KEY POINTS:
Heading into the end of what has been an eventful week, Bank of New Zealand's still fresh chief executive Cameron Clyne was yesterday appointed to the top job at parent National Australia Bank.
Forty-year-old Clyne has only been with NAB for about four years and with BNZ since
the start of last year.
His appointment to replace Scotsman John Stewart comes shortly after NAB fessed up to a A$830 million ($1.07 billion) more in sub-prime related write-downs.
NAB is denying that the write-down and Stewart's departure are linked.
Clyne takes over at NAB with Australia's banking sector going through what looks like its rockiest patch since the early nineties.
NAB shares closed yesterday down 44c at A$25.02c.
Just a few days before NAB's announcement, ANZ Banking Group disclosed A$1.2 billion in charges for bad debts including a trebling in bad debt charges in New Zealand.
Shortly after it became apparent that the sub-prime problem was something more than a speedbump, and banks in the US and Europe started fessing up to big losses, Stock Takes began asking around our big Aussie-owned banks whether they had exposure.
The responses from BNZ and NAB were revealing, if only to show how unrevealing our big banks tend to be.
NAB's initial answer to the question was "we have no exposure".
Then it came out that NAB, ANZ, Commonwealth Bank of Australia and Westpac were all part of a worldwide syndicate of banks that advanced US$11.5 billion ($15.7 billion) to embattled US lender Countrywide last year.
The response from NAB then was "we have no direct exposure".
Turns out NAB's writedown last week was on its sizeable chunk of collateralised debt obligations, the US mortgage-backed securities at the very heart of the sub-prime debacle.
Even this week, a BNZ spokeswoman was attempting to argue these securities didn't necessarily constitute "direct exposure" to sub-prime.
Yeah, right.
SAFE? PROBABLY
It will come as no surprise to many readers that we in the media sometimes play up the drama of a situation in order to attract the audience's attention.
But when it comes to the banking and finance sector, we have a duty to behave in a particularly responsible manner, because these industries rely on the confidence of investors and customers.
Given what has taken in place in the US where a number of banks have now failed, many of our readers are clearly nervous about the safety of their savings.
The consensus of commentators interviewed for a Business Herald story a few months ago which asked the question "are our banks safe?" was, "yes, pretty safe".
Still the piece generated a number of responses from readers concerned we were portending the collapse of one or more of the big Australian banks.
In the light of ANZ and NAB's write downs, ratings agency Standard & Poor's yesterday published a report pursuing a similar theme, titled Are The Australian Major Banks in Trouble?
On the plus side, S&P said it did not expect Australia to suffer a repeat of the 1990-1991 recession which did in fact claim one or two smaller banks and, apparently, almost one big one.
Apart from the credit crisis related increase in the cost of funds, a factor on the negative side was the Australian banks' "exposure to the New Zealand economy which is showing recessionary signs".
S&P expects Australian banks' overall level of bad debt charges to keep on rising, but to remain short of 1990-91 levels, while profits will clearly not be growing at the dizzying rates they did during the last half decade.
Going back to the original question and adding another pertinent but somewhat long-winded one: Are our banks' safe? Once again, yes, they look that way, Standard & Poor's say so.
Will they continue to grow profits at rates 15 to 20 per cent per year in a market where the wider economy is growing at considerably less than a fifth of that rate? No.
The big Aussie banks have had a fantastic run over the past half decade or so, and so have their shareholders.
Nothing that good can last forever. Their profits look likely to go from stupendous to either slightly more or slightly less stupendous. Their shares, however are a different story.
STAR TURNS
The directors of Five Star Finance will be in court on Monday. Like Bridgecorp's Rod Petricevic and Rob Roest, they are facing charges brought by the Companies Office relating to the quality of information contained in their prospectus.
As previously reported, those facing charges are Marcus MacDonald, Anthony Bowden and Nicholas Kirk. However Stock Takes understands there will be an additional defendant, Five Star executive Neal Williams.
Williams was not an actual director but is regarded as a de facto director for his role as principal officer or promoter of Five Star's offer under the Securities Act.
Stock Takes understands the Companies Office hadn't named Williams previously as they'd had difficulties in tracking him down to serve him with court documents.
If convicted, Williams and his colleagues could face a maximum fine of up to $300,000.
SWEET SMELLING BLIS
Oral products company Blis Technologies will make the blarney smell sweeter in Ireland with a new distribution agreement for the Emerald Isle.
The Dunedin-based company makes BLIS K12 - an oral probiotic to prevent upper airway infection and treat chronic bad breath.
Chief executive Barry Richardson says the agreement with The Whelehan Group will cover the entire retail product range currently sold in New Zealand. A phased rollout of all products to Irish pharmacies is expected, with the distributor servicing more than 1300 retail accounts.
The agreement also has the provision for future expansion into the UK.
Meanwhile, the company entered into a share subscription agreement with Dunedin-based investment company, and new shareholder, Edinburgh Securities.
More than 7 million shares will be placed at 7.125c each - equivalent to a total value of $500,000 and 4.88 per cent of all shares. Edinburgh Securities managing director Tony Offen says he anticipates the shares will eventually be held by a joint venture with Sinclair Long Term Holdings - a company associated with former University of Otago Chancellor Eion Edgar.
Edinburgh has also been given the right, subject to shareholder and regulatory approval, to increase its holding to 19.99 per cent by March 31, 2009.
The $500,000 raised will be used to expand the product range and pursue commercialisation.
Blis posted an operating loss for the year ending March 31 of $617,000, down from $964,000 the previous year and increased revenue by 28 per cent to $878,000.
Blis shares closed up 1c yesterday at 8c.
PGG ADDS ANOTHER URUGUAL BUY TO SOUTH AMERICAN STABLE
Rural services company PGG Wrightson is still on the acquisition path in South America. This week it announced the purchase of a 51 per cent stake in a Uruguayan animal health and rural supplies business, Veterinaria Lasplaces.
The business has a network of eight stores and 45 staff in the south of Uruguay, selling animal health and rural supplies products.
Wrightson's managing director Tim Miles said the business added to other PGG Wrightson acquisitions in Argentina and Uruguay.
Veterinaria Lasplaces would boost profits by 15 per cent in Uruguay for Wrightson, which now has 400 staff in South America, Miles said.
Meanwhile, in a report written before the latest Uruguayan buy, Goldman Sachs JBWere analysts have taken a look at the company's various divisions and assessed its outlook for the remainder of 2008 and into 2009.
They've confirmed a net profit forecast for 2008 at $70.4 million and have adjusted the 2009 net profit outlook up 19 per cent. That is based on the strong growth of the finance division (20 per cent loan book growth in 2008), a return to normal climatic conditions for the Australian seeds business and improving beef and sheep meat prices.
They've also shifted PGG from a sell to a hold recommendation, with a 12-month target price of $2.75 - as opposed to yesterday's close of $2.68.
Adding to the upside would be the completion of plans for a merger with meat processing company Silver Fern Farms (formerly PPCS). The deal has the potential to add between 67c and $1.37 to PGG's valuation, the analysts say.
That's based on the merged entity realising the projected synergies of $60 million to $110 million a year.
