End of Days

All around you see corporate Australia in trouble.  Big names taking hits QBE Insurance profits down, QANTAS bonds rated as junk and the car industry imploding. 

...More than $5 billion has been wiped off QBE's market value in two days, as investors punish the company for repeatedly disappointing and analysts warn that further pain could follow this week's profit downgrade.
In another blow to the insurer, Moody's on Tuesday downgraded its credit to Baa2, two notches above the rating it gives ''junk'' or speculative assets. It cited a weaker outlook for profits and higher debts.(here)

and meanwhile it seems S&P forgot to factor in the likelihood of possible future adverse macro events when they tried to bring some positive spin to current events...

Credit rating agency Standard & Poor’s has said the troubles faced by two of Australia’s most iconic brand names, Qantas and Holden, should not be regarded as a sign that the nation’s economy is derailing. [note it absolutely IS a sign!]
In a rare comment piece, the global rating agency said its decision to downgrade Qantas was a reflection of the competition the airline sector, which hit its earnings, and not the result of a change in consumer sentiment, and therefore it does not reflect broader economic conditions.

A drop in sentiment could further stall the much-needed pick-up in business and household spending. As it is, Standard & Poor’s currently forecasts ongoing subdued economic growth in 2014, with the fall in mining investment not fully offset by a very slowly re-emerging non-mining sector,” the agency said.(here)

And note this is also optimistic because it appears a lot of companies are fiddling the books - misstating their accounts to paint a more healthy picture (see this announcement by ASIC about its concerns of what is essentially degrees of fraud, or at least not complying with the spirit of accounting rules and principles).

 Part of the blame must surely lie with the resource curse - the substitutional effects the mining and resources economy has on the rest of the economy and a point well made in Britain's Telegraph:

The country is exhibiting clear signs of the “resource curse” as other sectors of industry whither on the vine, literally in the case of struggling vineyards. The beautiful wine-growing region of Hunter Valley is being “ripped apart” by coal mines, according to local activists. (here)

ASIC under fire again...

A leading consumer activist claims the corporate regulator has not only failed to investigate hundreds of cases of loan fraud put before it but, as a consequence, has covered up a systemic banking failure.(here)

Wannabe regulator No. 2 - Introducing ASIC

Many people around the world will be familiar with the storied ASICS trainer, the Japanese produced shoes being widespread in many sports famous for their quality, performance and reasonable prices.  The same cannot be said for the similarly named Australian securities industry regulator ASIC (short for Australian Securities and Investments Commission) which in the last week has faced an array of criticism on many fronts.  Given the looming slowdown and the need for a strong regulator to coordinate the Australian investment markets, recent releases do not seem to bode well for the medium term.

So first up the ASIC head Greg Medcraft defending the body's handling of foreign bribery allegations involving a large Australian construction firm:

Last month, Greens deputy leader Adam Bandt said his party would ask ASIC to explain to Federal Parliament why it had "failed to investigate serious and repeated claims of illegality within the RBA's corporate activities".
ASIC has also been criticised for not investigating allegations Leighton Holdings used bribery to win an oil pipeline contract in Iraq.
In a fiery speech titled Setting The Record Straight, chairman Greg Medcraft on Friday said it was the role of police to investigate such matters and hit out at "ill-informed" media coverage of the regulator's role investigating the allegations.(here).

And then, there was that story about investors not having knowledge of an ASIC investigation (not that it would be for investors to get information in a timely manner or anything).  Link here.  But of more concern perhaps is the exemption ASIC granted for big banks reporting their derivative transactions - a reasonable allowance or a weak regulator?  Certainly it is likely the regulator is to face more criticism if the state of the markets worsens. 

  

Australia's banking system is rotten

Judge for yourself!  International rating agency Moody's has looked to downgrade Australia's big four banks, factoring in availability of government support for troubled banks (here), while the Herald group has been exposing Australia's own subprime industry - Low Doc loans, which are as toxic as their US equivalents - and of course the regulator it seems may have been asleep at the wheel and then very keen to deflect blame!  Seen it all before?

She says the emails which are being released - sent from 30 banks and other lenders into the 20,000-strong mortgage broker 'channel' - prove the banks are calling the shots. The emails examined by BusinessDay suggest some banks orchestrated the reckless fall in lending standards as the credit boom approached its crescendo in 2007 (here).

Of the borrowers who have asked for help from Ms Brailey's action group, Banking & Finance Consumers Support Association, 1170 of them claim their loan application forms (LAFs) have been tampered with. In most cases, the income figure has been increased to justify more credit. "There is not one clean 'LAF' among them," said Ms Brailey, 70, a consumer advocate from Western Australia. "This is Australia's subprime crisis.'' (here)

The Commonwealth Bank concealed financial improprieties by a top financial planner controlling an estimated $300 million in investments for 1300 clients, many of them retired and with serious health problems....The planner, Don Nguyen, who joined the nation's biggest bank in 1999 and has since been banned from providing financial services advice until 2018, allegedly forged signatures, created unauthorised investment accounts and overcharged fees.
A Fairfax Media investigation has revealed that bank staff took part in a cover-up that allegedly included the falsification of documents after Mr Nguyen left his position in July 2009.... one whistleblower, Jeff Morris, agreed to be identified by Fairfax Media to warn others about the perils of whistleblowing and the lack of support he got from the regulator, the Australian Securities and Investments Commission.  (here)