Crikey’s Sydney AGM addict has been to more than 20 meetings this season and actually got jeered monopolising the microphone for 15 minutes at the St George Bank AGM in Sydney last week.

Yes, dear readers, your correspondent had one of those moments when he was the subject of jeers, audible groans, and shareholder resentment the stuff usually reserved for Mr Tilburn – while putting St George executive chairman Frank Conroy under the microscope.

And in another amazing turn of events on a day when pigs did fly, Crazy Jack was on the receiving end of a rousing round of applause and glowing shareholder acclaim for his high praise of the bank and his tear-jerking eulogy to its late CEO, Ed O’Neal.

Yes, you read it right oh it’s true, it’s true.

And this correspondent has nothing but praise for the way chairman Frank Conroy conducted the meeting. Yours truly had plenty of questions and thought he had enough live ammo thanks to various pieces of scuttlebutt cropping up on Crikey to be able to put a few chinks in the St George veneer.

But despite grilling the chairman for a good 15 minutes or so, I left with every question answered pretty much satisfactorily.

Conroy ran the meeting the way far few chairmen do:

* He answered every question in turn, allowing shareholders the opportunity to ask follow up questions if they wanted clarification.

* His answers were always direct and never evasive. (Although one time-wasting shareholder who harangued the chairman about directors’ pay would disagree. This idiot repeatedly accused the chairman of lying about directors’ pay when the chairman was quite clear that he was referring to the fact that the maximum amount that the board could be paid had not increased in three years. This tool then kept butting in, churlishly saying “oh, don’t worry, I know you’re not going to answer me, 05” when the chairman repeatedly tried to answer. There’s no pleasing some people.)

* He was contrite in admitting when things had gone wrong (which wasn’t all that often) rather than trying to spin his way out of an awkward situation.

Wallis! Ralph! Davis! Allen! Sit straight and pay attention at the back of the class, you objectionable louts. And stop counting that money, Lowy!

Having digested the Courier-Mail piece on the far north Queensland mortgage scam in which St George was alleged to be implicated, I was ready to hurl several grenades at the chairman on this issue, along with a couple of perceived stuff-ups.

To refresh Crikey readers’ minds, the essence of the Queensland loan scam, as report in the Curious Snail, was that banks have been in cahoots with dodgy property developers and have been lending to low income earners who cannot afford a deposit but can service a loan. Sounds very altruistic, but the Snail alleges that the properties have been grossly over-valued and the banks have been mopping up when the lender defaults, getting their investment back and churning the process and inflicting misery on some other poor unfortunate sod.

Rex Burgess of the ASA was up before me and had first dibs on this one. Rex, like a lot of his ASA colleagues, is a polite chap who often doesn’t go in hard enough as far as this correspondent is concerned. So I was disappointed when Rex asked for the chairman to assure the meeting that St George wasn’t involved in this grubby affair and said words to the effect of “I won’t give credence to the allegations by repeating them here”.

Just as I was thinking “jeepers Rex, I’ll air the bloody allegations if you won’t!”, the chairman did the meeting a favour and spelled out the sordid details.

Ten out of ten, Mr Conroy, for transparency.

Conroy emphatically denied any culpability on St George’s part and refuted the most serious allegation, that St George knew that the properties had been over-valued, saying that the bank had acted “completely and utterly transparently”.

He added that the bank’s financial exposure was relatively small, being only about 2% of their residential loans portfolio, or about $600 million.

After Rex’s soft touch, I was determined to take the gloves off, but Conroy answered every challenge. I asked whether he was aware if St George would be included in a class action on the matter, which he answered in the negative.

I also asked the chairman whether it was true that the Queensland divisional manager with responsibility for these loans had been given the flick and whether this implied culpability on the part of the bank. One of Conroy’s underlings responded that the manager had been given the flick before this affair erupted and that the reason for his services no longer being required was unrelated to the affair.

Finally, I noted that, although the matter is relatively recent, St George has been too quiet in issuing rebuttals. My point was that if the bank is squeaky clean, I’d prefer to see it get on the front foot and forcefully deny the allegations.

Conroy appreciated these sentiments, but said that the bank had issued denials to the reporter involved, but he had chosen to print what he wanted to print. The chairman gave the journo in question a fair shellacking for selective reporting of the facts and selective bending of the truth.

While one can only take the chairman’s emphatic denials at face value, something still leaves this observer scratching his noggin.

If the bank is a cleanskin on these most grave charges, why doesn’t it demand a correction from the newspaper?

Still, there are a few more battles yet in this media war St George is far more experienced in such matters than this hack so I’ll leave it to them to decide when to take up arms.

After a fair amount of discussion on this point, the chairman patiently indulged me on several questions relating to an instrument the bank had issued to shareholders during the year but which had become the subject of an adverse opinion from the Tax Office. In his report to shareholders, Conroy noted:

“Our PRYMES (Preferred Resetting Yield Marketable Equity Securities) issue offered a preferred share with a highly competitive, fully franked dividend rate of 6.36 per cent. Our sell back rights gave shareholders the opportunity to participate in the generous buy-back price, whether or not they wished to sell shares back to the Bank.

Unfortunately, after lengthy discussions with the Australian Tax Office, we were informed in August that the sell back rights would be liable to income tax. Although we disagree strongly with the ATO ruling and have taken legal advice on shareholders’ behalf, we immediately informed shareholders of the decision. We are committed to contest this issue in the courts and will keep shareholders informed of further developments.”

There were several issues I had with this, which had in my opinion rather grave consequences for shareholders. I did mention that as a proxy holder I probably didn’t have a good grip on all the facts, and the chairman did politely pull me into line when required.

My concerns were:

* The timing was abysmal the instrument was issued in February, in the midst of the ATO wrangle, yet shareholders didn’t find out until August that they would need to include an amount in their assessable income. Many shareholders would have lodged their tax returns by then.

* What was the bank doing to help shareholders lodge amended assessments, many shareholders having enough difficulty in lodging a tax return in the first place?

* Was the bank giving any financial assistance to affected shareholders? It seemed to me that shareholders were not only crystallising a taxable gain without realising cash, but would be slugged even if they did nothing (i.e. “whether or not they wished to sell shares back to the Bank, 05”). This one was shot down in flames Conroy explained that shareholders had in fact received dosh for the sell back rights.

* Why did they issue the securities when they were in the middle of a bun fight with the Tax Orifice? Whether or not they agreed with the ATO, it was not prudent to proceed given the Tax Office’s crack down on aggressively marketed tax schemes (not that this was such a scheme, but the ATO is generally tighter than a fish’s sphincter).

* Where was KPMG in all of this? On top of their audit fees each year, they had received more than half a million in each of the past two years for tax advice.

* Were there any other aggressively structured offerings at risk?

Conroy again was upfront in tackling this issue and his responses indicated that the bank had handled a difficult situation as well as they could. He argued that they needed to proceed despite the ATO’s lingering concerns because they had tried getting a response from the ATO and it wasn’t forthcoming in a timely manner. Put simply, the bank needed to get the cash in the door and they couldn’t wait for the heel-draggers in the tax office.

Given that the ATO’s position was only made clear in August, the bank’s decision to not wait for the ATO to give them a clean bill of health on the PRYMES issue appears reasonable.

The chairman also explained that they had issued a statement to affected shareholders in August which told them what they should do, depending on whether they had or had not lodged their tax returns.

Conroy noted that they received tax advice from numerous sources including KPMG, and their robust opinion on this matter was issued by one of their legal advisory firms. Finally, he noted that he wasn’t aware of any other offerings being at risk of ATO scrutiny.

I also pointed to the bank’s acquisition strategy and noted there were a few wrecks on their balance sheet. “Other external investments” had been written off by $30 million (around 60%), their Sausage Software investment was completely fried to the tune of $6 million, and their investment in Wealth Point had been written down by $22 million (or some 15%).

Despite this apparent poor track record, the bank was asking shareholders to dip into their pockets and fund the remainder of the Wealth Point acquisition.

To his credit, Conroy met the criticism head on and didn’t try to dodge the issue, as so many of his contemporaries are wont to do. He agreed that these did add up to a poor external investment record at face value, but mentioned that only the Sausage Software investment was seen as having no future value to St George and therefore was completely written off.

What a refreshing change – he accepted the criticism but outlined the strategic value that the investments offer the bank and why they will be of benefit to shareholders.

Wallis! Ralph! Davis! Allen! You’re not paying attention again. Next time, it’s straight to the principal’s office, you unruly bunch of miscreants.

By this stage of the AGM I knew I’d be testing shareholder patience so I promised just “one last question”. For the first time in the AGM season I experienced the deflating sound of shareholders groaning as I plugged away with questions.

Now I wasn’t really keeping time, but I suspect I’d hogged the floor for a good 15 minutes. And the meeting finished up comfortably under 2 hours, so it wasn’t as though it was a marathon sitting.

But Crullers did cop the odd dagger-like glare after the meeting and the occasional walking frame rammed into the lad as he tried to slip out quietly, so he wasn’t exactly flavour of the month with St George’s sanger-happy investors.

I kept my last question brief to appease the restless grey army, but raised the issue of online banking security that was mentioned in the Crikey letters pages recently. I pointed to the anecdotal evidence that online banking contains glitches and asked what the bank was doing about security.

A very reassuring senior executive reassured the meeting that the bank takes security “very seriously” and that especially includes internet banking. While this is a bit of a wishy-washy response, in fairness, one couldn’t expect to hear anything too specific at an AGM.

We’ll see how secure their internet banking is over the next 12 months or so.

The re-election of directors occurred without dissent, but the proposal to increase the maximum amount payable to the directors as a group attracted a fair bit of criticism. I personally didn’t think the proposal was unreasonable, given that this amount hasn’t been increased in 3 years, and the ASA agreed.

Incredibly, Jack Tilburn even spoke in favour of the proposal! Hell freezes over.

About 11% of proxies were cast against the motion, which was incredible given that we’re talking about granting the board as a whole a maximum remuneration of “only” $1.2 million resolution. Add to that the fact that this board has markedly increased shareholder wealth. St George’s shareholders must be hard to please.

But this hack has to dip his lid to Conroy. I came to the AGM thinking I’d be able to land a few blows but Conroy defended them all and did so in a way that puts his rivals to shame.

St George aims to differentiate themselves from the big four banks and it’s little wonder they are succeeding if their leadership’s performance at the AGM is any guide.

Wallis! Ralph! Davis! Allen! I’ll see you boys in Saturday detention.

Disclosure: Crullers promises that the silver St George key ring given to him and all other attendees bore no influence on the views expressed in this article.

PS: For the numerically inclined, profit after tax was up 17.5% to a record $336 million, EPS was up 22.8% to 101.9 cents and the dividends for the year of 65 cents was an increase of 18.2%. They aren’t travelling too badly financially, it seems.

You can reach Neal on [email protected]

Peter Fray

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