Mark Ryan, Group Director Corporate Affairs, Westfield, writes: Re. “Westfield holds its hand out again to investors” (yesterday, item 23).
Glenn Dyer’s article is so heavily based on faulty premises and ignorance that to correct each mistake is beyond the scope of this letter. Even to correct his trifling errors, like confusing Westfield London at Shepherd’s Bush with the yet to be completed Stratford City centre on the Olympic site, would require a detailed dissertation.
But his piece should not stand without some correction of the record.
His fundamental assertion is that Westfield is a serial underperformer due to poor management.
If only all Australian companies could “underperform” like Westfield. Over its 50-year history Westfield has delivered a compound investment return of nearly 30% per annum, well in excess of the broader market. Over the past few years, Westfield has not outperformed the market which delivered about 9% per annum and Westfield about 6%. But of course the broader market includes, among others, mining companies which have been major beneficiaries of the mining boom.
Dyer conveniently ignores the most relevant measure – which is to rate Westfield against its peers. Since the merger of Westfield was announced in 2004 it has delivered total return of 47.6% to shareholders, compared to the A-REIT market index (of which Westfield itself accounts for 40-50%) which has delivered negative 12.4% (or negative 44% if Westfield is not included in that basket). Investors in Westfield have made money, not lost it, something which can’t be said of a number of property companies since the GFC hit.
As for asking investors to pay for managerial mistakes and over-leverage, Dyer could not be more wrong.
In 2007, at a time when most property companies where leveraging balance sheets up to boost returns, Westfield, against that trend and the urgings of many commentators, undertook an equity offering in order not to pay down debt but to provide funding for pending developments, including Stratford in the UK and Sydney City. The result of this was to allow Westfield to continue with those landmark projects at a time when most construction activity in the US, UK and Australia had come to a standstill. It enabled the company to do this without exposing it to financial risk and was a key factor in it surviving the GFC to emerge a stronger company.
The capital raising in 2009 which Dyer claims was done because “Westfield paid too much for assets” was in fact undertaken because the world’s capital markets had closed and Westfield wanted to put itself in a strong position given no-one could predict how long the credit freeze might last.
And in any event, Westfield did not “pay too much” for its assets. Even taking into account the drop in asset values from their peak prior to the GFC, Westfield’s assets today are worth $7 billion more than their value at the time of the merger, including any capital invested since.
Dyer seems incapable of understanding that over a period of 30 or 40 years a company might for sound reasons respond to changing market conditions by changing its capital structure.
His baseless accusations that the company deliberately leaks price-sensitive information are ludicrous and can be shown to be so.
As a major public company Westfield can readily cope with criticism, and is generally pleased to explain the rationale for its decisions and shoulder responsibility for its performance, in the short, medium or long term. It does this on a routine basis with professional analysts, including journalists, who know the company well, know the market, and understand the issues.
Dyer would be well advised to do some homework, and seek some independent advice, before embarking on another rant like the one published yesterday.
Banks. Good? Or bad? And what’s their future?:
Les Heimann writes: Re. “Labor doesn’t have the guts to take on the banking cartel” (yesterday, item 2). Banking companies are just like any other business in Australia. They exist in order to make a profit that enables shareholders to obtain a fair dividend from their investment and to grow the business. So why the fuss? Because we all use banks one way or another.
When it comes to banks there exists a viable response to this perceived greed, one that has been growing steadily and inexorably over the last twelve years and is frankly a brilliantly designed approach to the rampant and unchecked “profit march” of big banks. This response is unstoppable and will, in time, destroy the big four banks unless they actually do the same – and they won’t.
Community Banking is the phenomena that has grown from a little experiment by Bendigo Bank in a two very small towns in Western Victoria to an Australian wide march of now very significant proportions. There now exist over 300 community bank branches throughout Australia and, on average, every twenty one days somewhere in Australia another community bank opens its doors. Not one community bank has failed. So what is the brilliance of this approach that will bring down the big four?
Community Bank Branches return ALL their profits to their communities. This is done by way of grants, donations, sponsorships and dividends. The beauty of the model is in the fact that whilst its charges and fees and the like are comparable to the big four its profits are utilised by the people who bank with it — directly. And community bank companies are impervious to take over.
As a now ten year Chairman of Directors of a public company that has a franchise to run a community bank I can say without fear of contradiction that this concept is phenomenal. Our own company, in ten years, in a small inner suburban dormitory suburb of Melbourne, has returned over $1M to our community in grants, donations, sponsorships and dividends. And as well we have leveraged much more than that from all levels of government for local projects by underwriting them.
Throughout Australia I understand that local communities have benefitted by in excess of $40M and all this in the first twelve years since the model commenced! The model itself is fascinating as well as quite brilliant and works through marrying a capitalist approach to a social outcome.
If a suburb, region or town wants to get into community banking they first need to have their local citizenry pledge to purchase shares in a public company that will purchase a franchise from Bendigo Bank in order to operate a community bank in partnership with Bendigo Bank where the profits are shared equally. The process then moves to a very comprehensive and independent feasibility study and to a prospectus issue (with no one underwriting same) and then its go.
The public companies thus formed do not allow any direct or indirect interest — at any time — of in excess of 10% of issued shares. The voting rights are tied to the shareholder and not the share numbers and dividends are constitutionally capped at a maximum of 20% of profits. There is a requirement that all profits are returned to the community area. Company directors are almost all — across Australia — volunteers.
When all this is done the local company then is responsible for, effectively, all running costs and that includes staff hire, rent, fit out, equipment and of course a franchise fee payable each five years. Bendigo Bank operates their licence through the premises and we share the spoils.
Apart from the obvious financial benefits of this model the community participation and renewal benefits are simply enormous. Communities are empowered as they have their own financial resource. Their exists the glue to bring diverse and disparate elements into an engaged whole. Importantly there is money to assist those who are significantly disadvantaged – and all this without having to ask a government (at whatever level).
Community Banks are the brightest hope this country has to re-engage with itself and to take back control of our economic future.
Do I work for a community bank? No, I’m just a fan that helps make them work.
David Edmunds writes: I am slightly appalled at the use of the terms “shameless bastardry” in reference to the banks. I think “gouging” and “rapaciousness” were also used by Bernard Keane in his description of bank actions.
The banks return a modest dividend on the capital invested, and in every respect provide incomparably better service than they did 20 years ago. I would like to hear some explanation of the following proposition. If the banks were to reduce their margin by, say, 1%, then wouldn’t the Reserve Bank simply increase its rate by 1% in order to maintain the monetary settings it thought appropriate?
In other words, less profitable or more competitive banks would result in the effective transfer of money from shareholders to depositors. Where does that take us? It doesn’t appear to help mortgage holders much.
We have watched the GFC in the USA where there are thousands of banks all competing madly, and going broke. Surely competition is not a simple answer to a problem that has not really been articulated.
It seems like more simplistic populism, and if that is so, then why are the media climbing all over the issue after pontificating about the shallowness of our political leadership?
Vincent Burke writes: Of course, by the very nature of politics, it’s fair comment to say that Labor does not have the guts to take on the banks, but let us not forget the bleeding obvious. When interest rates soared under the Liberals, the Government response then was no different to that of the current Government. If Hockey were Treasurer now, he would not be saying anything like as critical about the banks as Wayne Swan.
May I also add the possibly unfashionable view that if the position of the banks had not been so robust during the GFC, and if the Liberals had been in power with their “do nothing” policies, what kind of mess would we be in now? I’m paying more for my mortgage, but at least our economy is in good shape, and I’m earning a reasonable return on my investments.
The US mid-terms:
Mike Hughes writes: Re. “Rundle’s mid-terms: the failure of Obama to take people with him” (yesterday, item 1). Guy Rundle muses about why it is that the Dems have performed so badly; whatever difficulties the Democrats have had to bear through ill-luck, controversial policies or the like, one whole dimension of this loss is due to the political failure of Obama and his team to take people with him, on the road of government, and the assumption that politics could be exchanged for administration on the day after the inauguration.
I think however this is ignoring the impact Fox and talk radio has had on the election. Never before has there existed a media landscape like exists now — with such a partisan — devoid of reality — prime time echo chambering like Fox, aided and abetted by the likes of Rush Limbaugh and Michael Savage.
In a country of voluntary voting then you require passion in a voter to get them to get out and vote. Unfortunately fear is a very strong passion.
Like Jon Stewart noted in his recent NPR interview, there is no equivalency to Fox on the left. Because even if MSNBC tilts left, their commentators or pundits do not reinforce a daily message of distortion. There are circuit breakers of logic and reality in play that means a story that’s raised as an issue in the afternoon on a non Fox station dies at night when balance and reporting is applied. On Fox it’s just getting started.
With the internet now also providing a greater echo chamber effect, not even Clinton in the 90s faced anything like this poisonous bilge that is spewed forth 24/7 by Fox and like minded radio friends. Frankly, I’m surprised Obama and the Dems haven’t taken a greater hit.
Steve Brook writes: What worries me about the three-ring circus of US politics is that its noise and influence reach far beyond US borders
Niall Clugston writes: Re. “Reclaiming reform: why Labor needs to explain itself better” (yesterday, item 4). Bernard Keane makes some good points about “economic reform”, but his argument lacks an international dimension. Australian culture is very derivative, and political culture is no different.
The Hawke-Keating reform agenda was a reflection of the historic New Right mission launched by Thatcher and Reagan, sweetened by the social wage and union co-operation. However, this time round, no sensible Australian would want to follow the USA or Britain.
In fact the world’s only economic beacon is Communist China. I doubt its policies will gain bipartisan support.
William Fettes writes: Re. Carolyn Whybird (Tuesday, comments), the Coalition’s plan will certainly cost many billions, if not tens of billions. In order to have any chance of meeting the 12Mbps minimum speed outlined in the Coalition’s broadband plan, the government would need to create many new exchanges, and significantly upgrade antiquated pair gain systems to accommodate the massively expanded DSL footprint required by their plan.
The existing CAN costs Telstra somewhere between $600m -$1b each year to maintain, and that is only paying for the bare minimum of maintenance necessary. Due to this history of poor maintenance, the CAN is in a chronic state of under-repair in many parts of the country.
Accordingly, there will be many expenses associated with getting DSL just to sync properly to individual households within the new DSL footprint, and the ongoing costs will be much higher, as the copper will continue to suffer the same degradation issues whilst needing to be in service for longer. The Coalition’s plan is a long way from the NBN’s ~$26b, but it is far from a slam-dunk. It is, at best, a stopgap solution designed to meet existing demand without any significant capacity to increase speeds further.
It throws billions of good money after redundant, dying copper infrastructure that will become more and more costly to maintain, and will eventually need to be replaced by fibre regardless. The NBN may be more expensive, but it is a future-proof technology that will supply Australia with the best telecommunications infrastructure in the world.
Fibre is a peerless technology platform, and perfectly suited to overcoming Australia’s inherent tyranny of distance. It is a photon-based technology using instantaneous light transmissions along the glass fibre without resistance, reception loss or interference. By merely changing the terminating equipment, you can also ramp up speeds to Terrabits and Petabits — enabling it to match all conceivable demand for the foreseeable future.
The kind of broadband speeds enabled by fibre, including upstream, will create new possibilities for payTV, entertainment on demand, local hosting, cloud computing and innovative new services such as telemedicine and e-gov.
Copper, by contrast, is an inferior electron-based platform. As such, it is prone to resistance and interference and reception loss – making it a poor choice for Australia’s spare population. It also has little capacity for speed upgrades beyond ADSL2+ without spending significantly more for exchanges on every corner, and running new phone lines to get 2 or 4 pairs (even that will not overcome copper’s upstream limitations).
This makes it incapable of supporting many of the new services and markets that will be enabled by fibre. There is really no comparison
Cameron Bray writes: Re. H S Mackenzie (yesterday, comments). Could we please lose the historical infrastructure analogies?
For every telegraph analogy, there is an equal and opposite semaphore analogy — the French, after building a network of flag signalling towers stretching thousands of kilometres, certainly knew how to blow their wedge on a dead-end technology.
The NBN could be the railway network of the 21st century. Or it could be the new canal network. The point is no one knows and no-one can know until it twenty years after it is built.
University of New South Wales:
Osman Faruqi, President of the UNSW Student Representative Council, writes: Re. “UNSW board backs naming decision, students want backdown” (yesterday, item 14). I would appreciate the opportunity to clarify the conduct and outcomes of Tuesday’s Academic Board at the University of New South Wales.
The relevant item on the naming rights of the School of Art History and Art Education was put on the agenda as a result of continual lobbying by students and staff on the issue and we appreciated the opportunity to discuss it in an open forum. Originally only 20 minutes were scheduled for a joint presentation by Jennifer Botts, head of UNSW Foundation (the donations wing of the University) and discussion the topic. However the enormous amount of interest expressed by members of the Academic Board resulted in a discussion going for an hour and a half.
A number of speakers were invited to put forward their case on the naming rights issue, including the Dean of COFA, Ian Howard, Jennifer Botts and the Vice-Chancellor, Fred Hilmer. All argued for the renaming. It is important to note staff or students from the affected school were invited to put their case forward, though the Presiding member of COFA, representing staff at the College, spoke on behalf of staff and expressed their views that the renaming was “misguided, undesirable and excessive”.
It was disappointing that one academic from the school who was involved in writing a letter to the Academic Board asking that the issue be put on the agenda and who put forward a motion expressing a lack of support for the renaming be tabled was not given speaking rights at the meeting. I, in my capacity as President of the Student Representative Council, have previously attended a number of Academic Board meetings without issue. However on Tuesday I was asked to remove myself to the observer’s section of the room and informed that I not would have the right to speak on this discussion.
After the three main proponents of the renaming each had their say, including making a number of personal accusations directed towards myself and the students involved in the campaign, suggesting we were acting in a “destructive” and “atrocious” manner and attempting to damage the reputation of the University, I was asked by a student member of the Academic Board to speak on behalf of the students at COFA. After my brief speech, the key figures continued to make incorrect assertions about the student campaign to which I was not allowed a right of reply.
It is somewhat ironic that a lack of student consultation and engagement got the University into this embarrassing situation in the first place and instead of being rectified is being repeated. It is also the most aggressive I have seen the University respond to concerns from the student community. Professor Hilmer made it quite clear that in future renamings, which he predicted would roll it across schools and faculties throughout the university, students and staff would not be consulted due to “confidentiality” issues.
A procedural vote on whether to discuss the motion to oppose the renaming was rejected by a large margin. This was not a surprise given the large amount of appointed positions on the Academic Board and the ratio of students to staff. Students make up 90% of the university community but less than 10% of the Academic Board. It is important to note that students, including the one representing COFA students, as well as elected COFA staff voted for the motion that was eventually defeated.
Tuesday’s meeting made it clear that the university community is still divided on this issue, and that staff and students are continuing to be sidelined by university management. As much as university management wants this issue to go away, the fact that Professor Hilmer admitted that this is a model he is keen replicate across the university only means that tensions will escalate.
What’s with Crikey?:
Kim Lockwood writes: Is it just me, or do other readers think Crikey‘s daily newsletter has become, in the classic journalistic phrase, worthy but boring?
Yes, we are interested in the US mid-terms, but not to the extent of Guy Rundle’s (well-written) thousands and thousands of words.
The MDB debate? More thousands. Keane and Co are to be congratulated on their well-articulated comments, but I, for one, run out of steam about the halfway mark of each piece — and never turn over to the website to read the rest of the article.
And other topics.
I hanker for the days of the young upstart, Mayne, breaking stories (some wrong, of course) in short bites. Yes, we now have Tips and Rumours, but there’s too much of the long-form stuff. It belongs on the website, or The Monthly, but not in the daily email.