KEY POINTS:
The high-profile collapse of a sharebroking firm involving the loss of millions of dollars in client funds has raised questions over the market operator's dual role as a profit driven business listed on its own market which it also regulates.
Stock Takes is, of course, talking about the ASX. And the NZX.
The recent Opes Prime debacle in Australia, involving a $200 million hole in client funds, has seen many commentators raise concerns about the ASX's dual role, especially when it emerged that the ASX was informed of Opes' liquidity problems months before the manure really hit the ventilator and did little about it.
The ASX's dual role has, in the words of one Australian business commentator, become a joke.
The collapse of Wellington based online brokerage Access in late 2004 involved a much smaller shortfall in client funds, $4.8 million. But it's not the size of the sum involved that matters, it's how you misuse it, and the collapse should and has raised similar concerns to those over the ditch.
Former Access boss Peter Marshall was found guilty this week on 14 fraud charges related to the shortfall in client funds and evidence heard by the court indicated various shortfalls at the firm were known by employees for some time before the collapse.
Should the NZX's broker oversight programme or auditors Deloittes have unearthed this earlier?
The Bank of New Zealand, which largely reimbursed affected Access clients after the collapse, thinks so, and has legal action pending against NZX and Deloittes in a bid to recover its cash. After the collapse the Securities Commission criticised NZX's broker compliance regime but decided its concerns had subsequently been largely addressed.
Broker supervision is not the only area of NZX's regulatory functions that has attracted criticism.
Last year NZX chief executive Mark Weldon's proposed bonus scheme, that could have seen his stake in the company rise to the statutory limit of 10 per cent, was withdrawn and rejigged after being roundly bagged by the Shareholders Association, the Directors Institute and Guiness Peat Group's Tony Gibbs.
Much of their concern was that the independence of NZX as a regulator could be compromised by Weldon holding such a big stake. As Gibbs put it last year: "A regulator that owns itself? Come on!"
Gibbs suggested the market's regulation should be handled entirely by the Securities Commission. It can be frustrating that the Securities Commission tends to be parsimonious about what it tells the media and public about its activities, Stock Takes understands the need for this. A business could be damaged if the public learns it is being investigated by the commission, even if it is later cleared of wrongdoing.
Then again it's not the commission's job to make friends in the media, the business community or to make profits.
As a market supervisor and profit-driven company, its hard to escape the suspicion that NZX's regulatory activities and disclosures have the potential to be coloured by concerns about its own reputation and business interests.
JOB LOSSES A WORRY
Despite a range of uncomfortable indicators, New Zealand's oft-predicted imminent downturn has seemed like a pretty abstract kind of affair. A fairly widespread view was that unless our job market unravelled, there wasn't too much to worry about.
Yesterday, with one of our last significant manufacturers, Fisher & Paykel Appliances, announcing 430 job cuts as it moves capacity overseas and our largest bank, ANZ, announcing the start of an outsourcing programme that will see local jobs exported to Bangalore, the market didn't exactly unravel but there's one or two threads hanging off the hem.
Adding to the gloom, Goldman Sachs' overseas arms is picking a sharp fall in the kiwi dollar is fairly imminent and is recommending selling the currency, those domestic stocks exposed to the business cycle and even those Australian companies heavily exposed to New Zealand.
The market watcher who brought this to Stock Take's attention reckoned Goldman's overseas view was significantly more bearish than that of the local arm Goldman Sachs JBWere which is itself hardly upbeat.
In the firm's Monday New Zealand Daily Cable it set out its view that the present downside risks to the economy were larger and more imminent than the Reserve Bank thought.
"Once the Reserve Bank finally wakes up to the fact that the economy is in a lot of trouble and the currency market prices that in, we will have a fairly sharp move in the dollar," Goldman Sachs JBWere economist Shamubeel Eaqub told Stock Takes yesterday.
It's an ill wind though: Goldman's overseas material included a recommendation to buy New Zealand exporters who will thrive on a lower dollar.
Fisher & Paykel Appliances shares closed up 34c yesterday at $2.54.
LISTED PROPERTIES SHINE ON
On a brighter note, our listed property businesses have done pretty well of late.
Arguably they've been oversold during the recent market turmoil but some have come up with pretty reasonable results.
AMP New Zealand Office Trust (ANZO) this week reported a 32.7 per cent increase in its net operating profit for the nine months to March and announced a record distribution to investors.
Yesterday Property For Industry (PFI) reported a 10.5 per cent increase in first-quarter net operating profit.
Last week Kiwi Income Property Trust, owner of Auckland's Vero Centre, reported a $56 million net gain in the value of its portfolio. By yesterday's close ANZO shares had gained 22c since hitting a year low of $1.05 on March 25, while PFI's stock has gained 10c over the same period to close yesterday at $1.31 and Kiwi Income has risen 8c to $1.26.
Vector's debt exercise a taste of what's to come
Vector last week announced the refinancing of about a tenth of its debt, issuing £115 million ($287 million) worth of notes under its European Medium Term Note programme.
Chief executive Simon Mackenzie said the issue had attracted strong interest from top tier United Kingdom and European institutions.
Stock Takes understands the credit crunch has meant the cost of this debt marked a hefty increase on what Vector has been paying. If so, there's probably similar pain to come for other corporates who have to refinance debt in the next little while.
Still, Vector shares have been on the rise recently. ING believes that's on the back of a perception the company's debt load is manageable, although reports that it has received up to four different bids for its Wellington network can't hurt either. Vector shares closed 4c higher at $2.03 yesterday.
GOING DOWN
An asset foreign investors are likely to bail out of, according to Goldman Sachs, is Auckland International Airport.
On Monday, shares in the company tumbled as hedge funds bailed out, which saw the stock fall at one point as much as 27c before closing at $2.13. It has recovered somewhat since then and yesterday closed at $2.22.
Goldman Sachs has AIA's fair value at $2.10 a share and has a hold recommendation on the stock. Analyst Marcus Curley believes the stock could trade as low as $1.80 as hedge funds continue to exit.
Longer term, Curley says AIA's investment fundamentals have deteriorated over the past six months because of margin pressure within the business, regulatory issues around aeronautical charges and duty free, a potentially costly property dispute with Craigie Trust, and slowing international passenger numbers.
If the airport was to feel the brunt of worst-case scenarios for all of those factors, Goldman's valuation would slide to $1.75 a share, less than half the $3.65 Canada Pension Plan was offering.
