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Murray has made the right call on the banks

David Murray. Photo: Christopher PearcePoacher turned gamekeeper David Murray is right to tell the big banks they must boost their capital and make themselves safer.
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The banks argued that setting aside more capital would be an unnecessary financial hit for them and their shareholders, impose unnecessary borrowing cost increases on customers, and weigh down the economy. The Murray inquiry has decided that those arguments don’t outweigh the benefits of bolting more armour on to the financial system.

Our banks are solidly capitalised, but they are not in the top quartile globally. Their loan books are also heavily weighted to home lending. It has served them and their shareholders well over the years, but as a recent stress test by the bank regulator, Australian Prudential Regulation Authority (APRA), showed, it also leaves them exposed to potentially crippling losses if a deep economic downturn causes house prices to plunge.

They are also extremely profitable by world standards, with an average return on equity of 15.6 per cent in 2013-2014.

As former Commonwealth Bank chief executive Murray noted in his press conference on Sunday morning, even after they have built their capital bulwarks their return on equity will be attractive enough to attract investors.

Higher capital costs should be partially offset by lower borrowing costs as their credit ratings improve, and in a post-global financial crisis world, where lending demand is subdued, they will still be able to bankroll investment and economic growth. A one percentage point increase in capital reserves would boost loan prices by between one hundredth of a per cent and 22 hundredths of a per cent, and reduce gross domestic product by less than 0.1 per cent, the Murray report states.

None of the financial inquiry’s recommendations have been picked up or rejected at this stage. There will be submissions from the industry to the government between now and the end of March, including submissions from the banks pushing against a big capital increase.

Murray and Treasurer Joe Hockey both said on Wednesday that as far as bank capital increases were concerned, the path and the pace of the journey would be a matter for APRA and the banks to determine, however.

That suggests that the capital increases will occur. They will be tied to the imposition of higher risk weightings on home loans in the big four banks’ lending books which will require more capital for risk insurance. The process will align big bank home loan risk weightings with the higher ones already applied by smaller bank competitors, making the smaller banks more competitive in the process.

The final bill is going to big – for the big four, probably equal to or more than their combined profit of $28.6 billion last year. Their earnings and dividends will be affected, as they set aside more of their earnings to build reserves.

Dividend reinvestment schemes will play a key role, however, and the banks are making big money year in and year out. They should be able to agree on an implementation timetable that avoids big, deeply discounted share issues, and results in earnings growth and dividend growth slowing rather than retreating. Credit rating agency Fitch said recently that up to $53 billion could be generated internally on a reasonable implementation timetable.

The capital boost is worth pursuing. The banks won’t like it while they are bolting on the extra armour, particularly because tier one capital is the most expensive capital to accumulate. However, they will be bragging about the strength of their balance sheets when the next financial crisis hits, and the change makes it less likely taxpayers will be asked to bail them out.

The report’s super system recommendations, including a ban on borrowing by super funds to fund the acquisition of assets including property and shares, are welcome, as is the idea that Labor’s MySuper regime be reviewed in 2020 if it has not driven down super fees by that time. Murray is also right when he says super fees are too high in this country, and a half decade is long enough to work out whether MySuper and other reforms are addressing the problem.

Big investment funds and share investors will be encouraged that the final report has not mounted a head-on attack on dividend imputation.

It notes that fixed-income securities do not qualify to carry imputation credits, and claims that imputation is in effect a subsidy for domestic share investors.

Imputation, capitals gains tax concessions introduced by the Howard government, the absence of a tax rate on super fund earnings in the retirement phase and uneven application of GST in the financial services sector are among the tax system “distortions” the government’s upcoming tax review should consider, it says.

It does not take the next step, however, of recommending action, including an end of imputation. That makes sense, not only because it would be straying beyond its brief to do so, but because imputation has some things going for it.

It eliminates the double taxation of income at the company level and shareholder level, for example, and discourages excessive corporate gearing. It is also a pillar of the Australian sharemarket: it should not be axed or even watered down without careful consideration.

Centenary drinks could be last for NSW Leagues

An air of uncertainty looms over the 100th anniversary celebrations on Monday at the “mother of all clubs”, as NSW Leagues’ Club was once described, with officials expecting the NSW Rugby League to attempt to wind up the licensed operation early next year.
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A cocktail party will mark the occasion, beginning exactly 100 years to the hour that the name of NSW Leagues’ Club was formalised at a board meeting held in the same Phillip Street premises that were to become the headquarters of rugby league until the formation of the NRL in 1998.

However, less than three years after the NSW Rugby League also left to move into the NRL’s new League Central building at Moore Park, the leagues’ club is facing a bleak future after a court decision last month preventing the club’s 4000 social members from determining its fate at a referendum.

With Justice Paul Brereton ruling in the NSW Supreme Court that only the 62 life members of the NSWRL and delegates of its member clubs can vote on such issues, an extraordinary general meeting is expected to be called in early February aimed at winding up the leagues’ club and taking control of about $10 million in funds generated by the decision.

To succeed, the NSWRL will need to gain 75 per cent of the vote. Five life members – former referees Mick Stone and Dennis Spagarino, former Penrith chairman Barry Walsh, his former Illawarra counterpart Brian Kurtz and long-time Country Rugby League official Ron Lansbury – are also on the leagues’ club board so they would be expected to oppose any takeover.

However, the NSWRL board earlier this year framed a resolution – signed by Canterbury chairman Ray Dib, Sydney Roosters chairman Nick Politis and former Parramatta chief executive Denis Fitzgerald – declaring their entitlement to the proceeds of last year’s sale of the eight-floor premises to property developer Greg Shand for $15.5 million.

Should they initially fail to gain the required votes, it is expected the NSWRL will continue to pursue the matter with future ballots.

NSWRL officials say the money would go towards grassroots funding and would not be divided among the clubs. But leagues’ club directors believe the $10 million left from the sale after $5 million in debts are paid should be used for a merger with another club or to move west.

NSW Leagues’ Club managing director Greg McCallum said in a news release on the centenary that the club was the historic home of rugby league, had supported the NSWRL financially, particularly in the area of schoolboy and junior rugby league.

He also said the club had provided loans and bank guarantees to help many other clubs establish their own licensed premises.

“The NSW Leagues’ Club was correctly named the ‘mother of all clubs’ by veteran administrator S. G. Ball in the 1950s as it supported the financial stability of many growing clubs by loan and acting as bank guarantor,” McCallum said. “Many clubs would not be in existence today without that support.”

However, NSWRL officials say that their body has also provided funding to the leagues’ club to assist it in developing and renovating the premises in Phillip Street.

It was argued in the recent court case between the two parties that a debenture dated back to March 25, 1937, secured the funds owing to the NSWRL.

The NSWRL instigated the legal action after the sale of the leagues’ club premises in June 2013 as they believed the property – once considered the code’s nest egg – had been undervalued.

Some NSWRL directors had anticipated more than a decade ago that it would yield $80 million, but rising debts and the need for repairs and refurbishments led to a decision to lease the top four floors of the building to Travelodge.

A series of financial disasters, including prohibitive poker-machine taxes, added to the leagues’ club’s woes and a 50-year lease given to Travelodge meant any prospective buyer of the building was committed to having half of the building filled by clients unmovable for half a century.

Sam Kavanagh targets Villiers coup with Midsummer Sun

Sam Kavanagh will look to pull off a big Randwick mile coup as he drops Midsummer Sun back in distancefor Saturday’s Villiers Stakes at Randwick.
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The young trainer believes the tough mile run at a good tempo will give his imported son of Monsun a better chance than the Christmas Cup at 2400 metres on the same day.

“There is a good history of horses coming back from 2000 metres to win big miles at Randwick, just look at the Epsom winner [He’s Your Man],” Kavanagh said. “Midsummer Sun has been running in these 2000-metre races and breaking 34 [seconds for the last 600 metres] home, but he’s not getting his chance to get into the races because they are just walking and sprinting home.

“I thought why not give him a chance at it. There are no real standouts in the Villiers field with the exception of Sir Moments, which has a bit of X-factor.”

Midsummer Sun won his first start in Australia over 1600 metres at Morphettville in 2013 but has since concentrated on longer trips. Kavanagh will put the blinkers on Midsummer Sun and leg up Chad Lever on Saturday.

“It was tough to find a jockey for him and Chad rides all his track work and knows him very well. He is riding very well at the moment and striking at 20 per cent in his past 50 rides,” Kavanagh said.

“We put the blinkers on him the other morning and Chad was very happy with him and they will sharpen him for the mile.”

Midsummer Sun has been in good form, being narrowly beaten when he made a long run over 1900 metres at Rosehill on November 15. He again got a long way back but still ran into third in the ATC Cup on November 29.

“Those two runs have been very similar because they have gone so slow he had too much to do because he gets back,” Kavanagh said. “Last start the track was getting towards a good-2 and being a European he didn’t really stride out because it was getting hard.

“Randwick always has a good cushion to it and there is likely to be the cut out looking at the weather forecast. He is a Monsun and will enjoy those conditions.”

The Villiers shows an exemption from the ballot for the Doncaster during The Championships and has attracted a couple of Queensland four-year-olds south in Sir Moments and Rudy, who won the Recognition Stakes at the mile last start.

Chris Waller, fresh from winning his 10th group 1 for the year with Moriarty in the Kingston Town Stakes in Perth on Saturday, will saddle Festival Stakes winner I’m Imposing, Strawberry Boy, who held on for third in the Festival Stakes, and Multilateral.

“Multilateral could be the next Moriarty,” Waller said. “Moriarty wasn’t anything special, and he struggled first preparation [in Australia].

“Then he started to put a few wins together at a lower level. He found some form at listed level, then as he got older went on to place in group company, then won Saturday’s group 1 in Perth.

“You could never say Multilateral couldn’t win a Villiers, he might get the conditions to suit, which would be a wet track, and a race that becomes a tough mile.”

Scott Aspery has Festival runner-up Estonian Princess set to improve in the Villiers.

“She has kept getting better and I think the bigger track and the extra trip are all pluses for her,” he said. “This race has been the plan and she is peaking at the right time.”

Australian Turf Club racecourse manager Lindsay Murphy said the Randwick course proper will be in top condition after a week of “perfect weather”.

“It needed that extra week and it is ready to go. The renovation has come back in terrific condition and it is ready for a busy period,” Murphy said.

Goldminer St Barbara pleads for help to avoid dam disaster in Solomon Islands

St Barbara chief exucutive Bob VassieBob Vassie is trying to avoid a social and environmental disaster but is finding help hard to come by.
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The new boss of goldminer St Barbara has inherited a moribund asset in the Solomon Islands that is the scene of a deepening standoff with its government.

A wastewater dam at the mine is almost full, and with the wet season now under way, Mr Vassie knows action to reduce the water levels must be taken quickly to avoid the dam being overwhelmed.

But the Solomons government has refused to allow the heavily diluted wastewater to be pumped into a nearby river, and a renewed request by St Barbara was rejected by government officials at the weekend.

The government wants St Barbara to spend four months rebuilding a treatment plant so the water can be purified to drinking standards before being pumped out.

But St Barbara has already had its treatment facilities vandalised and burnt down twice this year by residents, and Mr Vassie says the dam is likely to spill before the four- month build of a third facility could be completed.

He says levels of arsenic in the water are already below the maximum allowed by agricultural water standards, and would be diluted further if pumped into the river immediately.

Mr Vassie said on Sunday that in the next few months, there  would probably bemultiple spills from the dam, threatening serious damage to property, life and the environment below.

“We are left with a predicament that is not one of money, it is one of time. We would not be able to rebuild all that infrastructure in time now that the rains are here,” he said.

“An uncontrolled release is an unpredictable release; we don’t know how much water is going to go over, we don’t know at what rate, we don’t know how much the spillway will be eroded.

“If we were to get cyclonic-type activity up there then you could have major erosion of the spillway, and high volumes of water with entrained tailings will go out.”

The saga has been a baptism of fire for the man who spent 18 years at Rio Tinto, and has been just five months in the top job at St Barbara.

The dam crisis follows flooding and security problems at the mine in 2014, and the Solomons government will eventually take ownership of the asset when a transfer can be agreed.

Mr Vassie has ordered for information leaflets to be distributed to nearby communities, to warn them of the potential for spills.

The Solomon Islands high commission declined to answer questions, and Mr Vassie has urged the Solomons government to take decisive action.

“This is just an untenable situation,” he said.

Australia has spent $2.6 billion on aid missions to the Solomons during the past 11 years, and Mr Vassie said the situation warranted further assistance from Australia.

“We encourage the Australian government to do whatever they can to avoid this escalating into a disaster.”

The Phantom: noir comic superhero inspires works from 40 Australian artists

Ghost who walks: Artist Peter Kingston is surrounded by wooden cut-outs of Phantom characters that he has been making for 40 years. Photo: Peter Rae Skull art: Euan Macleod and Peter Kingston are two of the 40 artists who have contributed to The Phantom Show. Photo: Peter Rae
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Ghostly canvas: Artists Euan Macleod and Peter Kingston with some of the Phantom-inspired work. Photo: Peter Rae

Comic hero: A new show focuses on an old character, The Phantom. Photo: Peter Rae

Phantom shadow: Ageless art on display. Photo: Peter Rae

Phantom portrait: A comic book hero. Photo: Peter Rae

Ghost who walks: Artist Peter Kingston is surrounded by wooden cut-outs of Phantom characters that he has been making for 40 years. Photo: Peter Rae

Skull art: Euan Macleod and Peter Kingston are two of the 40 artists who have contributed to The Phantom Show. Photo: Peter Rae

Ghostly canvas: Artists Euan Macleod and Peter Kingston with some of the Phantom-inspired work. Photo: Peter Rae

Comic hero: A new show focuses on an old character, The Phantom. Photo: Peter Rae

Phantom shadow: Ageless art on display. Photo: Peter Rae

Fresh focus: Some of the work for The Phantom exhibition. Photo: Peter Rae

Cover note: The Phantom was created by Lee Falk in 1936. Photo: Peter Rae

The Phantom: A super, but not that super, superhero. Photo: Peter Rae

Comic strip: Characters on show. Photo: Peter Rae

Phantom portrait: A comic book hero. Photo: Peter Rae

Comic strip: Characters on show. Photo: Peter Rae

Fresh focus: Some of the work for The Phantom exhibition. Photo: Peter Rae

Cover note: The Phantom was created by Lee Falk in 1936. Photo: Peter Rae

The Phantom: A super, but not that super, superhero. Photo: Peter Rae

Comic strip: Characters on show. Photo: Peter Rae

Phantom portrait: A comic book hero. Photo: Peter Rae

Ghostly canvas: Artists Euan Macleod and Peter Kingston with some of the Phantom-inspired work. Photo: Peter Rae

Ghost who walks: Artist Peter Kingston is surrounded by wooden cut-outs of Phantom characters that he has been making for 40 years. Photo: Peter Rae

Skull art: Euan Macleod and Peter Kingston are two of the 40 artists who have contributed to The Phantom Show. Photo: Peter Rae

Ghostly canvas: Artists Euan Macleod and Peter Kingston with some of the Phantom-inspired work. Photo: Peter Rae

Comic hero: A new show focuses on an old character, The Phantom. Photo: Peter Rae

Phantom shadow: Ageless art on display. Photo: Peter Rae

Fresh focus: Some of the work for The Phantom exhibition. Photo: Peter Rae

Cover note: The Phantom was created by Lee Falk in 1936. Photo: Peter Rae

The Phantom: A super, but not that super, superhero. Photo: Peter Rae

Artist Peter Kingston admits to a 60-year love affair with the ghost who walks and will never die, the Phantom.

“It is in my DNA. To sit down with a new Phantom comic, or an old one, time stops. It is like a warm bath, you are absolutely riveted by it,” he said, dressed in a purple Phantom costume in his Lavender Bay home.

Among his peers, Kingston is anything but unusual. More than 40 artists, including Garry Shead, Euan Macleod, Martin Sharp, Kerrie Lester, Reg Mombassa, Bruce Petty and Michael Leunig, have created new works for The Phantom Show curated by Kingston and artist and collector Dietmar Lederwasch.

It is the fourth exhibition in 40 years that pays homage to the unsuperhero-like superhero.

The Phantom was created by Lee Falk in 1936. He had a mask but that’s where the similarities with many of today’s masked men ended. Unlike most superheros, he had no special powers, which may explain why Australians with their love of the underdog have been the most loyal “Phans” for nearly  80 years.

His enigmatic appeal to many Australian boys growing up during World War II and the post-war era – New Zealand artist Dick Frizzell said “interesting boys liked the Phantom” – has inspired doctoral theses, home movies and films like the one created by Kingston with artists Brett and Wendy Whiteley more than 40 years ago.

In 1970, British actor Peter Sellers agreed to play the role of Hitler after reading filmmaker Philippe Mora’s script for The Phantom versus the Fourth Reich.

Mora recalls arriving for script readings to find Sellers in costume as Hitler, and then, as the Phantom. Sellers, also a Phanatic, wanted to play both roles. When that wasn’t possible, Sellers walked away, and Mora’s film didn’t eventuate.

Matthew Holle, a curator with Sydney Living Museums, said the Phantom was greater than a superhero because he “fights crime and rights wrongs without the aid of ‘superpowers’ to assist him”.

“If he could fly unaided through the sky [or] tie a one-inch metal rod into a bow”, then defeating villains like the Swamp Rats would have been a cinch, he said.

So why the Phantom?

“Because he is the Phantom,” Kingston says, surrounded by wood cut-outs of Phantom characters that he has been making for 40 years and a throne with flashing skull that Austen Tayshus will use to launch the exhibition.

Although late to the Phantom Phanbase, Macleod is contributing a painting of the Phantom’s father, a work 10 years in the making.

“There is something very innocent about the Phantom, and they are just beautifully done. Each image is a work of art in its own right,” he said.

The Phantom Show opens at the Australian Galleries on December 9.