Eating humble pie. There’s a tendency for Australian business writers to focus on the negatives (and I’m no exception), but my colleague Glenn Dyer seems to have buried the lead on one of the best Australian business success stories in the growth and sale of Menulog. Dyer’s criticism of the price and subsequent capital raising by UK-based purchaser Just Eat misses the point. For a start, Menulog is not really a technology company, as Dyer claimed. Sure it processes orders via a website or app, but it’s essentially a very valuable marketplace of restaurants with a near impregnable barrier to entry (think Seek, Realestate.com and Carsales). As for the alleged failed capital raising, Dyer appears to have neglected to look at Just Eat’s share-price chart.

Rather than being embarrassing, Just Eat has been one among the world’s best-performing stocks in the past year. In the last six months alone, Just Eat’s share price has rocketed by almost 50% (the Australian market has barely moved in that period). While the fully underwritten offer wasn’t accepted by all shareholders, that’s more likely to be due to the significant recent appreciation in the company’s share price, rather than any glowing dis-endorsement of the deal. If shareholders were critical of Just Eat, you would expect to see a dramatically falling share price. — Adam Schwab (Disclosure: the writer has a very small, passive shareholding in Menulog)

It’s a housing bubble, Joe. Far be it to add to the torrent of (well-deserved) criticism heaped upon Australia’s bumbling Treasurer, but perhaps the point that has been most missed has been Hockey’s complete failure to understand what has caused the housing bubble. As Crikey has been reporting for several years, the run-up in house prices has not been primarily due to supply issues (although that hasn’t helped) — instead, the bubble has been driven by the same underlying driver of every bubble in history: excessive credit creation and a subsequent misallocation of resources. Put simply, home buyers will pay as much as banks will lend them for property, and as interest rates and credit standards have dropped (with 95% loans), prices increase. This is reflected in the record mortgage-debt-to-GDP levels of upwards of 85%.

Joe’s solution to the housing affordability problem? He advises first-time home buyers to not only get a job, but go to the bank and take out a mortgage based on record-low interest rates. Joe, debt is what caused the problem in the first place, taking out more debt and further bidding up the price of property simply places our financial system and over-leveraged households under even more stress. With comments like that, Joe is graduating from utter fool to utterly dangerous. — Adam Schwab

Netflix’s bubbling booms. Netflix’s market value passed Yahoo overnight on Wall Street, after the world’s streaming giant indicated it was about to split its shares to make them more attractive to small investors — stand by for a Netflix share boom. The company’s shares currently trade at more than US$670 (reminds me of Apple pre-split). On Tuesday in the US, shareholders approved a huge increase in the number of shares the company could issue, and CEO Reed Hastings told the meeting that management would ask the board for approval to pursue a share split. And it could be quite a large one — Netflix will be able to boost its authorised share base from the current 170 million (with around 60 million actually listed) to 5 billion. Netflix is valued at more than US$39.2 billion, Yahoo is at around US$39.07 billion. Netflix is now one-third more valuable than CBS (which is just over US$29 billion).— Glenn Dyer

Bank cuts: part 1. So what’s new? HSBC yesterday, Westpac today, Standard Chartered later in the year, Deutsche Bank as well. It’s hard not to be cynical these days when well-run companies go down the path of the new CEO, review, revamps, job losses, etc. And so it has been the case at Westpac since Brian Hartzer replaced the sainted Gail Kelly in late February. Hartzer has been changing Westpac in something of a piecemeal fashion. He abolished Westpac’s Australian Financial Services division (which he ran) soon after becoming CEO. Last month, he announced the bank was hiring Commonwealth Bank executive Lyn Cobley to replace outgoing institutional boss Rob Whitfield (who has gone to run the NSW Treasury). Yesterday, the big announcement was Westpac is splitting its retail and business banking functions into two separate units. The odd thing is that the bank’s financial performance hasn’t suffered under the old structure — in fact, it hit record levels up to the six months to March when, like the rest of the industry, everything slowed. Change for change’s sake? — Glenn Dyer

Bank cuts: part 2. While you can be cynical about the changes at Westpac, it’s a different story at the stumbling Standard Chartered (the international banking peer of HSBC), which got a new CEO on Tuesday. It is on its way to a much-needed review and restructuring. The new CEO is Bill Winters, a former JPMorgan senior executive and he told staff overnight that he expects to have a plan in place by the end of the year to help the bank strengthen its financial position and get back on track. Winters says he wants to boost bank capital levels (it’s more a case of having to do so because regulators are forcing the bank to do that). But there are big cuts coming; Winters told staff in a memo that Standard Chartered must “streamline our business; strengthen our financial position; and re-orient the bank for better returns on our capital … We will have to cut out waste and excess wherever we find it.” The bank is notorious — it has been fined well over US$1 billion for sanctions-busting and failure to comply with money laundering (two fines for that one) and it is in the public eye again in the investigation of FIFA, along with a couple of other major global banks. StanChart is worth around A$52 billion — significantly cheaper than any of our Big Four banks. At one stage, some enthusiastic investment bankers tried to conjure up a story that an Australian bank could be interested in buying the underperformer, or parts of its Asian operations, such as South Korea. StanChart is a banking black hole — stay away. — Glenn Dyer

Peter Fray

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Peter Fray
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