Quick news: NZ$, Distribution network sale, Immigration and ANZ bailouts

Tuesday, April 29 2008:

New Zealand exchange rate to keep plunging

It looks like the NZ dollar is to keep falling. And the current falls are only caused by the omission of the word 'significant' in Bollard's speech. What is going to happen when he actually stops tightening and releases his interest rate grip? The NZ dollar will plunge. This is a result of the NZ dollar being over valued as a result of the carry trade (borrowing in low interest rate currencies, such as the Yen, and lending in high interest rate currencies, of which the NZ dollar is the first world's highest); the Japanese housewives and Belgian dentists don't have a large risk appetite and they will lose a lot if the currency falls, so they get out of their NZ dollar investments which in turn precipitates further declines of the NZ dollar.

Not that a lower exchange rate is of itself a bad thing, it will help exporters. But inflation will skyrocket (caused by more expensive imported goods), and I am picking the speed at which it falls will cause a mini crises of confidence.

Vector sale of Wellington electricity distribution network

Apparently the sale of the Wellington electricity distribution network will go ahead:

"Dr Cullen's office said yesterday that his advice was that the network was not on sensitive land, so it did not have to pass many of the hurdles facing the Auckland Airport sale."

Why is it not on sensitive land? What makes the parcel of land that Auckland Airport is on more 'sensitive' then every piece of land the various parts of the Wellington network are on? The new regulations would be infinitely better, although still not good, if investors knew in advance what was going to be affected (i.e. stopped) by the new regulations. The article continues:

"The Hong Kong buyers of the network will instead be judged on whether they have experience and acumen relevant to the asset, whether they are of good character and have a financial commitment to the asset."

This seems sensible right? That is because it is. If you are going to have a restriction on foreign investors (which I disagree with), this is criteria that should be used to measure the foreign investor against; the measure should not be related to what the asset is. And where do these criteria come from? From the Overseas Investment regime that was in place before Cullen changed the rules.

A few other points:

• Helen said she had no particular view on the electricity network, but noted that it had been in foreign ownership twice before. Can I just ask how this is different to AIAL which is already 35% owned by foreigners? And why should any of it matter?
• NZ First said it was a pity that another asset was passing from local hands into foreign ownership. Once again, why does it matter? Woolerton (nor Winnie) have not given any reason why it should matter. And, to jump on the dredging up the past bandwagon, Winston sold AIAL in the first place into, among others, foreign ownership. As for the worry that the new owners will bring in competing workers from China under the recent Free Trade Agreement, I doubt it, the workers can only come in where NZ is lacking in skills.
• And as for the Greens saying prices will rise. They won't. The distribution network is highly highly regulated, particularly when it comes to prices. And do the Greens think that Vector were operating without debt? The very reason they are selling the network is to reduce debt. Prices will not rise.
• Finally, also on the Greens, saying that the NZ Super Fund should buy it, what rational economic explanation can they give for the NZ Super Fund to do this? If all of its investments were made on the basis of preventing local assets falling into foreign hands I certainly would not want to grow old in NZ. Fortunately I probably won't.

NZ Politics: Immigration scandal

National is calling for the people who authorised the preferential immigration treatment to be exposed. Now usually I would say that the people within a ministry or government department are just doing their jobs and should suffer for bad direction caused by their superiors (the ministers and department heads). But if, as stated in the independent report (produced by former Justice Secretary David Oughton; a quick Google search turned up nothing of note), the immigration head was completely blameless, then those who are to blame should be outed or lose their jobs. It is situations like this that undermine the confidence in the immigration service and half arsed solutions (like an independent report that clears the department head but doesn't reveal the culprits) do not do anything to restore it.

ANZ Bailing out failing Australian stock lenders

ANZ is suffering a reputational hammering due to its handling of the Opes Prime affair (see my previous posts here, here, here and here). It has it seems taken a different tack with the other stock lending brokers whose business models are failing (see this post for more on stock lending in Opes Prime). Tricom and now Chimaera Capital have been bailed out by ANZ injecting equity into them rather then enforcing ANZ's securities or selling the shares ANZ has been lent.

Now I obviously don't know what ANZ knows about Chimaera, but is it really worth buying into Chimaera to avoid the trouble its been having with Opes? The damage has been done and the particular business model that Opes and Chimaera have been running is flawed, ANZ should enforce its security and sell the share it has and let Chimaera sink.

Opes Prime: Singes Singapore, collapsing charges and liable for litigation

Some recent updates on the Opes Prime saga:

Opes Prime collapse hits Singapore

The Opes Prime collapse has spread overseas causing a mini scandal in the Singapore markets. Merrill Lynch repossessed (hopefully under something better then its faulty Australian charge, see below) shares that were being used to take over a Singaporean company. The shares were subject to a Opes Prime infamous stock lending arrangement and on Merrill's repossession the takeover collapsed, as did the share price from 22c to 7c.

Merrill Lynch's invalid charge

Merrill Lynch, which has relied on a charge over Opes Prime assets (these include the shares purchased by the Opes clients as Opes ran what is called a 'stocklending' arrangement with its clients, see below), failed to register its charge in time (it needs to be done in 45 days of the charge being given) as well as not registering it until after Opes went into administration (and it is therefore voidable) and the charge is therefore ineffective.

I would certainly hate to be the junior in the finance team of what ever law firm Merrill Lynch uses. It is a $600 million fuck up. A career ending move (and scarily easy to do).

ANZ is lucky and does not need to rely on its charge (which was only registered the day before Opes's administration) for it to sell most of the Opes securities it already has, as ANZ had a stock lending arrangement with Opes itself (like what Opes had with its clients). ANZ does need it for its further 90 odd million loan it made to Opes just before it collapsed, but its charge will be effective for this loan anyway.

A stock lending arrangement involves:

1. A holder of shares (for example Opes) sells shares to another party (for example ANZ) for money (or something else like different shares);
2. ANZ has an obligation to sell equivalent shares back to Opes and Opes to pay the money back (less ANZ's margin);
3. While ANZ holds the shares it is the legal and beneficial owner of the shares and can deal with them as it likes including selling them and doesn't need to return them to Opes if Opes defaults (which it did here).

Opes had stocklending arrangements with most (but not all, these ones won the injunction against ANZ preventing them from selling their shares) of its clients, which is why Opes clients suddenly found ANZ and Merrill selling their shares even though they were not facing margin calls and were not in default themselves.

Opes creditors will pay for any litigation twice

Opes clients will be lucky to get the forecast 30c in the dollar, especially if they carry through with all the litigation against ANZ and Merrill that various class action supporters (those with vested interest in seeing a class action proceed) are pushing for.

ANZ, under its security, is entitled to all costs defending any actions related to the security (which the class actions will be) and the administration will need to continue while the litigation continues, increasing administration costs. These costs will quickly eat into the 30c in the dollar that the unsecured creditors have been promised.

Even if the unsecured creditors win, they won't necessarily get any more as ANZ will then enter the pool of unsecured creditors diluting their stake (and ANZ certainly will not lose on all points that the creditors will take against it).

Quick news: Vector sold (for now), Biofuels, UBS and Subprime losses

I have decided to quickly post the links I collect each day, including any little comments I have, on the topics I want to cover but do not have the time or inclination to do a major post that day. So beginning today, I have 'Quick news'.

April 28 2008:

Vector sells Wellington network

• Vector sells the Wellington electricity network to a Hong Kong company, with apparent links to the Chinese government. This couldn't have come at a better time to embarrass the NZ government, people are still angry over AIAL and what ever the decision (and process the government takes to reach that decision) will be under intense scrutiny. To my mind at least an electricity distribution network, especially the one distributing electricity to the nation's capital, is far more nationally important and strategic then an airport. An electricity network is a true monopoly, the people in that area cannot turn to another distribution network for their power, if it fails or is mismanaged, the people of Wellington will have nowhere to turn. AIAL on the other hand, may be NZ's most important airport, but other ones do exist. As for sensitive land, no doubt parts of Vector's network exist on such land (although the land is most likely leased rather than owned). Labour are in quite a quandary, do they stick to their new principle and veto the Vector sale? or do they admit the rejection of the CPP AIAL bid was just a political stunt to appeal to those jealous to the 'rich pricks' who can afford to invest in an airport.

Biofuels

• This article discusses biofuels and the need to abolish quotas. Stopping biofuels won't fix food prices like some think, but allowing free trade in biofuels will allow countries like Brazil who are converting ex-pasture into sugar cane for biofuels to produce them cheaper and without the deforestation that the current distorted production (from tariffs and subsidies) costs and causes.

UBS and Subprime losses

• UBS released its report to shareholders on its write downs from subprime mortgage losses. Essentially UBS stopped looking beyond the AAA ratings on its bonds through to the loans they were packaging behind them and did not examine the loans as they normally would have in the normal lending situation. As those loans comprised subprime loans, UBS was hit hard when the crises started late last year. UBS should be commended for releasing such a frank report into the reasons behind its own loses. This is essentially a lesson in maintaining proper standards when it comes to investing. In summary: No matter who you are, massive bank or retail investor, you should always understand what you are investing in and what risks you are taking BEFORE you invest.

The week in review (or at least topics I had intended to rant on)

Here are some links I intended to post on during the past week but was unable to due to being really freaking busy.

New Zealand

• The Treasury papers advising the government on the AIAL bid: I had intended to do a major post on this, but the stupidness of the government in ignoring the advice has been covered elsewhere and I covered off the consequences of interfering with free investment in a previous post.

• This article on the Australian first home buyers grant should serve as a warning for NZ, particularly as housing affordability seems to be a hot button topic this year (I am picking at least one party will bring a policy like the Australian first home grant in). A nice quote:

"Any time you divert taxpayer funds to encourage people to buy, it is counter-productive to improving affordability. Essentially what was intended to improve affordability did the exact opposite. And now we're all paying the price."

Global economy

• This article discusses the new challenges facing the global economy. Particularly interesting is the comment that political consensus and a liberal and global economy may be challenged due to the fact that developing countries are starting to consume like developed countries.

Miscellaneous

• Time-lapse video of a man who was trapped in a lift for 41 hours. I almost went a little insane just watching it. No one knows what went wrong, but there was clearly someone working on the other 3 lifts during his ordeal. I really really hope this never ever happens to me (and I do have to traverse a few lifts each day from my apartment to my office and back).

• George W. Bush on Deal or No Deal: Some quotes from Dubya:
  • "I'm thrilled to be anywhere with high ratings these days";
  • "how would you like to host a three trillion dollar deal or no deal",

I guess it would be funny were he not the Leader of the Free World.

• It turns out executions are not "cruel and unusual punishment" in the US. Well we already knew that in the US executions were run of the mill. But I had hoped for a better response then just "the possibility that states may be obliged to adopt a more humane method" to lethal injection.

Australia v NZ: Foreign investment and national interest

This isn't really an 'Australia v NZ' post, but this does follow on from a post on the foreign investment issue I have made before.

This article reports that the Australian government has very politely, quietly and discreetly 'suggested' that a bunch of Chinese companies that have lodged applications to investment in Australian resource companies withdrawal their applications, which they have done.

This is not an outright rejection of Chinese foreign investment in Australia but is to give the new Rudd government more time to consider 'the issue of national interest in terms of ownership of the Australian resources industry'.

Now I do not agree that national interest should determine who can and who cannot invest in an asset, in fact I fail to see how it is even in a nations interest who does or does not invest. It arguably benefits the people within a state if all successful business within that state (I use 'state' as it is a more geographically and politically precise term then 'nation') are owned by them, but what if they cannot afford to own and grow their businesses (like New Zealand) or, shocking as it might be, do not want to (as there may be more successful business overseas)? And who invests in the poorly performing or risky domestic businesses? Are these open to foreigners? What happens if the fortunes change?

Also, does the government of the state force those within its borders to invest in local business? And if not, why not? It would be in the national interest.

Why not throw away the facade of economic liberty and nationalise all domestic productive business and force everyone to invest in those businesses by collectivising the results of personal production to put back into those businesses? There does exist a precedent... Its been done before in the USSR and Mao's China.

It really should not matter, to the business or the 'national interest', where the investment money is coming from. If there is a willing seller and a willing buyer, the transaction should benefit both parties, the business and the state. I shall explain why:

• Seller: is paid the market value for their investment in the business, they can use this payment to invest else where (either domestically or internationally, both which will benefit the seller and state);
• Buyer: gains an investment in the business, and, leading up to the transaction, did not have expend what can be very significant money (due diligence, bidding, complying with securities legislation, etc) preparing for the transaction that may be lost through an uncertain regulatory / political risk (caused by uncertain investment rules, such as 'national interest' tests);
• The Business: benefits from having a stable price for its investments not affected by market uncertainty and will likely find it easier to raise further money at a better price;
• The State: benefits from having foreign investment in that its businesses can be appropriately funded and therefore grow and it frees up domestic resources to be invested in other domestic business or internationally (which will mean foreign income comes back).

Now, why having restrictions on investment (what ever the restrictions are) is bad for all these parties:

• Seller: will not get a true market price (read 'won't get as much', just look at AIAL's share price before and after the NZ government's 'strategic asset' intervention) as the price people are willing to pay is distorted by the restrictions on investment. Seller may also have a much more illiquid investment as the pool of purchaser's is reduced and others who can purchase despite the restrictions may find the investment less desirable as a result of the restrictions;
• Buyer: obviously cannot purchase if restricted and must invest in a less desirable asset;
• Business: finds it's value distorted from the true market value due to artificial restrictions on investment in it. Business may find it harder (or at least more expensive) to raise funds, as it's value is lower;
• State: who creates the restrictions, will find its citizens stuck investing in a business that they cannot transfer and more significantly the state (or at least those poor citizens who have been stuck investing in the business) is now shouldering all the risk in the business where some of that risk would have been spread overseas (the politicians should remember that investment does comes with risk and they should accept the blame and political cost when a business fails that has been subject to a foreign investment restriction). Of course the State does receive the political benefit of being seen to 'protect' a domestic asset; a benefit that flows from those citizens who do not invest.

The only time that I can see a national interest restriction on foreign investment being appropriate is where the foreign entity has a nefarious plan. That is they are only investing in order to damage the business. But why restrict such an examination to foreign entities? Such a prohibition should apply to everyone (and arguably does though the general company law (in both Australia and NZ) relating to directors duties. A nefarious shareholder is not going to be able to ruin a business, as the directors, even the directors appointed by the nefarious shareholder, would have to breach their directors duties in order to do so).

It is this that presumably the Australian government wants to consider further. Do the Chinese have a nefarious plan to drive down resource prices (damaging the businesses they are investing in) in order to benefit China? If they do not, what possible national interest consideration could mean that they should be denied investment?

Some, including BHP, will no doubt argue that the Chinese are not trying to drive down resource prices but are trying to prevent the BHP / Rio Tinto merger for fear that a combined BHP / Rio will be too powerful. But what is wrong with that? Surely it is the Chinese's prerogative to purchase a company to prevent a merger (the purchased companies directors still have a duty to act in the companies best interests), just as it is the current owner's prerogative whether or not to sell to the Chinese. To stop the merger, the Chinese will have to pay a premium to what BHP are offering (Chinalco paid more for its Rio purchase then BHP is offering, by about 16%), which will send more money to the current shareholders, increasing the money they can use to invest elsewhere.

Fortunately, and unlike the NZ government, the Rudd government is taking the time to get things correct procedurally and ensuring the rules will be consistent across the foreign investment landscape. So while I may not agree with the idea of a 'national interest' restriction on investment, at least it will not create an uncertain investment environment with regulatory / political risk.

$5 Business Class: a lesson in Contract law

Irish Airline Aer Lingus mistakenly offered transatlantic return business class fares for 5 euros.

They certainly look silly but what are their legal obligations?

Aer Lingus said:

"It is a genuine mistake, a fundamental mistake on our part. We rectified it as quickly as we could. We have contacted the customers and given them the opportunity to re-book. To sell a business class flight for a fiver... that is a genuine mistake, people are going to know that there is something up. It is really a case of 'if it looks too good to be true, it probably is too good to be true'."

There is no doubt that the airline was mistaken by offering the fares (they usually go for 1775 euros each way, making the 5 euro fare a saving of 3545 euros), although it is not necessarily that obvious that it was a mistake to a customer, what with all the crazy promotional fares the airlines offer (many $1, I have seen a 1c).

The Irish Consumers' Association said:

"The offer was made, it was accepted by Aer Lingus. Consumers booked and paid to bind the contract."

There was a contract here, but it is not as simple as saying, they paid the contract has to be enforced. I checked out the terms and conditions on the Aer Lingus website to see what the contract would look like. Fortunately for Aer Lingus their terms do seem to allow them to cancel a reservation on notice to a customer (see clause 7.1), which they have given. I believe, and I am going on hazy reading the terms while waiting for my flight memories, that most airlines contain similar clauses.

If there was no clause in the terms and conditions allowing the airline to cancel the contract, Aer Lingus would have had to rely on the doctrine of mistake (see the infallible wikipedia article, it is a good general description at least). As it was a unilateral mistake (i.e. only Aer Lingus was mistaken as to the price, the customer knew accurately that the price was 5 euros) the contract would only be avoided if the customer was aware that Aer Lingus was mistaken (this is debatable as although the fares were low, very low fares are not unheard of) and was taking advantage of that mistake.

F&P: NZ abandoned

It seems that Fisher and Paykel has linked their moving of manufacturing overseas with the recently signed free trade deal. Although to be fair they have just said this is one of many factors that have influenced their decision.

I never thought I would say it, but I actually agree with what Cullen said in reply. The free trade agreement does not effect the manufacturing environment in New Zealand, especially for a global exporter like F&P (who are competing in a global environment with Chinese labour anyway). What has been hurting is the unfriendly business environment of New Zealand created by a high exchange rate (a contribution of monetary and fiscal policy) and high tax. I don't think it can be said loud enough that the FTA with China is not a cause (it is a good thing and is suffering enough bad publicity as it is).

It is unfortunate for the government that the F&P decision comes just after the FTA was signed. It makes perfect ammunition for NZ First and takes the gloss off the FTA, especially in the xenophobic attitude that seems to be effecting middle New Zealand currently.

Opes Prime: What transpired?

This article goes through the lead up to Opes Prime collapse and gives a good summary of why it fell over and what questions are still unanswered.

It is a little harsh on ANZ in my opinion, saying:

"Yet, knowing that Opes was dealing internally with highly questionable share transactions, knowing that its financial position was extremely precarious, and knowing that Opes has called in an insolvency specialist to examine its books, ANZ lent it $95 million."

To be fair to ANZ, although it probably did know all of this it most likely came to the conclusion that without further immediate assistance Opes was going to go under. ANZ had Deloitte in there and would have been closely following Opes from the time of its margin call and would have believed that with the extra loan to, and strict controls over, Opes it might trade through, this would be the best result for everyone (including ANZ).

It wasn't until after Opes collapsed that the more dodgy dealings would have become known to ANZ. At the stage it made the further loan of $95 million it was (according the public reporting) aware of margin calls not being made against some of Opes clients, but, almost perversely with the benefit of hindsight, this makes Opes position look slightly stronger. Opes was, to ANZ, in trouble but it had several clients it could make margin calls on, it would have looked like Opes was suffering a liquidity problem (i.e. not being able to pay its debts as they fall due) rather than a solvency problem (i.e. its liabilities exceeding its assets).

A far more serious issue then ANZ's last minute loan is raised in this article. This alleges that Opes was lending money to Tricom (another distressed, although not yet collapsed, finance company) in return for illiquid securities in full knowledge of ANZ and Merrill Lynch and the ASX in order to keep Tricom afloat.

Bernanke v the World: why the world has not delinked from the US

The Business Spectator has a slightly chilling article on the conflicting interests between the US and the rest of the world when it comes to inflation and a stable global economy.

Essentially it comes down to:

1. the US has to lower interest rates to increase availability of credit to keep house prices stable or increasing to stop the contagion in the structured financial markets spreading and therefore to avoid recession;
2. US monetary expansion (caused by lower US interest rates) drives up commodity prices (here is an explanation from a Harvard professor of macroeconomics), as most commodities are traded in US dollars, that isn't offset by the falling US dollar;
3. rising commodity prices drive up general inflation worldwide (as the world must consume commodities);
4. the rest of the world suffers with increasing inflation without the benefits received through monetary expansion at home (or if there is monetary expansion at home, they will be hit with there own home-grown inflation and inflation caused by global commodity price increases).

This is not felt so bad in first world countries, where spending on commodities does not consume such a great proportion of income. It is the poorer countries that suffer.

The author concludes that therefore the US should not lower interest rates so that the rest of the world does not keep suffering general inflation and the global economy suffers.

However, I do not believe that this is the end of the story. While general inflation and global instability may result from lower US interest rates, if the US does not solve its housing problem (the 'jingle mail' as it is known) the current liquidity crisis infecting global financial markets will only get worse (and it already seems to be), this will hurt everyone and possibly push the world into recession. At least if the US can solve its housing problem it will stop the current credit crisis in its tracks and hopefully allow stability to return.

Mining a little deeper into BHP and Rio

I briefly blogged yesterday about the BHP Billiton play for Rio Tinto. Today both stocks surged up on speculation that BHP was about to increase its offer and the Chinese were contemplating a play on BHP. As a result the business commentators have resumed commentating on the bid. I include a couple of interesting articles here.

This article, while praising the strategy of BHP's boss so far, warns that if BHP doesn't move soon it will miss the boat. The Chinese are clearly planning something, if not outright control at least a blocking stake. BHP currently has the advantage and shouldn't be afraid of paying a premium for Rio, given the significant benefits that will flow to the merged entity from such a merger. As the author states, BHP overpaid for Billiton in 2001, but without overpaying back then, it would never have become the biggest mining company in the world and would likely have been gobbled up by someone bigger.

However, this article disputes that BHP needs to hurry up or even increase its bid. In fact there is no point hurrying up anyway as BHP needs regulatory clearance for its bid to go through and this will not happen until much later this year. The fundamentals underlying each company (Rio with its better iron ore and BHP with its coal) are starting to shift in favour of BHP anyway. Also not increasing the offer and contradicting the rumors may lead to Rio's price deflating and the advantage going further towards BHP.

Australia v New Zealand: Foreign Investment, Vector, AIAL and BHP

New Zealand is quickly making its attitude to foreign investment known. The Canadian Pension Plans bid for AIAL was rejected in a process created with blatantly political ends in mind (stopping the bid).

It will be interesting to see what happens with the Vector sale (and this is an actual 100% sale, not 40% with 24.9% control), given all bids are foreign. One bid is from a Chinese controlled fund and one bid from China itself (through State Grid), you have to wonder what the Government's reaction will be. Will they use the same line as for AIAL? Or will they allow it to go through as an electricity network is not such an iconic asset (note I did not use the word 'strategic') and the Government doesn't want to piss China off.

This may in fact be one reason why Cullen is not announcing a list of "strategic assets on sensitive land", so that if public sentiment does point towards not selling the network it can suddenly become such a strategic asset and the sale can be loudly rejected. If the public don't care, the sale can go through and the Chinese can stay happy (assuming the Chinese successfully bid).

Turning to Australia, Fran O'Sullivan states:

"Australian Governments of both Liberal and Labor stripes have placed clear foreign ownership restrictions on ports and airports, trading banks, and news media (this has since been relaxed.). The Australians have made clear they want to keep Qantas and major mining companies under Australian control.

But the key point is that the Australians (in the main) have clear rules or criteria for assessing applications. New Zealand used to - but now doesn't."

Things foreign investment and Chinese related look better in Australia than in New Zealand. However, there have been complaints that the Australian approval process for Chinese investments "is slowing down". The difference between Australia and NZ is that:

"the [Australian] Government was struggling to determine [the] national interest implications of Chinese investment at a time when China was worried at the prospect of a merged BHP-Rio having too much market power. Chinalco has moved to intervene by buying a stake in Rio, but its intentions remain unclear."

Crikey suggests that a majority stake in one of the big miners (the resource producers) would be totally unacceptable. A majority stake may give China (a huge resource consumer) too much power to influence resource prices (and therefore, indirectly, the benefit to Australia of its resources). The issue is therefore one of 'strategic national interest' (not that I agree that national interest should determine who can and cannot invest in an asset) unlike the issue of the sale of AIAL, which although called an issue of 'strategic national interest' was actually one of populism.

The BHP saga also goes further than just attempted Chinese acquisitions. BHP is in a complex dance with Rio Tinto trying to merge and create a super mining company. China, who will be affected by any merger as a major resource consumer, has been making strategic acquisitions in its national interest. And don't forget that these Chinese acquisitions that have been slowed down are the first foreign investment decisions that the new Labor Government has had to make. It is well aware of the precedent that it will be setting with this decision and wants to get it right.

AIAL bid rejected, Tu'a backs Field, Opes Prime

Wow, I go away for a few days without access to the Internet and a lot happens. A few stories that caught my attention this evening while catching up on the news...

AIAL bid gets rejected. No surprises there. But I was surprised to read that the Canadian Pension Plan had accepted the decision and decided not to judicially review. I guess they only pursued it this long to see out what they had started and were probably quite glad to get an excuse to leave after the global downturn. Also no surprises to see Labour capitalising on the foreign xenophobia, according to John Armstrong:

"Despite shareholders missing out on a cash windfall, Labour argues that the
retention of the airport in New Zealand hands is ample demonstration to voters
of the benefits of hands-on economic management."

The ends justifies the means. In other words "As well as wiping value off a private company and denying investors a chance to realise a premium over that value, Labour decrees that the public denial of a foreigner purchasing a large, but still minority (and no where near control), stake in said private company demonstrates to voters that Labour was right all along in denying a public bid for a foreign minority stake and that voters cannot be trusted to act in the best interests of the Labour party".

David Tu'a backs Taito Phillip Field. Surprise as to why this is news. What qualifications does Tu'a have to say whether Field was involved in corruption or not? Tu'a was hit in the head for a living, and said:

"he did not know much about the legal issues Field was facing".

I fail to see why this is news.

A number of articles on Opes Prime. It really is a fascinating saga, with riches, Mafia, fraud and negligence all wrapped around in it. I hope to blog more about this when I have digested the current developments. In the meantime:

• "Gatto's visit was scary" says former Opes director;
• Gatto doesn't find any money;
• the unsecured creditors meeting; and
• a, in my opinion biased, look at the banks role in the downfall of Opes.

Opes Prime: Arbitrations and Mediations all the way to the Underbelly

Imagine you are a creditor of recently failed Australian margin lender, stockbroking, and wealth and asset management firm Opes Prime and have just been advised you may only receive 30 cents for each dollar you had invested with the firm. What do you do?

1. Hope that the receivers, liquidators and ASIC find out exactly what the irregularities were that brought Opes down and with it some money?
2. Sue ANZ, as one of the three main lenders to Opes, to prevent them enforcing their security and selling all the shares you thought you owned? (see also this article)
3. Call in an ex-gangster (complete with convictions for burglary, assaulting police, racketeering, possessing firearms, and obtaining financial advantage by deception) to track your money down?

Opes was a small firm that catered to very high net worth individuals and was unknown until last week. It has since been dominating the Australian business pages. It has been fascinating to follow the twists and turns of the story (see the links above), but the latest twist today is the most bizarre.

That's right, after giving up on option 1 above, failing on option 2, investors have moved to option 3 and brought Mick Gatto on to get some money back. Desperate times call for desperate measures. It is apparently AU$1bn at stake.

But what is it they are hoping to achieve by hiring Gatto? I have not been able to find Arbitrations and Mediations's (the company run by the Gatto) website, so do not know exactly what services Gatto offers, but looking at the article in the Age, I don't think the services are of your usual corporate insolvency and recovery kind. According to Gatto:

''We said we're interested - we're certainly not police, we're not there to uncover any fraud... we just want to recoup the money and do the right thing and ultimately finish with a bit ourselves".

So he is not investigating any wrongdoing, presumably they are leaving that to the receivers and ASIC. Although he is heading overseas beyond the Australian authorities immediate jurisdiction, I cannot imagine him rocking along to High Court of Singapore or the High Court of Justice of the British Virgin Islands to seek the return of a preferential transaction. Gatto says he performs a simple service where:

''we go and see the client and we say... 'we really think that you should pay', and it's all done amicably and 9 times out of 10 it's settled and the client's happy and we're happy and of course the bloke who owes the money is happy to have that weight of his chest".

Call me a pessimist but if they don't legally have to return it (as if they did, why not just wait for the receiver to recover it), why would a conversation with an ex-gangster prompt someone to give money back just to get a weight off their chest? I guess it depends what the weight is.

By the way, Gatto is featured on the infamous (in Australia anyway) TV series Underbelly, based on the Melbourne gangland wars of 1998 - 2006, that everybody can watch, but those of us in Victoria (TV3 has the rights in NZ).