Friday, March 6, 2015

Fund boss says bank pressure on business to switch default superannuation funds is widespread

The head of an industry superannuation fund says the unlawful practice of banks using special inducements to win default superannuation accounts from business is widespread.

Andrew Proebstl, chief executive of LegalSuper, says employers who take inducements from banks in return for switching a fund should be forced to disclose any special deals given that the compulsory superannuation of their staff is exposed.

Earlier this week, AM reported that businesses are regularly offered lower interest rates, banks fees, corporate hospitality and Ipads to switch to a bank-run default superannuation fund which manages the 9.25 percent employer contribution.

Mr Proebstl, who oversees the management of compulsory superannuation for 40 percent of the legal profession, says some employers succumb to the pressure to ensure that don't miss out on business opportunities with banks and insurance companies.

"It is fairly predominant and there are employers who may have commercial business that they conduct with particular financial institutions that offer superannuation funds. They make the decision that by choosing that financial institution's default fund, they may more favourably position themselves to have commercial dealing with that financial institution," Mr Proebst said.

However, Mr Proebstl said employers had a responsibility to disclose any special deals with banks to staff to avoid real or perceived conflicts of interest.

"Essentially the superannuation savings involved are the savings of the employees, they're not an asset of the employer in any way. The employer would need to be very careful if they were in these sort of circumstances, that they had due process around their selection and decision making processes," Mr Proebstl said.

"If there are circumstances where there is even the smallest potential for some form of conflict of interest, an employer should be obliged to disclose the nature of any commercial arrangement or relationship they have with a super fund they're doing business with."

Mr Proebstl said while employees have a right to know how their superannuation is being managed, they might not be comfortable challenging the decision of their employer to appoint a particular default superannuation fund.

"They basically prefer to have harmony with their employer and would prefer to not do something that might be interpreted by an employer as questioning the decision they've taken," Mr Proebstl said.

The banking regulator APRA and the corporate watchdog ASIC are investigating the claims made by Industry Super Australia in a survey of small and medium businesses.

But Mr Proebstl agrees that while regulators need to enforce the law, the methods used by banks and insurance companies could make the allegations of unlawful activity difficult to prove.

"I think one of the challenges is that many of the dealings are very translucent so it's very difficult to pin particular instances of where this has happened," Mr Proebstl said.

"Ultimately, it really can only be addressed by an increase in disclosure requirements around these arrangements so that members can be fully informed."

Thursday, March 5, 2015

Aldi posing real long term threat to Coles and Woolworths, Moody's warns

The rise of the cut-price supermarket chain Aldi is posing a long term challenge to to the traditional retail giants of Woolworth and Coles, according to credit ratings agency Moody's.

While Moody's says Aldi's penetration into the supermarket sector has been at the expense of independent retailers and Metcash IGA, the habits of traditional grocery shoppers are changing.

Moody's vice president and senior analyst Ian Chitterer says the "increasing acceptance of Australian consumers" and Aldi's "aggressive expansion plans" are a long term threat to the duopoly of Woolworths and Coles.

"In such an environment and based on international experience with the growth of discounters, we expect the market shares and margins of Woolworths and Coles to come under pressure over time," Mr Chitterer said in a note to investors.

But Mr Chitterer signalled the rise of Aldi would be gradual and that the Woolworths and Coles dominance was not in immediate danger of being toppled.

"It is important to note that the credit quality of the Big Two - which together account for 60% of Australia's grocery market by value - is supported by strong margins, healthy cash flows and ongoing cost reductions," Mr Chitterer says.

"Accordingly, we do not expect their credit quality to be materially impacted by competition from Aldi over the next 12-18 months".

Aldi's credit status is unrated by Moody's while Coles and Woolworths are both rated as A3 stable.

The long term reality check for Woolworths and Coles comes in a Moody's report released today on the challenges for the two supermarket giants.

The report says that since launching in Australia in 2001, Aldi's has opened 360 stories and now has an 8% share of Australia's grocery market with sales reaching more than $5 billion in 2014.

Moody's now forecasts that Aldi's stores will grow 5 to 6% per annum over the next five years which is double its expectations for Woolworths and Coles.

Just last week as it surprised the market by downgrading its full year profit forecast, Woolworths chief executive Grant O'Brien said the retailer is working to counter the competition and that customers are shopping around for bargains more than ever.

"They've certainly been more value conscious than they've been and that's a continuation of the trend we've been seeing," Mr O'Brien told analysts.

"So smaller baskets more often and that's aligned with modern busy lifestyles."

No rubber stamp from ACCC on postage price increase; regulator to consider Australian Post universal service obligations

The Australian Competition & Consumer Commission says it could take six to nine months to consider Australia Post's plans to increase the cost of a basic postage stamp.

The ACCC chairman Rod Sims told AM the regulator will need to undertake wide consultation to determine the fairness of increasing the stamp price from 70 cents to one dollar.

"The tricky bit is the cost allocation. Usually the cost systems that companies have don't provide the sort of cost allocation. So we need to understand what the efficent cost of a standard letter service is," Mr Sims said.

"Consumers have a right to a particular service at a price that's fair and reasonable so we need to assess what that fair and reasonable price is.

"We'll need to consult with particular users to get their input as well. These things always take time."

Mr Sims said the regulator is yet to formally hear from Australia Post since federal cabinet approved the proposed reforms earlier this week, but confirmed informal discussions had recently taken place with Australia Post chief executive Ahmed Fahour.

Australia Post wants to implement wide reforms to it's business that would include a two-speed postage service for its loss making letter deliveries business so it can focus on the lucrative opportunities in freigh and parcel deliveries.

The ACCC will also examine Australia Post's universal service obligations part of the review given a charter to provide a postal service at an affordable price that meets social and commercial needs of the community.

"Of course, technology has changed but you've got to look after those people who, for one reason or another, whether they be businesses or households still want to send letters. So there is a clear case for having a regulated price on that standard service," Mr Sims said.

"All part of the logic of having the regular service must meet certain universal service obligations and having to work out the efficient costs of that versus the premium service is what we'll be wrestling with."

Mr Sims said the ACCC would examine the proposed postage stamp increase in the same way it consider increases for other utilities like gas, electricity and water.

"I think you just can't take that service away. You've got to keep providing it, certainly for the foreseeable future. The question is what price people should pay.  But I think having that universal obligation makes a lot of sense."

Thursday, February 26, 2015

Qantas back in the black after $2.8 billion full year loss - but Alan Joyce warns of more pain to come

Qantas has returned to profit after a painful transformation program that will ultimately cut five thousand jobs and strip two billion dollars in costs from the airline.

The half year after tax profit turnaround of $203 million follows a $2.8 billion annual loss announced last August.

Despite the good news, Qantas boss Alan Joyce says the pain isn't over yet and once again he's rejected suggestions that it's time for him to quit.

Thursday, January 15, 2015

Surprise fall in official jobless rate casts doubt on rate cut talk; Australian dollar surges

The ABC's Peter Ryan analyses the unexpected fall in the official jobless rate. According to the ABS, the estimate for December unemployment fell to 6.1 percent with 37,400 new full time jobs created. The surprise outcome saw the Australian dollar surge and puts new doubts on predictions that the Reserve Bank will cut the cash rate this year.

ACCC boss says regional consumers are probably right to feel gouged on petrol prices

Petrol prices - two different worlds in Australia

The competition watchdog has outlined how it hopes to unravel the mystery of volatile petrol prices and uncover why it's cheaper to fill up in the city than in regional Australia.

But the chairman of the Australian Competition & Consumer Commission Rod Sims says regional consumers are probably right to feel they're being gouged by petrol retailers.

Listen to my interview with Rod Sims broadcast this morning on the ABC's "AM" program.

"I think you'd have to say the presumption is that there's a bit of gouging going on in the sense that the price falls internationally aren't being properly passed on into the market place." Mr Sims told AM.

"We need to get more evidence on that, but that's how it looks at first glance."

The ACCC is under pressure to come up with answers after a recent directive from the Small Business Minister Bruce Billson to determine why people in regional Australia paid an additional 17 cents per litre for petrol in December despite a dramatic fall in the price of crude oil.

Back in July, the gap between capital city and regional prices was narrower at an average 5.7 cents per litre.

The ACCC says that every additional cent per litre costs Australian consumers close to $200 million every year.

While the ACCC is yet to prove anti-competitive activity that breaks the law, Mr Sims is looking for behaviour that might "out" petrol retailers for inappropriate community behaviour.

"Now what we're likely to find is people making a lot of profit. We can shine a light on that and it could embarrass some people into lower prices," Mr Sims told AM.

"Just for consumers being more empowered with more information about what the  profit margins are will I think drive more change and behaviour."

Although petrol prices are not regulated in Australia, the ACCC is now equipped with compulsory information gathering powers which requires companies and retailers to provide information at every level of the supply chain.

The ACCC will produce at least eight reports in 2015 which will examine petrol price movements and what drives volatility.

The first report, covering all capital cities and 180 regional locations,  is due next month and will look at international refined prices, terminal gate prices and the exchange rate.

The price of West Texas Intermediate Crude, the global benchmark, rose today by amost six percent to US$48.48 a barrel.

However prices have tumbled by nearly 60 percent since June as strong global supply outstrips waning demand.

Thursday, December 4, 2014

Weak economic growth puts interest rate cut on RBA agenda

So what do those surprisingly weak economic growth numbers which hit yesterday mean for interest rates?

And how worried will the Reserve Bank be that about the ultimate risk of a recession unless it steps in with emergency stimulus?

They're big unanswered questions and why some economists are now changing their forecasts to a interest rate cut in the New Year.

Listen to my analysis from this morning's edition of "AM".

The Reserve Bank has held the cash rate steady at the historic low of 2.5 percent since August last year.

The mantra - repeated on Tuesday when rates were left unchanged - has been about "a period of stability" as the economy adjusts from the fast unwinding mining investment boom.

The RBA has been taking what it sees as the most "prudent" course, despite calls for a rates hike to cool hot property investment in Sydney and Melbourne and the threat of a dangerous "bubble".

That strategy has been backed by third quarter growth slower than the most pessimistic forecasts and that with a collapse in commodity prices after the boom and a slowing in capital spending, Australia is in the midst of an "income recession".

The RBA board takes January off and meets on the first Tuesday of February - and the possibility of a rate cut to stimulate spending and to bring the dollar down is set to be high on the agenda.

The Australian dollar dived when the GDP data hit yesterday and this morning is hovering around 84 US cents on expectations of a rate cut in 2015.

Even before the weak GDP data, Deutsche Bank changed its rates forecast - down half a percentage point in two 25 basis point steps - with unemployment set to rise, inflation under control and no sign yet of a housing bubble.

Late yesterday, Goldman Sachs mirrored that prediction and is tipping the RBA will start cutting rates in March with followup in August taking the cash rate to a fresh historic low of two percent.

That could stoke further housing investment but stemming damage to the broader economy will be the RBA's main aim if the Board decides to blink and cut rates.

And unlike other central banks like the US Federal Reserve and the European Central Bank which have rates near zero, Australia has enough powder dry to press the rate cut button if needed.

The latest retail sales figures for October due this morning could add to concerns about the strength of the economy.

But forecasts are looking bleak just a few weeks before Christmas.

The consensus according to a Reuters survey is showing little or no growth - a rare zero percent outcome - with some economists are tipping a negative result.

That's more evidence that the cautious consumer is becoming a grinch, watching every penny and not spending despite Joe Hockey's call to spend up for Santa.

And a rate cut might just be the medicine or a temporary hit to get Australians spending.