Allco, bad debts, Paris Hilton, AMP, Future Fund, Rich List, GPT, Cornwall, Rio, Caltex and 50k windfall

February 2, 2010

Dear Mayne Reporters,

David Clarke's resignation from the AMP board this week is a major victory for shareholder accountability. It really does seem that a major collapse is finally going to have implications for the careers of those directors involved.

Clarke was going down in a major way at the AMP AGM on May 14 in Sydney because of his 19-month stint as the Allco Finance Group CEO. I met him for a drink at the RACV Club last year and he's a lovely bloke and all that, but you can't escape the vast destruction of value at Allco. We're talking $5 billion-plus across all the listed funds and I was a shafted investor in every one of them.

Sure, Clarke started to tame the excesses of Allco founder and executive chairman David Coe, but there was a series of ill-fated and dubious transactions done on his watch which just can't be ignored.

It wouldn't be at all surprising to see ASIC take action over some of the Allco deals, yet ASX chairman David Gonski seemed to think it was just fine to hire Clarke as the new CEO of Investec. Similarly, AMP chairman Peter Mason apparently had no qualms at all about Clarke running for another 3 year term at AMP, as if Allco never happened.

With former James Hardie chair Meredith Hellicar also withdrawing her nomination for re-election at the AMP AGM after Justice Gzell lashed her last week, there will be a bit less to talk about at the AGM but the flights are booked and we're looking forward to the exchanges.

Meanwhile, check out this grilling we gave Clarke at the Allco Equity Partners AGM last November, just one day after the administrators took charge of Allco Finance Group.

Breaking records for Fairfax with Paris Hilton and the ANZ

One of the greatest things about the internet is the amount of accountability it gives to journalists and advertisers alike. If you've got a good scoop online, you can literally measure exactly how many people read it. The same goes with advertising click throughs.

And so it was on Tuesday morning when the Fairfax websites went live with this ripping yarn about how the ANZ Bank dropped $1 million paying for a Paris Hilton party in Sydney on New Year's Eve. The story rated number one for much of the day on the four main Fairfax websites - The Age, The SMH, Brisbanetimes and WAtoday. Indeed, it finished up with a staggering 255,000 page views by the end of the day.

By way of comparison, this is how monthly page views at The Mayne Report have tracked so far this year:

January: 46,501
February: 43,409
March: 59,592
April: 54,432

One story for Fairfax Digital on one day has exceeded the entire traffic to our little ezine in 2009.

My boss at Fairfax Digital reckons this 255,000 result puts the Paris ANZ yarn in the "top couple" since they really gave a big push last year.

Now at one level this might be an example of internet media consumers being interested in celebrities, sex and trashy news.

However, the story of Commquest's demise was also a very detailed examination of a corporate collapse where $50 million was lost, ANZ's lax lending standards were revealed and this particular generation Y management team were revealed as dills who should never been allowed to talk their way to such prominence. There was plenty of good inside information too and we followed up with a lively discussion on 4BC Drive with Mike Smith.

Incidentally, ANZ spindoctor Paul Edwards attempted to play down the story when he sent this through:

Hi Stephen - not quite sure what the Paris Hilton angle is about but I thought these points might be helpful.

* ANZ did not fund the Dec 31 2008 party your refer to.

* That party was hosted by a company called Bongo, which at the time, was one of 16 entities owned by CommQuest, but which has now been sold and remains a going concern.

* CommQuest is funded by a combination of debt and equity and ANZ is a lender.

I think fingering us for Paris's presence is Australia is a bit tough. Although I know someone has to be accountable to the Australian public for Paris, pointing the finger at us is like New Year's revellers blaming us for a hangover because they paid for the last glass of shandy on their ANZ credit card.

Keep fighting the good fight.
Regards, Paul

The only problem with this line is that ANZ literally stepped in a few days after the party and took control, limiting all spending at CommQuest to just $500 without bank approval. And ANZ is not just "a lender" - it is the lender with $26 million outstanding. When equity has already been wiped out, that only leaves the bank funding a failed business. Why on earth did the bank let the CommQuest CEO Will Scott personally project manage this extravagant party when this bizarre Bongo Virus product apparently hasn't produced $1 of revenue? ANZ's CommQuest write-down no doubt features in this next item and it is useful to put some names to the big bad debt numbers rolled out this week.

Tracking the bank bad debt write-downs

Amid all this debate about ANZ's ridiculously complex accounting policies with yesterday's results, there is one very simple line item that we all should be focusing on - the provisions for bad debts.

This is what the Big Four banks have produced in half yearly bad debt provisions since the credit crunch first began in August 2007:

$297 million, September 07 half
$378 million, March 08 half
$895 million, September 08 half
$1.53 billion, March 09 half

$726 million, March 08 half
$1.76 billion, September 08 half
$1.81 billion, March 09 half

$433 million, March 08 half
$498 million, September 08 half
March 09 result due next week

$333 million, December 07 half
$597 million, June 08 half
$1.6 billion, December 08 half

We had the rather strange development of CBA releasing a distinct result for BankWest today which included a huge surge in bad debt provisions from $87.8 million to $825.3 million for the 2008 calendar year.

The final acquisition price has some bad debt adjustments so it looks like the long-suffering British taxpayer will be waring much of these losses because CBA had the audacity to write-up the value of BankWest by $547 million before in its February interim result, just a few weeks after it formally took control in late December.

Based on this $825 million bad debt splurge today, the previously announced price of $2.1 billion looks inflated. This is how CBA's investor relations boss Warwick Bryan explained the situation in an email today:

There is a mechanism in the purchase agreement whereby we are entitled to a deduction from the sale price if the business is not provisioned “appropriately”. We have initiated a claim against the vendor which will be settled by way of a binding arbitration.

Ripping into the new Rio Tinto chair

Unlike the Paris Hilton story, this big column for Fairfax last week getting stuck into new Rio Tinto chairman Jan du Plessis didn't even make it to 50,000 page views.

However, there were still some important points made if you've got a moment to soak it up. Few people realise that the Chinese Government would have actually defeated Sir Rod Eddington if they'd voted against. And the suggestion that Paul Keating join the Rio board was a bit out there.

Predicting Donald McGauchie's departure as Telstra chairman

The National Interest is a weekly program hosted by Peter Mares on Radio National which covers current affairs, often picking up on issues that need to be explored with more depth.

The AFR's Pamela Williams certainly did well with three cracking reads about Future Fund chairman David Murray's campaign to have Donald McGauchie replaced as Telstra chairman.

The Australian's John Durie had this crack at Murray, which looked a bit like sour grapes that he didn't get the yarn.

All this and more was discussed last Friday with Peter Mares, including predictions that Donald McGauchie might be gone from the Telstra chair within weeks. Have a listen here.

Whilst Murray himself would be reluctant to call an EGM to remove McGauchie, what if some small shareholders rustled up the 100 signatures for the show down? Murray would then have to finish the job, by voting the Future Fund's 17% against McGauchie.

This then raises the question of who would succeed McGauchie. Charles Macek is thought to be keen but for mine it should be former Cochlear CEO Catherine Linvingstone.

If not, they may as well look outside because all of the directors signed off on Sol Trujillo's "war with the world" strategy that has clearly backfired with the Federal Government's broadband announcement.

Ken Moss is not the answer at GPT

Teetering property giant GPT really is in an awful state. After huge write-downs, desperate capital raisings and the disastrous joint venture with Babcock & Brown, out-going chairman Peter Joseph failed to find a new chairman, so internal plodder Ken Moss has been parachuted into the job.

Moss was one of the NAB directors forced out after the foreign exchange losses in 2004, he's had 10 years on the Boral board including last year's 58% protest vote against the remuneration report and now rather than walking the plank at GPT, he's actually getting a promotion.

There really is something wrong with the directors' club when a big outfit like GPT can't attract any high callibre locals to step up for the challenge. The flights are booked to Sydney for the GPT AGM on May 25.

Caltex AGM - a first with a female chair

The glass ceiling is still very stultifying in Australia's board rooms with women representing less than 10% of all directors. Indeed, there's only one female chairman of an ASX100 company, so I was keen to encounter Elizabeth Bryan at the Caltex AGM in Sydney last week.

Listen below to our three questions fired at the board, as she handled them well and there was an interesting discussion about the Woolworths relationship, hedging and Chevron's board representation:

Could you update how the relationship is with Woolworths?

Will Chevron get an extra director on the board?

Where does the power sit in making the decision not to hedge?

After asking questions at more than 300 AGMs over the years, it really is a sad joke that last week's Caltex gathering was the first engagement with a female chair.

Whilst Meredith Hellicar was the trail blazer at James Hardie in cracking a top 100 company, my only encounter with her was at the EGM in Sydney approving the asbestos settlement.

Elisabeth Nosworthy has also effectively chaired two Babcock & Brown AGMs I attended because founder and executive chair Jim Babcock felt conflicted out, but she was never formally in the chair for an AGM, even though she took the ship into the hands of administrators after Jim Babcock quit last year.

Why isn't Charlie Aitken's salary disclosed by Bell Financial Group?

The youthful Charlie Aitken, head of the institutional desk at Southern Cross Equities, is a fascinating chap to follow. His missives always have something interesting to read, but the poor lad doesn't get paid a dime for his fine contributions to The Eureka Report.

However, Charlie isn't short of a penny as he will eventually share in more than $10 million from the sale of Southern Cross Equities to Bell Financial Group last year and is no doubt on quite a generous three year contract as well.

This all made for an interesting discussion at last week's Bell AGM, because it seems Charlie's huge salary is not being disclosed because he's technically not deemed to be an executive.

This means he has joined the likes of John Sevior at Perpetual, Greg Perry at Commonwealth Bank, Alan Jones at Macquarie Radio and Eddie McGuire in his pre-CEO days at Channel Nine in not having a fat salary disclosed because of this ridiculous loophole. For heaven's sake, the law should require disclosure of the 10 highest paid employees, not just those employees technically deemed to be executives.

Click here to listen to the debate about Charlie's pay packet and various other lively issues at the Bell AGM.

Tune into Sky's Business View tomorrow

Your correspondent will be one of the three guests with Helen Dalley on Sky's Business View program at 2pm tomorrow, so tune in to hear a big discussion on the week in banking, corporate governance and various other matters.

We've got a special video section for past Sky appearances which should be updated by about 6pm tomorrow afternoon with any worthwhile contributions from the debate.

Investors get the Macquarie Group result at 8.30am tomorrow, complete with all the executive pay figures for the year and the first profit drop since the 1992 recession, so there will be much to talk about.

Join us on Twitter

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Latest radio interviews

The best way to listen to our regular radio interviews is to sign up for video and audio podcasts.

The past week has included the following:

4BC Drive with Mike Smith - having a laugh about Paris Hilton and the ANZ's lost million.

Radio National, The National Interest - The Future Fund as shareholder activist.

774 ABC Melbourne - Paul Bendat talking with Jon Faine about the launch of his book revealing the way Coles and Woolies lure children into their pokies venues.

774 ABC Melbourne - discussing interest rates, banks, Richard Pratt and the world of finance with Lindy Burns.

Also, check out these special packages for our other regular media spots.

George Seitz and other tales from the talk circuit

There continues to be plenty of lively activity on the talk circuit. Brimbank City Council came in with some nice comments in our feedback section and even sent through a photo of yours truly with the forever colourful Labor Party power broker George Seitz. That's one for the Rupert Murdoch funded book, if the time is ever found to honour the contract and deliver a manuscript.

Next week will include a breakfast presentation to 130 people organised by Michael Green, one of the main clerk's to Melbourne's barristers. There's also an important dinner speech about governance to the various CEOs and directors of Victoria's major TAFE colleagues, which are going through some major changes at the moment.

Cornwall cartoons for The Mayne Report

We're very lucky to have Mark Cornwall's insights for our ezine.

The Mayne Report Rich List

Since we began compiling the Mayne Report Rich List documenting every Australian currently or previously worth more then $10 million, it has grown in numbers and popularity such that no other feature on the website can match it for traffic.

We're now up to more than 1350 entries, although some are italicised, denoting that they are no longer worth more than our $10 million cut off. Here are our latest entries:

Will Scott: the CommQuest CEO was worth about $15 million when the shares peaked after its 2007 float, but all that has been lost thanks to his dreadful management, culminating in that ridiculous $1 million Paris Hilton party in Sydney, which was exposed in this story for the Fairfax websites.

Jordan Muir: the CommQuest chief operating officer was worth about $15 million when the shares peaked after its 2007 float, but all that has been lost thanks to dreadful management, culminating in that ridiculous $1 million Paris Hilton party in Sydney, which was exposed in this story for the Fairfax websites.

Share trades and capital raising profits

With the margin loan still in place and paper losses exceeding $80,000 we have continued to lighten up the portfolio with more sales in the past month, although part of the motivation is tax loss selling after some recent windfalls playing the angles on capital raisings. Check out all the trades so far this year and here's all the transactions since the last edition:

April 29
sold 565 at $1.10
Myer Group Finance: sold 11 at $87
Northern Iron: sold 440 at $1.16
QBE: sold 21 at $20.72
Spotless: sold 90 at $1.99
Servcorp: sold 90 at $2.48
Thakral Holdings: sold 453 at 24c

April 27
Australian Wealth: sold 190 at 95.5c
Bendigo Mining: sold 44 at $6.48
Boral: sold 61 at $3.63
Cabcharge: sold 37 at $6.46
Century Australia: sold 426 at 75.5c
Folkestone: sold 622 at 28.5c
Australian Infrastructure: sold 159 at $1.46
Northern Iron: sold 4,600 at $1.15
Globe International: sold 627 at 15c

April 23
Dart Mining:
sold 45,000 at 5.1c

April 22
Ceramic Fuel Cells:
sold 200,000 at 6.3c, 47,704 at 6.1c and 240,000 at 6.2c

April 21
Hedley Leisure Group: sold 192 at 37.5c
HFA Holdings: sold 190 at 15c
HFA Accelerator: sold 517 at 11c
Golden West: sold 240 at 33c
Grange Resources: sold 205 at 28.5c
Engin: sold 5,615 at 1.5c
Compass Hotel Group: sold 490 at 6.4c
Ceder Woods Property: sold 101 at $1
Canberra Investments: sold 485 at 50c
CMA Corp: sold 842 at 13.5c
Bell Financial: sold 209 at 54c
Apex Minerals: sold 375 at 24c
Aspen Group: sold 259 at 40c

April 20
Macquarie DDR Trust: sold 422 at 6c

Playing the capital raising game

Playing the angles on capital raisings remains the one thing which is keeping the portfolio in reasonable shape at the moment.

Last week produced a tidy $6000 gross profit after we pumped $25,000 into the Ceramic Fuels capital raising at 5c each and exited for an average price of 6.25c.

There was also a solid outcome from the Northern Iron share purchase plan this week with an exit price of $1.15 on 5000 shares which cost $1 a pop.

Forthcoming capital raisings which we've already committed to include Axa Australasia, DUET, Peet, Avexa, Diversified United Investments, Crane and Every Day Mining Services whilst others in the pipeline include Onesteel, Dexus, GUD, STW Holdings, Ramelius Resources, Seek, Devine, Mineral Deposits, Aristocrat, Fletcher Building, Horizon Oil, Alumina and Adelaide Brighton.

We've made gross profits of almost $50,000 (the biggest being $28,000 on Fairfax) over the past two months playing the capital raisings angles and if the recent trend continues it could become the core revenue source to fund our shareholder activism. This only tends to work in a rising market and we've seen a very handy bounce of almost 20% since the lows of March 9. Long may it continue.

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.