Dollar hits 10-year high… Banks’ culture clash?… IPOs’ rosy outlook… Iemma hints at WorkCover premium cut… Agriculture tax breaks over budget… NSW property industry trails… Economy roundup
Tuesday, March 20, 2007/
Dollar hits 10-year high
The Australian dollar surged to a 10-year high this morning, pushing through the US80c barrier to peak at US80.33c before retreating to US80.08c at 11.45am.
Rising petrol prices and comments by Reserve Bank assistant governor Malcolm Edey, suggesting core inflation is “likely to be too high”, are behind the big rise, giving markets increased confidence in the likelihood of an interest rate rise in the near future.
A weakening of the US dollar, driven by sub-prime mortgage concerns and a decline in confidence among home builders, also contributed to the dollar’s strength.
– Mike Preston
Bendigo / Queensland bank culture clash?
Bank of Queensland has made its intentions clear in making an offer to merge with Bendigo Bank. But what does Bendigo Bank think about a merger?
This morning’s papers are speculating that the Bank of Queensland offer is not being gratefully received because the $2.4 billion bid hasn’t been delivered as a recommended package. Bank of Queensland has informed Bendigo Bank that it would require the unequivocal support by the Bendigo Bank board for the proposal, according to a media release from Bendigo Bank yesterday.
Bendigo Bank’s board says it is considering “whether the merger proposal is in the best interests of shareholders, and will make a recommendation as soon as practicable”.
Under the proposal, Bendigo Bank shareholders would receive 0.748 Bank of Queensland shares and $5.50 cash for each Bendigo Bank share. The offer is well over the market value of the shares. Bank of Queensland claims it will save $70 million in costs through the merger.
If the merger goes ahead it will be interesting to see how it works. Both banks are franchised, but their models are very different.
Bendigo Bank operates community banks alongside traditional banks. The community banks are owned by local communities, use bank infrastructure and pay a portion of bank revenue to head office. They were created in response to the pull-back of the big banks from some regional areas.
Bank of Queensland branches are a more traditional type of franchise. The bank’s expansion has been fuelled by selling franchises to entrepreneurs with experience in banking. Some of these franchisees have reportedly been disappointed with their returns on investment.
David Liddy, managing director of the Bank of Queensland, is reported in the Australian Financial Review today as saying that both models will be retained. “We’ll combine the strength of both and continue to expand both models.” Watch out for a clash of cultures.
– Jacqui Walker
IPO’s rosy outlook for 2007
The IPO pipeline for 2007 looks strong compared to last year when it declined by 25% despite a market rise of 20%, says the PricewaterhouseCoopers sharemarket float report.
The 2006 analysis shows there were 71 IPOs completed, raising close to $7 billion (excluding resources, compliance and backdoor listings). In 2005 94 IPOs raised $12 billion.
Greg Keys, head of corporate finance, says IPOs in 2006 were still a haven for investors, with 62% trading above issue price at December 31, 2006. Of that group, 75% outperformed the market.
“The IPO pipeline is indicating that 2007 will be stronger, he says. They include the listing of drilling services provider, Boart Longyear and Dairy Farmers.
Prominent market trends from 2006 will continue to influence performance in 2007, including strong superannuation fund flows, higher levels of M&A activity and private equity.
In 2006, large-cap floats continued to achieve significant pricing premiums over small caps of about 45%. Keys says this is due to large caps being perceived as more established, less volatile businesses and therefore lower risk
– Amanda Gome
Iemma hints at WorkCover premium cut
NSW WorkCover premiums could be cut if a report on the scheme’s financial health says they are affordable, Premier Morris Iemma said yesterday.
Iemma’s announcement follows criticism of NSW WorkCover’s aggressive approach to auditing businesses that use subcontractors. Businesses have been forced to pay back hundreds of thousands of dollars to WorkCover after audits found that people who were hired as subcontractors were actually employees for whom premiums had to be paid.
The NSW WorkCover scheme is expected to achieve an $85 million surplus at the end of 2006-07, according to an independent valuation conducted last year. Although this compares unfavourably to a surplus of more than $1 billion in Victoria and $669 million in Queensland at the end of 2005-06, it is a significant improvement on the NSW scheme’s 2001-02 deficit of $3.2 billion.
Employers in NSW paid an average premium of $2.44 per $100 of wages at the end of 2005-06, more than all other states or territories except the ACT ($3.08) and South Australia ($3) and Tasmania ($2.45), a WorkCover Queensland report shows.
The performance of the NSW WorkCover scheme is one of the few areas given an “A” by the New South Wales Business Chamber in its report card on the Iemma Government’s business policies.
Iemma also said yesterday that he would not raises taxes if re-elected on March 24, after releasing a Treasury report costing Labor’s election promises at $1.64 billion.
– Mike Preston
Agricultural tax breaks well-over budget
Tax breaks on investment in managed investment schemes (MIS) for growing non-forestry products such as olives, nuts and pearls will cost the Federal Government $300 million a year if they continue in their current form, according to a confidential MIS industry review reported in the Australian Financial Review today.
The review, commissioned by MIS industry peak body Agriculture Investment Managers Australia, found that the value of the upfront tax break to investors was $510 million in 2005-06, $210 million more than the Federal Government had estimated. MIS schemes contributed $148 million to the economy and created 2200 jobs over the same period, the review says.
The Federal Government is re-considering the time frame for phasing out the tax breaks.
– Mike Preston
NSW property industry trails Victoria and Queensland
BIS Shrapnel director Robert Mellor has forecast NSW to have its lowest number of new home starts since 1958-59, The Age reports.
The sharp jump in housing prices in Sydney at the beginning of the decade hit affordability and poor yields, and a weak market sentiment in recent years had scared away investors, according to BIS Shrapnels’ Building Industry Prospects report.
The research house predicts 8% growth in home starts in 2007-08 to 31,450, but the state will still trail Victorian and Queensland.
Victorian starts are predicted to decline 5% in 2006-07 and a further 2% in 2007-08 to 36,450 starts. National stars will remain flat at 145,000 annually for the next two years.
– Jacqui Walker
New residential building commencements fell 0.8% (seasonally adjusted) in December, with housing commencements down 0.6% and flats and apartments down 1.8%, according to Australian Bureau of Statistics figures released today.
The Federal Government surplus increased by $2.4 billion in January, Government figures released yesterday show. The budget has built up a $12.4 billion surplus in the first seven months of 2006-07.
The S&P/ASX 200 is up 0.66% from its yesterday’s close of 5859.7 to be 5898.1 at 11.45am.