Stock Takes: Plenty of firepower for super regulator

The Financial Markets Authority's chairman says his powers are wide-ranging and strong enough to restore investor confidence. Photo / Supplied

There is no doubt the collapse of the finance company sector dealt investor confidence a severe blow but the new Financial Markets Authority (FMA), which comes into force on May 1, will hopefully act to restore faith in the system.

Stock Takes asked the chairman of the FMA, Simon Allen, if he thought the legislation, which was passed by Parliament yesterday, would have the firepower to turn the tide of investor opinion.

"Yes, in the legislation there are several changes," he said.

"We've been given a lot more duties and a lot more firepower to pursue that expanded brief," he said.

"Also, the review of the Securities Act is ongoing and it's envisaged it will be done by the middle to the end of next year and will further strengthen the way things are done," he said.

Included in the FMA's brief is the ability to act retrospectively, which will mean it can take action against those behind recent finance company failures.

"If our powers call for that, then we will be willing to use them," Allen said.

"The second thing is that the Securities Commission has already announced they have files open about a lot of things that have happened in recent times and they've been fairly open about all of those."

The FMA, which is loosely modelled on the powerful Australian Securities and Investment Commission (ASIC), will be the single regulator for New Zealand's financial markets, taking on the regulatory functions of the Securities Commission, the Ministry of Economic Development and the NZX.

The FMA will be headed up by chief executive Sean Hughes, a former executive of the ASIC.

The eight board members have a wide range of experience and include lawyer Michael Webb, columnist and lecturer Mary Holm and three current members of the Securities Commission: Murray Jack, Shelley Cave and Mark Verbiest.

Reserve Bank chairman Arthur Grimes is among the associate members.

STU OVERCOOKED?

Steel and Tube Holdings' share price performed strongly in the aftermath of the Canterbury earthquake.

The stock closed yesterday at $2.73, having recently hit a 52-week high of $2.84. The stock is now well clear of its 52-week low of $2, set last November.

Steel and Tube traded at $2.50 on the day of the second, and far more serious, earthquake in Canterbury on February 22, and has been tracking higher ever since.

The company's only announcement, post-earthquake, was a statement to the effect that it did not expect an adverse impact on its business from the disaster.

Forsyth Barr's head of research Rob Mercer said the stock, like other construction-oriented stocks that have been upwardly re-rated in the aftermath of the quake, may have gone too far, too fast.

Mercer said Steel and Tube looked cheap when it was in the low $2s "but the market is starting to get a bit full, in the short term, on expectations around those stocks which should benefit from the Christchurch earthquake".

"We are cautious about that, because these things are going to take time, and there will be a net loss of wealth from the Canterbury region and the wider economy as a result of the earthquake," he said.

About one third of Steel and Tube's business serves the agriculture sector, one third serves manufacturing and a third is involved serving the construction sector. Mercer said agriculture was looking quite positive, thanks to the high dairy payout and favourable commodity prices.

Manufacturing was also looking healthy because of the favourable NZ/Australian dollar cross rate.

But Mercer said he did not expect construction activity to suddenly take off.

"It is going to take time to get major projects under way," he said.

"Christchurch is more of a 2012 story rather than a 2011 story," he said.

Weak steel prices saw Steel and Tube's net profit slump by 78 per cent in the year to June 30, 2010.

Late in 2008, Steel and Tube's biggest shareholder, Australia's OneSteel, made a conditional takeover bid at $4 per share, only to withdraw it shortly afterwards because of market volatility, which later proved to be the early stages of the global financial crisis.

GOLDMAN INTEGRATES

New York-based Goldman Sachs Group has moved to fully absorb its partly owned Australian and New Zealand offshoots. The international investment group said yesterday that it had started a formal process to acquire the remaining 55 per cent of Goldman Sachs & Partners Australia Group Holdings (GS&P).

Goldman Sachs currently owns 45 per cent of GS&P.

The remaining 55 per cent is owned by current and former GS&P management and employee shareholders.

The proposed acquisition ultimately requires a 75 per cent minimum acceptance by shareholders and will also be subject to relevant regulatory approvals.

The investment will facilitate the full integration into Goldman Sachs of the Australian and New Zealand businesses which have operated as a joint venture since 2003.

"Australia and New Zealand represent an important part of our growth strategy," said Lloyd Blankfein, chairman and CEO of Goldman Sachs.

"This investment underscores our desire to continue to strengthen our Australasian client franchise."

MERGER KIBOSH

As telegraphed by Stock Takes on March 25, Australian treasurer Wayne Swan has put the kibosh on a proposed A$8.2 billion merger between Australian stock exchange operator ASX and the Singapore Stock Exchange (SGX), on national interest grounds.

Unbowed, the ASX board said it still believed in the need for ASX participation in regional and global exchange consolidation and would continue to evaluate strategic growth opportunities with the SGX.

HELLABY RIDES AGAIN

Hellaby Holdings went through a shaky phase, thanks largely to its $25.6 million purchase of the BBQ Factory in 2004, but the market has since re-rated the stock now that the memory of that ill-fated venture has dimmed.

In some ways, Hellaby looks to be something of a relic of a bygone era. Its conglomerate structure has businesses ranging from shoe retailing to brake parts, which is not often seen these days, but the market credits chief executive John Williamson as having put the company back on a sounder footing.

Hellaby shares last traded at $2.45, having gained about a dollar over the past year.

Quizzed by the NZX about stock movements in March, Hellaby said it was not aware of any material information that might have contributed to the surge.

Hellaby had a reasonable track record for buying companies until it acquired the BBQ Factory in 2004, which went on to lose about $2 million a year before it was sold in 2008.

The company says it is now in good shape and ready to develop a platform for long-term value creation.

POWER LUNCH

The $19 billion New Zealand Superannuation Fund performed strongly in February, gaining 3 per cent over the month and taking financial year-to-date return to 22.5 per cent.

Stock Takes can report that the fund's chief executive, Adrian Orr, this week took time out to reward himself for the performance with a bang up lunch - at McDonald's.