Charles Goode refuses to answer the ANZ question

February 2, 2010

Dear Mayne Reporters,

a handful of shareholders gathered at KPMG's offices in Collins Street this morning to see just how the $800 million listed investment company set up for the legendary Sir Ian Potter was travelling.

Chairman Charles Goode, whose biggest remaining gig is the chair at ANZ, christened the annual report of Australian United Investment Company "sombre", reflecting the current credit crisis and equities wipe-out. That would have been a cheery description of the AGM which exuded a distinctly funereal air.

First up, here is a break down of the audio exchanges

The ANZ retirement question

Shunning Fortescue Metals

Are our banks too risky to hold?

Vote for me at BHP

Daryl Dixon takes offence

The prize for the most loyal shareholder would have to go to columnist and veteran investment adviser Daryl Dixon, 9th largest holder of AUI shares and a man who knows his way around the shareholding fraternity.

You would think that Dixon would be steaming at ANZ because it pulled the plug on Lift Capital, which adversely hit Dixon Advisory, the super administration firm he runs with Max Walsh. The Australian explained the issue nicely back on April 15, describing Dixon as "the grandfather of self-funded superannuation".

Rather than hopping into Goode for his role as ANZ chairman, Dixon took on the laborious duty of seconding almost every resolution today. He then came to life near the end of the proceedings when your correspondent launched a handful of questions that injected the first flicker of life and even incipient consciousness into the dreary conclave.

Asked if he had a conflict given that AUI had its biggest banking investment in ANZ, which had performed worst of all the majors this year, Charles claimed to always leave the board room whenever the subject of the company's investment in bank shares came up. Not satisfied with this straightforward response, Mr Dixon stood up with a superflous defence of the chairman by claiming that our contributions were "offensive" because the ANZ stake had been held for many years.

The ANZ retirement question

When asked whether he was considering leaving the top job at ANZ after 17 years on the board, the ever discreet Mr Goode responded by stating that it would not be appropriate to comment as the press were present. With a board rule that directors should go after 15 years, it is ridiculous that Charles is even considering another term, especially given the woeful record of ANZ in recent times.

Today's non-answer has settled the issue. My nomination for the ANZ board at the December AGM on a "time for Charles to go" platform will be lodged shortly. As you can see from this video, Charles has quit most of his other important board seats such as Pacific Dunlop and CSR, but for some reason he appears to be lining up another 3 year stint at ANZ, that will see him through to the ripe old age of 72.

At one point today I politely enquired into the chairman's possible over extension of his energies by remaining chairman of ANZ while navigating AUI and its sister company DUI through the rocky shoals of the world's current financial crisis. A bit put out, he responded by reference to the safest of safe authorities for such an occasion - Warren Buffett. According to the chairman, when Buffett was taken to task for not being sufficiently active he responded, "We're paid as directors to perform, not to be active."

Shunning Fortescue Metals

The corporate establishment has well and truly shunned Andrew Forrest's Fortescue Metals, so Charles was asked whether AUI considered getting on the register during the year when it became a top ten company.

Alas, AUI still hasn't even considered buying Fortescue shares because it doesn't pay dividends. Charles says he runs a risk-averse shop and prefers to buy into companies which have been around for many years that he can get to know by reading the annual report. How a man with such a conservative approach could have chaired a bank that did the whole Opes Prime shemozzle is hard to comprehend.

In hindsight, it looks wise to have avoided Fortescue after it plunged 80% in a few months to $2.82 last Friday. After a huge bounce earlier this week, the stock tanked 21% to $3.45 today.

That said, institutional support for Fortescue at any time before 2007 would still have proved highly profitable.

Are our banks too risky to hold?

Whilst I've been buying a few stocks during this global shake-out, Charles said AUI was risk-averse and preferred sitting on the side-lines until the dust settled. With no net cash holdings and a moderate $11 million debt, the fund is unfortunately fully invested during this time of opportunity.

I tried to tempt Charles into a comment about bank risks by suggesting AUI was overweight banks and should perhaps sell-down given that governments are moving in the world over and imposing restrictions on things like dividend payments.

After trotting out the statistics about the risks posed by that $1 trillion in Australian household debt in the event of a severe housing correction, Charles responded with the usual mantra about the Big Four being part of that exclusive club of 18 global banks with AA credit ratings.

It was probably too much to expect a Big Four chairman to advocate selling banks to avoid risk, but you've got to try these things!

Vote for me at BHP

The most amusing exchange was over the BHP bid for Rio Tinto. After pointing out that AFIC chairman Bruce Teele had been paid visits by both Rio Tinto and BHP-Billiton on the merits of the hostile takeover, Charles said he hadn't spoken to either company and he would make up his mind after the decision by the European competition regulators.

BHP Billiton is AUI's largest investment, followed by Rio Tinto and the combined holding would represent almost 30% of the portfolio if the takeover went through. Charles admitted this would probably be too much and they would have to sell down if the deal went through.

In a follow-up question I confessed to being a board candidate for BHP on a platform opposing the Rio takeover and asked for Charlie's support. Could AUI perhaps abstain on the resolution to send a message that empire-building takeovers by BHP would not be good given Rio's debt and the credit crisis? The chairman promised to raise it at the next board meeting so we'll see where it finishes at the Melbourne leg of the BHP AGM on November 27.

Finally, have a listen to the audio from last year's exchanges with Charles at the DUI AGM.

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.