Can a leading banker be on an ‘advisory’ committee to a major foreign company, and be involved in the extension of a large line of credit to a major supplier to that foreign company? Are there any conflicts of interest, real or imagined, that need to be confronted?
Lots of questions there raised by the collapse of car parts group, Ion. Questions that need to be discussed at today’s meeting of the board of the Commonwealth Bank, to be chaired for the first time by new chairman, John Schubert, who from all reports is keen to put his stamp on the bank.
CBA CEO, David Murray is a member of the Australian Advisory Council of General Motors, the key client of Ion with that now questionable engine block plant at North Altona in Melbourne (see Murray’s background here).
The cost overruns on expanding that plant, the decision-making that went into the design and thinking behind that plant, and the fact that it is not profitable at current production contracts (held with Holden) raise questions about why the banks expanded their line of credit to $440 million, then pulled it.
The CBA and its board will discuss the Ion situation today. Some statement from the CBA would be good corporate governance to clear the air on the links between the CEO, Holden and Ion through the contract and the loan.
The CBA board should have considered the loan, being a multi-million dollar facility, or rather the bank’s credit committee should have. It should have been assessed by its risk management committee and some sort of analysis should have been made as to the viability of Ion.
The dive in the Ion share price from more than $2.40 in February this year to around $1.80 in August-September when the new credit line was expanded and put in place should have a warning bell for the CBA and the banks.
Companies shedding 25% of their market capitalisation in six or seven months in the strongest market in years, are a problem in the making, and it should have been a big amber light.
Murray will argue that the Holden involvement is on an advisory committee, not an overseeing role. And so it is. But the perception of a conflict of interest remains, especially if there were any fees paid to Advisory Committee members for attending meetings or giving advice.
Even if those fees were small (especially compared to the $4.4 million that Murray took home last year) or expenses were covered, the perception problems have to be addressed.
So far his involvement with Holden has not been mentioned.
Hopefully after today’s CBA board meeting, it will be cleared up.
From yesterday’s creditors meeting, it clear the chances of Ion continuing in roughly its current form depended heavily on the banks taking a big loss on their loans, which they will not want to do. But seeing this credit facility is unsecured, they are not in such a strong position.
The lack of security will be another thing discussed by the CBA, just as it would have been discussed by the other banks.
If Holden extends the engine block contract to more than 350,000 units a year, what will be the price and what will be the quid pro quo from Ion and from its other creditors?
Will a equity arrangement from Holden and or the Victorian Government as some form of assistance, be struck to enable the plant to trade on and to provide sufficient working capital to see the group’s other problematic business at Wingfield in Adelaide either sold or whipped into shape?
Its clear now that Ion, had been financially dodgy for some time, calling into question that decision by the group of banks led by the Commonwealth, Westpac and the NAB to extend the now contentious $440 million line of credit.
(Read chairman John Pizzey’s address to the recent Ion annual meeting here)
Pizzey’s re-emergence into the Australian corporate boardroom hasn’t been plain sailing. Besides Ion, he’s also a member of the board of WMC Resources, now being stalked by the Xstrata sharpies from Switzerland and South Africa (with a big shareholding from Credit Suisse).
His comments to the Ion shareholders make depressing reading. Another independent director either duchessed by management or not fully across the true state of the company’s financial health!
Enough was said at yesterday’s creditors meetings around the country to show that the company’s been doing very poorly for a while, that the 2004 annual report was probably a well-meaning work of fiction, and that there are questions about the accounts and why someone didn’t blow the whistle before the plug was pulled last week.
See these these SMH reports of the creditors meetings:
If there are any losses look for the independent directors and auditors to be targets of any legal action and ASIC interest. Deloittes Touche Tohmatsu are the auditors.