Wingate Group Managing Director, Farrel Meltzer, recently co-hosted a discussion with The Australian alongside Charles Goode AC, Chairman Emeritus, and Tony Burgess, Chairman, of Flagstaff Partners. The interview was held in the Wingate Offices in 101 Collins Street Melbourne, facilitated by The Australian’s Victorian Business Editor, Damon Kitney.
The discussion covered a broad range of topics impacting Australia’s business leaders in today’s COVID-19 business environment, resulting in a series of articles published.
Tony Burgess, Charles Goode and Farrel Meltzer
Damon Kitney, The Australian, 23 May 2020
One of the nation’s most senior business leaders, Charles Goode, has warned that the explosion of government intervention in society to deal with the coronavirus pandemic could lead to lower economic growth, a bigger welfare state and more left-wing political policymaking in the future.
The former ANZ and Woodside chairman also fears the role of the Reserve Bank could become increasingly politicised in the wake of the emergency action it has undertaken to respond to the pandemic crisis.
“We have wanted and accepted and needed much greater interference in our world,’’ Mr Goode said in a rare wide-ranging interview with The Weekend Australian in the offices of boutique corporate advisory group Flagstaff Partners, of which he is emeritus chairman.
“Sixty per cent of the working population works for the government or is supported by the government.
“It will be difficult for governments to withdraw this support. So I think we will have a greater government involvement in our society than previously. That may move the political needle to the left. That may lead to slower growth and a more welfarist society.
“I am reminded of that comment by Ronald Reagan, that he said of government: if it moves government taxes it, if it keeps on moving you regulate it. When it doesn’t move you subsidise it.
“There is not a lot of evidence in the history of governments withdrawing from territory once they have captured it.
“I think we will have a much more government-involved society.”
Mr Goode, who was joined in the interview by Flagstaff chairman Tony Burgess and Wingate founder and managing director Farrel Meltzer, said the RBA had moved from being a lender of last resort and the setter of interest rates to being a major player in the financial markets, after providing a $90bn funding facility to encourage banks to lend to business and intervening in the bond market.
“It is no longer talking about inflation-targeting as about assisting to reduce unemployment to stimulate the economy,’’ he said.
“A much wider ambit of comment is coming from the RBA.
“We are in danger of losing some of its independence and it becoming an arm of the political policy of the government.
Mr Goode, a director of investment company and major Liberal Party donor the Cormack Foundation, said he believed the pandemic had a greater impact than anything he could remember since World War II.
The crisis has led to levels of government intervention in the economy not seen since the post-war era, especially the government’s unprecedented JobKeeper and JobSeeker support packages.
Melbourne entrepreneur and philanthropist Alan Schwartz this week questioned how Australia would have fared during the coronavirus crisis without strength in the government, the bureaucracy and the public health system.
“Government is always the solution, in crisis and in normal times — protecting us against misleading advertising and medical and pharmacological quackery, educating our children, building our roads, protecting the vulnerable and the weak,’’ he said, applauding the bipartisan investment in the nation’s public sector over many decades. “COVID-19 is just an extreme example that helps us see that markets and business, as powerful and useful as they are, cannot deal effectively with things that we need to do together as a community.
“When government is too small we have a problem; when government is too big we have a problem.”
Mr Burgess supported the war analogy to describe the current crisis, which has taken out a huge proportion of the productive capacity of the economy.
“It is accentuating a turning point. This is going to push further on the retreat from the global economic liberalisation we have experienced which has led to a lot of prosperity for 40 years. You can see it in the blame game — there is a lot of fracturing going on at the moment. That is a worry. These changes were happening anyway but there might be some acceleration or reinforcement of those changes,’’ he said.
Mr Meltzer said he was hopeful the societal changes that would flow from the unprecedented lockdown would become part of the “ongoing cycle of life”.
“We have had many crises through history. These challenges come and people are resilient, they bounce back and in the end we become stronger as a society and an economy. It is part of a journey that is going to make the world a better place,’’ he said.
“People will be forced to reflect and become more mindful and appreciative of the simple things going forward.”
Immigration in Australia is forecast to fall by 85 per cent next year due to the coronavirus crisis.
Labor home affairs spokeswoman Kristina Keneally earlier this month linked rising unemployment and weak wages growth to “the shape and size of our (migrant) intake”.
But Mr Meltzer said he was wary of any knee-jerk reactions by policymakers to cut immigration.
“Any extreme swinging of the pendulum driven by unnecessary fear or political reaction or expedience can only be bad for the country in the long run,’’ he said.
The Morrison government’s pursuit of an independent international inquiry into the origins of COVID-19 has also renewed tensions in Australia’s relationship with China, which has prompted the Chinese to impose tariffs on Australian barley.
Mr Goode said Australia would continue to have greater tensions with China.
“China is changing under President Xi Jinping. There is less freedom than there was five years ago. It is a more difficult animal to deal with than it was. I think the US will have more tensions with China. It will be a big factor in the upcoming presidential election,’’ he said.
“This crisis has shown we have become too dependent on China for tourism and education. China works by different rules to us and they are prepared to threaten trade with us if we make statements that don’t agree with their worldwide interests. I think we will be more cautious on Chinese acquisitions in FIRB and we will seek to diversify some of our industries.”
The World Health Assembly this week agreed to an independent inquiry into the source and handling of the coronavirus outbreak, but the Chinese claimed it was different from the politically motivated inquiry sought by Australia.
Mr Goode said it was in the world’s interests that there be greater understanding of how the virus originated and spread. “I would like to see (Prime Minister Morrison) call for a scientific study into not only the origins of coronavirus, but how it spread, and what were the best approaches to containing that. This could be organised by the UN or the WHO and could comprise scientists around the world, including from China,’’ he said. “Instead of being an investigation, it should be a scientific study which may be more likely to get Chinese support and be less political.”
Mr Burgess said there was good reason to be worried about the current clash with China.
“We have to be mindful of our own best interests in how we conduct ourselves. China is 33 per cent of our exports. You would be unwise to gratuitously do anything to undermine that trading relationship,’’ he said. “We have probably allowed things unnecessarily to get out of balance.”
Damon Kitney, The Australian, 24 May 2020
Wingate founder Farrel Meltzer says he has grave concerns about the V-shaped market reaction in response to the coronavirus pandemic, but says the associated deflation of asset prices will provide opportunities for astute investors.
“We have had a V-shaped market reaction and that is quite worrying (compared to the economic path). I believe the extreme bounce we have seen in equities is really not justified by what is economically coming,’’ he said.
“We should not be surprised if there are surprises to the downside in the economic psyche. We should be eyes wide open knowing it certainly won’t be all roses in the next few months and years.”
Mr Meltzer said he had not seen any stress in Wingate’s development portfolio and in the property market generally due to COVID-19, after the group was exposed to the collapse of the Ralan Group last year.
“We aren’t seeing any distress at all. It is a continuation of normal, albeit with some additional stress. We are not seeing prices drop. To our pleasant surprise, almost all of the resales in residential projects have settled through March and April,’’ he said.
“We had liquidity in place for a scenario where that would occur and it hasn’t occurred. But the impact is likely still coming. Those sales that have completed had finance from the banks and were locked in pre-COVID-19. But so far so good.”
He said in the lead-up to the coronavirus crisis there was substantial pressure on pricing across Wingate’s property, consumer and corporate divisions.
“There is (now) much more rational pricing emerging in the market. We … are keeping our powder dry,” he said.
Damon Kitney, The Australian, May 24
Former ANZ and Woodside chairman Charles Goode and one of the nation’s top investment bankers Tony Burgess, have called for company directors to be relieved of obligations to correct the earnings forecasts of stock broking analysts, which have become a “guessing game” amid the financial chaos wreaked by the coronavirus pandemic.
In the wake of last year’s successful class action against retailer Myer, where it was found to have misled the market in late 2014 with its disclosures, company boards are now required to disclose when internal forecasts vary by just 5 per cent from the consensus of analysts covering the stock.
In late April the Australian Securities Exchange confirmed it did not expect listed companies to announce information that “comprises matters of supposition or that is insufficiently definite to warrant disclosure in the wake of COVID-19”.
But Mr Goode and Mr Burgess said the guidance did not protect boards from their obligation to correct inaccurate market consensus forecasts.
“Now, with market consensus not being real, that obligation on company directors should be suspended,’’ Mr Goode, Flagstaff Partner’s emeritus chairman told The Australian in an interview in the group’s offices with Mr Burgess and Wingate founder Farrel Meltzer.
Mr Burgess said many directors were asking themselves, “where to now?”
“We might have withdrawn guidance, but we are bit worried there are forecasts sitting out that are stale, there that are miles away from where we are heading. Do we have a positive obligation to say something to correct the market?’’ he said.
“The problem we are finding at the moment, and this has been coming for a while, the economics of the broking industry have really deteriorated. There are substantially fewer sell side broking analysts. And far fewer experienced analysts. Therefore the quality of the analysis has deteriorated to the extent you can argue it is not a reliable measuring stick for the market’s earnings expectations.
“Now with COVID-19 companies have been withdrawing guidance, no analysts have been updating numbers because they don’t know. It is a guessing game.”
The position has been backed in recent public comments by AMP chairman David Murray, Wesfarmers chairman Michael Chaney and Qantas and Woodside chairman Richard Goyder.
The Australian Institute of Company Directors has argued the ASX’s guidance clarification last month did nothing to materially reduce the risk of class actions against boards in the current environment, a view supported by Mr Goode.
“It is an important point in this new era of class actions. Therefore the ASX should suspend it (the disclosure obligation on market consensus). Otherwise there is an unsatisfactory pathway for litigation that is unfair on companies,’’ he said.
“If the consensus is yesterday’s consensus, and you don’t know where you are, that is an unnecessary risk a board is facing against litigation.”
The AICD has proposed that the Corporations Act be amended so only the Australian Securities & Investments Commission can take action against listed companies or their directors in relation to earnings guidance or forward-looking statements about company performance made in the context of the COVID-19 pandemic.
Directors were given some relief last week when Treasurer Josh Frydenberg said litigation funders would be brought under the Corporations Act to slow the class action industry and provide additional protections for company directors, following a threefold increase in the number of class action lawsuits over a decade.
In the interview Mr Burgess also expressed new concerns about the billions of dollars of capital raisings that have taken place to repair and secure corporate balance sheets in response to the coronavirus pandemic.
At the end of March the ASIC and the ASX announced temporary emergency capital raising relief to help facilitate capital raisings. It allows listed companies to issue 25 per cent of new shares — up from the previous threshold of 15 per cent — provided that they make an entitlement offer or share purchase plan as a follow-on to the placement at the same or lower price.
In the SPP’s a retail shareholder will be able to invest up to $30,000, at the same price as in the institutional placement.
Since there have been billions of dollars in fresh capital raised.
But Mr Burgess said because most of the issues had been placements to institutions or non renounceable rights issues to ensure they could be done as quickly as possible to minimise risk, some investors were still being unfairly treated.
“There are a lot of investors — high net worth or not for profits or foundations — who are in that middle zone. They might own $500,000 to $1m or so of stock. They are not big enough to participate in the placement. Yet the SPP is meaningless to them. So this ends up getting diluted. That is a problem,’’ he said.
When Lendlease raised $950m in an institutional placement last month, it instructed its brokers to go a level lower on the register.
“They allowed this middle tier to bid into the book. That was a very good initiative. Where placements occur, the SPP together with the placement can look after small retail but you have a lot of the register that miss out. A non renounceable issue is problematic for those shareholders who cannot follow their money,’’ Mr Burgess said.