings that diluted small shareholders.
The facts of the matter are that all major companies with the exception of Westfield, which we're still in dialogue with, have offered a shareholder purchase plan (SPP) after a placement. Sure, they are heavily discounted issues and ComBank has pulled a swifty as is explained above, but in some situations small shareholders can actually improve their relative position.
The Suncorp offer is one such example because it has served up an opportunity for retail investors to make a quick 20% stag profit on any additional shares they buy. The struggling Queensland bancassurance outfit has followed the Wesfarmers lead of allowing retail investors to apply for additional shares, all of which was explained in this Mayne Report edition.
I sent the usual emails off to Suncorp executive Ron Burke trying to establish the terms of the deal and after he initially suggested otherwise, we were pleased to get this email on Monday, February 9:
Stephen, following your note, I made further inquiries regarding the retail shareholder opportunities. Retail shareholders may apply for shares in excess of their entitlement. The total number of shares to be issued will be subject to the company's discretion. Also – it is a non renounceable issue. All shareholders are treated equally if they decide not to take up their entitlement.
With Suncorp shares closing at $5.70 last night, this means a small Suncorp shareholder like myself with just 21 units can apply for an unlimited amount of new shares at $4.50, provided enough of the other punters don't apply such that the total retail allocation remains under the cap of $502 million.
If logic prevailed, the $855 million institutional Suncorp capital raising at the bargain basement price of $4.50 would finish at $1.3 billion, provided that potential 20% windfall remains in place and enough of Suncorp's 228,000 shareholders, including 107,000 in Queensland, realise how this all works and crank up the margin loans.
The scandal of conflicted advisers scooping billions from underwriting
The real scandal here is that Suncorp chose to place $390 million worth of new shares with clients of its advisers at the knockdown price of just $4.50 as part of the emergency raising. Based on last night's close, these new Suncorp investors have already made a quick $103 million paper profit which has come straight from the pockets of the original shareholder base.
Swiss giant UBS has been cleaning up more than anyone with all these outrageous underwriting fees during this lastest blitz of emergency capital raisings, yet surely they have got a huge conflict of interest advising companies to raise capital and then clipping the ticket on the way through. The Wesfarmers capital raising fees came to a staggering $200 million.
For mine, several of these emergency capital raisings have been rushed, poorly structured and ill-advised, not that the conflicted investment bankers would care less.
Finally, it is worth pointing out that Suncorp's much-maligned finance director Chris Skilton had the foresight to sell 146,252 Suncorp shares at $13.93 a pop in April last year, pocketing a tidy $2 million. Lucky for some.
Rupert leads in the write-downs avalanche
After all our belly-aching about companies not recognising the new world and writing down their assets, we're starting to see some belated progress. Rupert Murdoch showed the way with that $US8.4 billion hit on goodwill and intangibles last Friday and it was good to see Stockland come clean with more than $1 billion in write-downs yesterday.
However, Stockland really didn't make much progress in declaring that $726 million net loss because it only slashed claimed net assets from $8.48 billion to $8.04 billion when the market capitalisation is down to $4.3 billion.
Go here to check out the full list of write-downs as they've unfolded since August last year. We're expecting a huge effort from Rio Tinto later today.
And we've updated our list looking at companies trading at the biggest discounts to claimed net assets in their annual reports and can now report there are still 18 which are over $2 billion, as follows:
News Corp: $18 billion discount now cut to about $8 billion
Wesfarmers: $9 billion
Westfield: $7.5 billion with $3 billion asset value cut mooted although this will be more than offset by currency moves
GPT: $4.7 billion
Centro Properties Group: $4 billion
Stockland: $4.1 billion now cut to $3.7 billion
Macquarie Countrywide: $3 billion
Fairfax Media: $3 billion
Centro Retail: $2.7 billion
Goodman International: $2.7 billion
Babcock & Brown Infrastructure: $2.7 billion
Macquarie Office: $2.6 billion
Mirvac: $2.5 billion
Babcock & Brown: $2.4 billion
Macquarie Infrastructure Group: $2.2 billion
Macquarie Airports: $2.2 billion
Valad Property Group: $2.2 billion
Gunns: $2 billion
So far, News Corp is a lonely genuine mover although the next two weeks will prove fascinating, especially for the various beaten up property plays.
Will The Wall Street Journal report Rupert's $4 billion Dow Jones write-down?
Meanwhile, check out the full 75-page News Corp half year earnings statement released to the ASX on Monday morning because it finally provided the detail on the write-downs that didn't emerge on Friday:
Intangible asset writedowns:
* US TV licences: cut from $US7.02 billion to $US2.41 billion
* Newspaper mastheads: cut from $US2.68 billion to $US2.04 billion
Goodwill asset writedowns:
* US Television: cut from $US3.33 billion to $US2.73 billion
* Dow Jones: cut from $US5.83 billion to $US3.03 billion
I wrote a story for Crikey on Monday pointing out that the News Ltd press was yet to report that $US2.8 billion of this $US8.4 billion in write-downs related to the $US5 billion Dow Jones acquisition just 14 months ago.
Even The Wall Street Journal's own report on the huge loss didn't reveal this embarrassing fact. Who would have ever thought the world's most prestigious financial newspaper would finish in the hands of the world's biggest tabloid muck raker who would then come a cropper to the tune of $4 billion, but somehow not see this actually reported to Wall Street's elite?
Boral fails to accept reality and where was the auditor?
Building products company Boral is a classic example of a company with an entrenched chairman and CEO who have failed to accept the reality of the new world.
Despite watching its market capitalisation plunge to just $1.8 billion, the Boral board and audit signing partner, David Rogers from KPMG, has not taken an axe to the balance sheet.
Yesterday's half year earnings release actually claims that "property, plant and equipment" rose in value from $3.1 billion to $3.27 billion over the period.
This inflated figure allows Boral to still claim it has net assets of $2.77 billion and a gearing ratio of 79%. If the $1 billion write-down had been taken given the disastrous state of the Australian and US construction markets, the gearing ratio would have blown out to more than 120% because Boral is saddled with $2.27 billion in debt.
Wesfarmers chairman Bob Avery is a Boral director so this does not provide any encouragement that the Perth-based conglomerate will come clean and take a huge write-down on its ill-fated $15 billion-plus Coles takeover in 2007.
Boral chairman Ken Moss is a plodder who has been in charge for 10 years and wants to do a John Howard in seeking another 3 year term at this year's AGM.
Let's hope major shareholders such as MIR, Barclays, CBA, NAB and Capital Group let him know that it's time for new blood.
As this list demonstrates, the chairs and CEOs of troubled companies tend to depart in quick succession, so don't be surprised if we also see Boral CEO Rod Pearse head for the exits this year as well, especially after that 60% protest vote against his ridiculous $5 million-plus salary package last year.
Will Asciano's auditor stand firm?
Infrastructure giant Asciano is another company which is currently wrestling with its auditor, Duncan McLennan from KPMG, about asset write downs.
The ASX queried Asciano earlier in the week, eliciting this response and we were most interested in the following:
Asciano is currently undertaking impairment testing of its asset values in light of current market and economic conditions. This process is ongoing and incomplete, and subject to review by Asciano's auditors. In the event that any impairment charges are incurred, it is expected that these charges would not have a material impact on Asciano's total assets. Any potential impairment would be a depreciation and/or amortisation expense and depending on the materiality of the item, could also be presented as an individually significant item.
We had previously left Asciano off our list of companies trading at big discounts to net assets but the fact remains that it is now capitalised at about $600 million when it claims to have net assets of $1.98 billion.
Asciano shares have crashed from more than $10 to 70c, so let's hope the board admits there has been some serious impairment of asset values when it comes clean with its results on February 25.
At the very least, dividend payments should be abandoned until the $4 billion-plus debt is brought under control. And if the senior lenders are really that scared, why not pay dividends in the form of convertible notes which rank behind the trembling bank syndicates?
ASIC still to open its jailing account in 2009
Is ASIC an effective corporate cop? Last year the plod sent 24 white collar crooks to jail, as you can see from this comprehensive list which goes all the way back to 1991.
Yet despite all the malfeasance and huge losses since the global financial crisis blew up, ASIC has started 2009 in somewhat of a torpor and is yet to open its jailing account.
Here's a summary of plod's major prosecution press release action for 2009:
February 10, 2009: as was reported in The SMH, Westpoint's most prolific financial planner, Neil Burnard, has managed to escape jail. The lad was found guilty in May last year of nine charges, but only got a 12-month good behaviour bond and a $50,000 fine. Burnard appealed and ASIC called on the DPP to lock him up, but both appeals were dismissed yesterday.
February 4, 2009: the former Queensland Gas company secretary Mukesh Panchal pleaded guilty to four insider trading charges arising from an ASIC investigation into his purchase of 400,000 shares for $1.3 million. Given the BG takeover, the lad would have doubled his money if he'd escaped detection.
February 5, 2009: a 54 year old chap called Chatfield was charged with dishonestly using his position as CEO of CS Energy with the intention of indirectly gaining an advantage for himself.
February 3, 2009: Phillip Dryer and Colin Littlemore have been banned by ASIC from providing financial services for four years and one year respectively because they previously flogged the likes of professional indemnity, public liability and motor vehicle insurance to punters without the necessary licences.
If ASIC can't do any better than banning dodgy insurance salesmen then we're all in trouble when it comes to prosecuting the hoards of crooks that will emerge after the dust settles on this crisis.
There's still plenty of hot air around this supposed rumourtrage crackdown, including a big front page splash in The AFR yesterday, but we're yet to see anyone charged.
And the tip that we passed on two weeks ago from a former ASX 100 CEO that a senior finance journalist was about to be charged for taking payments from a hedge fund doesn't appear to carry much weight either. Frankly, it always seemed very hard to believe.
Stockland joins the biggest losers list
The Mayne Report has two lists tracking record losses:
The $100m loss club by financial year
$100 million loss club - biggest to smallest
News Corp and Stockland are the two most dramatic new additions so far this month, but we're expecting at least another 10 before summer is over.
The Mayne Report Rich List
Following an extensive update and overhaul, we are now continuing our research adding new names each week to The Mayne Report Rich List, even as we witness the greatest destruction of wealth in history. It is still our most popular article with nearly 3000 people visiting so far in 2009, on the back of the 30,000 visits in 2008. Our huge list now includes those who have fallen below the $10 million threshold, but here are the latest additions, including a famous former billionaire's wife who has revealed details of her ill-gotten stash in the latest Women's Weekly:
Len Poulter: founder of Australia's largest specialty meat retailer Lenards. Celebrating their 20th year, after opening his first store in Brisbane in 1987, he successfully franchised the business into 184 stores Australia wide.
Fisken family: Archibald Fisken, a Scottish immigrant, first acquired some property with his uncle near Ballarat. He built a homestead in 1858 and was a great horseman. He tended cattle there and regularly mustered them 20km to market, selling them to hungry gold miners. Since, 'Lal Lal Estate' has been operated by 4 generations of Fiskens producing high quality wool. Higher rainfall and location has helped the Fisken family expand their dynasty into around 12,500 Merinos.
Josephine Armstrong: a former school teacher and substantial Liberal Party benefactor who in the recent Federal election donated $600,000 over two installments. She made more than $30 million from a 2006 sale of land in Perth at the peak of the market.
Eileen Bond: known as 'big red', the former wife of disgraced Alan Bond is living in a 108-year-old mansion in Perth's exclusive Peppermint Grove. With a couple of cottages in England and a property in Sydney, combined with an impressive private art collection that would not be out of place in any gallery, her wealth is well above $10 million, much to the chagrin of former Bond Corp shareholders.
James Simpson: formally of Platinum Asset Management, was Kerr Neilson's right hand man who left the register with $32 million in cash and then purchased a $7.1 million new house in Birchgrove NSW.
John Blewitt and Tony Muston: ran away with $38 million in cash when they sold RetireInvest to ING in 1995. Muston has a home in Point Piper, Port Melbourne and East Gippsland using his main investment vehicle - Jones Bay investments. Blewitt has a house in Mosman and a home in Belgravia, London. Now trades in hybrids and other fixed securities under various guises.
The Castricum family: Jack and his brothers have been making megabucks since they have renewed meat export contracts with their Japanese customers locking in prices before the commodity plunge.
Peter MacGregor: the former planning lawyer owns a $200 million Queensland residential property development Seaspray on the Capricorn coast. He has sold almost half the 400 dwellings for between $400,000 and $750,000.
Danny Goldberg: purchased beach front property in Byron Bay in 2006 for a record breaking $15.6 million. He was approved to develop the world-class site but has since shelved those plans.
Eddie Phillips: a significant holder of residential and commercial property in the Byron Bay region, he is currently selling a $15 million property there but, with the market down, expects offers of less than $12 million.
Fitch family: this Adelaide-based family recently purchased the Golden Grove Village shopping centre in South Australia from the listed CFS Retail Property Trust for a reported $100 million. This sale was largest retail property transaction in Australia for the previous 12 months.
Tracking major capital raising
In the past 6 months there has an unprecedented amount of capital raising by ASX listed companies, draining cash from investors. This is a quick summary of the bigger raisings which are now in huge competition with the Federal Government if any more capital is needed to pay down corporate debt.
Paul Keating's unique 9% compulsory superannuation tax used to create enormous problems in Australia known as the "weight of capital". Combined with global banks desperate to lend money, it led to our various asset bubbles and encouraged enormous debt-funded consumption based on this partially fictional wealth.
Now we've gone into reverse, although those conscripted super savings might yet prove to be our biggest asset.
The big question is whether the highly conservative super funds are reducing their estimated $200 billion worth of cash holdings given the plunging returns courtesy of The Reserve Bank.
Radio and TV interviews
Check out this interview on ABC Newsradio about the News Corp loss last Friday.
This rigorous exchange with The Age's Michelle Grattan and The Australian's Lenore Taylor broadcast on Radio National last Friday was our most popular audio for some time with more than 600 downloads.
The Sky News Business journos chat show Business View is back on air this week so tune in from 2pm Friday or 9am Saturday if you get a chance as we're on the panel with Greg Peel and Janine Perrett.
That's all for now.
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.