Trust the Australian banks (no thanks). Only the big Australian banks could choose an option that will cost their customers more, and allow the boards and management to escape unscathed. When confronted with the choice of a royal commission lasting two or three years and paid for by taxpayers (estimated cost: $53 million) with the only cost for the banks being their legal bills, and the choice of no inquiry but a more powerful, better resourced regulator in the Australian Securities and Investments Commission (but still clueless about banking) and paying hundreds of millions of dollars for years to come … the Australian banks chose the latter.

Why? Because in the end it is the cheaper option in that the costs will be recovered from customers — despite the false bravado shown yesterday by Treasurer Scott Morrison and Prime Minister Malcolm Turnbull who warned the banks not to (how will they know when they do that?) take money from customers to meet the cost of the fees to be paid to ASIC. So a reasonable person would conclude that the royal commission idea is the big threat to the banks, their boards, managers and their pay (and jobs). And why is that? Well, it is all to do with the complaints against bank behaviour from customers — the ones the banks already know about, and those that would no doubt emerge from the woodwork in any inquiry.

So a better resourced ASIC doesn’t worry them as much as years of adverse disclosures by a royal commission and criticism of their actions and handling of complaints. That is a very telling admission by the banks. No wonder the Australian Bankers Association rolled over to the government and asked “how much?”. No wonder it could brazenly demand some say in how ASIC spends the money “efficiently”. Could the association and its CEO, Steve Munchenberg, explain what “efficiently” means and give any examples of such “efficiency” from its members, say in the handling of complaints, or the campaign against demands from the Australian Prudential Regulation Authority and the Reserve Bank for higher capital needs of the banks? We should also remember that our big banks are still Too Big To Fail and will depend on the Australian taxpayer to survive another GFC. — Glenn Dyer

Now this is long term. Target is the problem child of Wesfarmers, and its struggles and weak management have detracted recently from the success story Wesfarmers and its management like to portray (Kmart, Bunnings, Officeworks and Coles are all performing very well and are clearly besting their opposition, especially struggling Woolworths). There’s been several flawed attempts to revitalise Target: impairment losses, a fiddle in the accounts which slipped through internal controls at Wesfarmers and boosted interim profit (since spotted and reversed), and now a merger of sorts with Kmart under the one management team headed by Guy Russo, the executive who turned Kmart from a flop into the best-performing big store chain in the country.

Wesfarmers released its third-quarter sales figures yesterday, along with a strong defence of Target and the latest strategy. Buried amidst his defence of plans to revitalise Target, Wesfarmers’ CEO Richard Goyder made it clear the company would not be selling the underperforming department store chain, or its better performing sibling in Kmart. “In five to 10 years’ time we’ll have a very strong department store business, both Kmart and Target will have their own brand, their own image,” Goyder said. But the five-to-10 year timeframe sits oddly with the knee-jerk decision to close the HQ in Geelong, sack hundreds of people and head for Melbourne. Odd indeed. Why does the burden of cost-cutting fall on staff, people who follow these dud decisions from on high? — Glenn Dyer

Iron ore’s false dawn? Iron ore stood out with yet another surge to around US$70 a tonne overnight (according to the Metal Bulletin), taking the gain so far this year to around 60% — and more than 80% since the low of US$38.30 hit in December. The Bulletin said the price rose 8.8% to US$70.46, while the other major global pricing group, the Steel Index, reported iron ore jumped 6.8% to close at US$68.70 a tonne (a rise of US$4.40 a tonne). Iron ore is now the best-performed major commodity this year, outreaching gold, silver, copper and oil. The rise in iron ore prices comes as steel prices in China rise — up 9% yesterday alone — along with sharp rises in futures prices in Singapore and China. This is despite continuing oversupply of iron ore (especially from Gina Rinehart’s Roy Hill mine in WA) and steel.

Some thoughtful analysts wonder if Chinese hedge funds and speculators are playing in the iron ore market in a way similar to the way they speculated in copper and gold in 2014 and early 2015 (buying iron ore cargoes and using that as security for further bank loans to finance further speculation). Just based on the fundamentals, it will all come tumbling down, just as speculation in copper and gold did. This iron ore price surge will end in tears. Memo to Treasurer Scott Morrison: don’t base an election budget on the rebound lasting until the end of 2016-17. — Glenn Dyer

Peter Fray

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