Welcoming Bell Financial Group to the public company world

February 2, 2010

Dear Mayne Report subscribers,

The debut AGM for a company after a float is usually a very subdued affair with no questions from shareholders, but loads of staff attending to check out the experience.

That would have been the case for Bell Financial Group on level 29 of 101 Collins Street this morning as dozens of staff turned up to listen to the bosses at the inaugural AGM.

In what is almost an obligation to christen clean skin boards, executive chairman Colin Bell and managing director Alistair Provan, both of whom are worth well over $50 million, were put through their paces with more than a dozen questions over 20 minutes by your correspondent. Parts of the audio will be up on our home page shortly.

It was really refreshing to hear Colin Bell's frank assessment of the share price which he described as being "in the toilet", despite the firm's impressive $35 million net profit last year.

However, the market downturn is clearly hitting all brokers because Provan disclosed that brokerage revenue, which hit a record $152 million in 2007, is down 12% in the first four months of the year and the lumpier but less important capital markets revenue has plunged 63%, meaning net profit is $3.5 million lower so far.

The market was clearly happy with the disclosure as Bell shares rose 3c to $1.23 this morning, but remain well shy of last November's $2 float price and the $2.19 that I paid for $500 worth of stock in December.

Bell Financial Group was planning to buy the stricken Tricom Securities but pulled out after conducting due diligence and they refused to say anything more this morning on being asked what they thought of Danish investor Saxo Bank paying $20 million for a 35% stake.

Asked why they hadn't started a buy back given there is $65 million of cash in the bank, Bell and Provan talked about acquisition opportunities but the one big chance has apparently slipped through their fingers.

The annual report disclosed that the margin lending book was $286 million as at December 31 so I asked about the current position and the identity of the financier. Surprise, surprise, it is good ole ANZ but Provan stressed they are not getting out of the securities lending business despite ANZ CEO Mike Smith suggesting otherwise in this interview with Business Spectator a few weeks back.

The Reserve Bank released some figures yesterday showing overall margin lending fell $5 billion to $32 billion during the March quarter and the Bell Financial loan book has followed that trend, dropping to $230 million secured by $600 million worth of shares.

They haven't dropped a single dollar on margin lending yet, so they are obviously very conservative on stocks they lend against to have failed to even gain some market share from the collapse of the business model behind Lift, Opes, Tricom and Chimaera.

Kerry Packer's former finance man Graeme Cubbin is one of the Bell directors and he came up for a quick chat after the meeting, saying he enjoyed the questions, but also suggesting I'd been too hard on the Packers at various PBL AGMs over the years.

Cubbin described the Packer family's treatment of PBL as "absolutely lily white", which is probably right when you consider that they never drew a salary and also privately paid the salaries of lobbyists such as Graham Richardson and Peter Barren who were so important to those casino and television licences from Labor Governments over the years.

The Australian had a very interesting article a few weeks back claiming that some of the key Bell staff are heavily geared into their shareholdings. Colin Bell wasn't going to offer up the information but he was prepared and came through with the following in response to my question, which probably should be released to the broader market.

Shareholders were told that 2.4% of the $230 million margin loan book was secured against Bell shares and that the controlling Bell Group Holdings shareholder, which own 52% of the company, doesn't have any debt supporting its $150 million stake.

Boy, these Bell brothers and their fellow travellers have made plenty of cash from their 37 years in the business, because they also paid about $40 million to buy Rupert Murdoch's sheep properties a decade ago.

We were also told that 19.3 million shares or 8.5% off the oustanding Bell Financial Group capital is supported by margin loans, but most of these are with staff rather that directors.

The other interesting disclosure was that the list of top 10 paid executives would be different if they included advisers. Clearly, some of these rainmakers who generated the $152 million of brokerage last year are multi-millionaires because the disclosed pay packets of the top top 8 last year hit $30 million. This was largely because it was a private company back then and all the profits were taken out as dividends. It really is stupid that fund managers, shock jocks, TV presenters and stockbrokers are not disclosed in the top 10 pay list because of a loophole which requires them to be executives.

Colin Bell lamented that he'll get nothing like the $9 million that was paid last year under the new more acceptable pay structure for the public company.

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.