An apparent bid to destabilise Gail Kelly has backfired.
WHILE pretty much everyone else in Australia was concerned about floods, Westpac’s board and management spent yesterday fighting a bushfire that threatened to engulf chief executive Gail Kelly.
Specialist website BankingDay caused Westpac chairman Ted Evans to choke on his muesli, with a report that the bank’s board had hired executive search firm Egon Zehnder to find a replacement for Kelly before the end of this year.
Evans and the bank’s PR department spent the day furiously trying to extinguish the claims. Evans was quickly reported saying that it was all ”absolute nonsense”, and Westpac said that not only had Evans endorsed Kelly at last year’s annual meeting but that Zehnder (ironically the one that headhunted Kelly to replace David Morgan) had no such brief.
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The credibility of Evans and the bank would, or should, be destroyed if those denials are later found to be misleading – although it would have been handy if Westpac had voluntarily, or ASX officials had demanded, a formal, legally enforceable statement to the market.
They are most likely telling the truth, which raises the question of who is behind the rumours, and why.
The most obvious candidates are the bank’s competitors, disgruntled current or former staff or, given the share price performance, grumpy superannuation fund managers hoping to send a message to the board and destabilise Kelly.
If so, they might have achieved the exact opposite. With Evans forced to deliver further emphatic, public support for his CEO, it would now be near impossible to lever her out in the short term without the excuse of major misconduct – even if the board is dissatisfied.
For Kelly, the outcome could not be better if she had contrived it herself. The Westpac boss, who is on an open-ended contract, is a few weeks short of three years into a job that she started by taking over her previous employer, St George Bank. That vaulted Westpac up the rankings to No. 2, behind Ralph Norris’s Commonwealth.
Not that her time at Westpac has been stumble free. The infamous ”banana smoothie” cartoon, justifying the bank’s decision in 2009 to lift home loan rates by almost double the RBA’s increase, was a moment of desperately poor judgment – and an even worse analogy (If I buy a banana smoothie, I get to keep it. The shop owner does not expect me to repay them that smoothie, and four or five more, over the next 20 years).
Under Kelly, Westpac has chased a bottom-up strategy of buying market share by broadening its branch base and appointing lots of new managers to create relationships that lock in customers from cradle to grave for everything from mortgages to margin loans.
It is not an overtly sexy approach when its competitors have taken the top-down path by offering to spend billions buying bigger shares of ”wealth management”, or looking for exponential expansion by acquiring footholds in the future through China and India.
Certainly, as BankingDay pointed out, Westpac’s shares have failed to sparkle in a period when Australia’s big four were seen as not just immune to the ”bank plague”, but thriving thanks to government largesse. If that is the metric for booting Kelly, National Australia Bank’s Cameron Clyne best don a crash helmet.
UNSURPRISINGLY, not everyone agreed with me that investment banks often get paid an awful lot for not taking much risk in floats and secondary share sales.
Here’s a thought: let them get paid the same sorts of fees – about 2 per cent of the total being raised – but pay only half of it in cash and make them take the balance in the same stock, and at the same price they are palming shares off to others. And, put a 12-month hold on their dealing in that stock, too.
Similar principles are now the mantra for policing the jammy bonuses given to executives – the idea of making sure that managers and advisers have ”skin in the game”, like other investors dependent on share price performance to earn their rewards.
That might mean that the investment banks would produce far less optimistic, but more realistic, pricing estimates in the ”beauty parade” (where they have to persuade companies why their outfit is the best one to manage a share issue).
Would Myer, for instance, have been floated at $4.10 in 2009 if the bankers knew that they would have to take stock, and keep it for a year? The advisory profession argues that the book-build process – where institutional investors bid for amounts of shares at prices within a designated range – dictates the ”price discovery” and not the banks. So how come Myer cratered on listing?
THE Reject Shop’s request for a 48-hour suspension of its shares yesterday, on the basis that its Ipswich warehouse was likely to be hit by Queensland’s terrible floods, highlights the growing use of trading halts as a sort of price stabilisation mechanism.
From the outside, it would appear that the ASX almost never denies such requests, even though it does demand justification and a time limit.
Most halts in recent years have been from companies putting together a capital raising. So what? While that news might affect the price, once investors are aware of it they buy or sell in the knowledge that the value of their stock may, or may not, change substantially. The ”real” value of a share is what someone is prepared to take or pay – zero is often right.
Anyone who knows more about the price effects of an issue, and trades in the stock as a result, is insider trading.
For The Reject Shop, losing the use and contents of a warehouse that supplies 90 of its 211-store chain could well hurt its business significantly. The market is as fully informed as possible, even though the extent of the pain has yet to be calculated.
Investors are adults and have a responsibility to inform themselves before deciding whether to buy, sell or hold.
Choice made, they should have a market in their stock.
Source: www.smh.com.au
