15/02/2017 AFRGA1 A020 - · PDF fileAFRGA1 A020 Wednesday 15 ... financials’’...
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AFRGA1 A020 AFR Wednesday 15 February 2017 The Australian Financial Review | www.afr.com 20 Companies &Markets Financial Services A ntipodes puts faith in European banks Jonathan Shapiro ING has handled well the low interest rate environment. PHOTO: BLOOMBERG There are few sectors more out of favour than Italian banks. Up to their eyeballs in non-performing loans, a wipeout of shareholder capital has only been averted by last-ditch state bailouts. But Sydney-based global equities manager Antipodes sees one Italian bank as a screaming buy. Mediobanca is Italy’s version of Macquarie Bank. And if Italy’s banks need to merge or raise equity capital, owning an Italian invest- ment bank could be a smart trade. A potential fee bonanza from fixing the banking sector is just part of the investment thesis. The bank is a lender to Australia’s corporate sector and well placed to profit from Italy’s under- serviced but relatively wealthy savers. ‘‘Mediobanca is growing its earnings, paying a 6 per cent dividend and trading at a 0.8 times price to book,’’ Antipodes head of execution Sunny Bangia says. ‘‘There are lots of these opportunities in Europe that are presenting them- selves because the market is being shunned by investors.’’ Antipodes sees opportunity in European equities, which are being dis- counted because of political uncer- tainty. There is no escaping the risks. A string of elections and a rising populist tide could put further pressure on the struggling eurozone project. But the economic data offers a far more positive picture. The European economy is growing, while once troubled regions are achieving current- account surpluses as the weaker cur- rency boosts competitiveness. The most positive aspect is the employment picture which Mr Bangia says is improving at a faster rate than the US when one factors in employment relative to working age population. ‘‘The 10 per cent headline unemploy- ment number is sometimes unfair when you look through the surface and see large portions of the population are coming back to work,’’ he adds. With Europe’s economies improv- ing, Mr Bangia says the fund is ‘‘finding incredible value in western European financials’’ that are not only cheap but in some cases highly profitable. Dutch lender ING is a favourite of the fund’s analysts, particularly for the way it has ‘‘beautifully managed’’ the low interest rate environment that has squeezed bank profits. The kicker for these stocks will be if interest rates rise. Again, while much of the focus has been on rising US bond rates, it is European bonds that have more catching up to do. Historically, the 10-year bond has broadly tracked economic growth and, while the US economy is on track for 3 to 4 per cent growth, the bond rate lingers around 2 per cent. Growth in the European workforce of 0.5 per cent plus the productivity growth of developed service-based eco- nomies of about 2 per cent implies a growth rate of 2.5 per cent, Mr Bangia says. Europe is achieving that, but bond rates are at 1 per cent, suggesting rates will have to rise. The risk that most concerns the team at Antipodes is China and the potential for ‘‘a debt hangover’’ as debt levels across that economy continue to rise. The yuan ranks as the most expens- ive currency globally on the fund’s cur- rency valuation models, which take into account trade and interest rate dif- ferentials relative to trading partners. The Chinese currency has been pegged to a rising dollar even though there are deflationary forces within the Chinese economy. The fund has hedged half the value of its Chinese equity exposure out of the yuan. An additional hedge has been to buy the Norwegian krone. The so-called commodity currencies, which include the Australian dollar, are among the cheapest based on their model. Norway is a major oil producer and as the oil price has fallen it has been affected. But ‘‘unlike Australia, Norway saved its commodity boom’’. Norway has a large current-account surplus and its oil-linked investment dividends flow back through the econ- omy. Growth is positive, inflation high and rates likely to rise and give the cur- rency a lift. A theme Antipodes has continued to trade is to bet against weak US com- panies that have loaded up on debt by virtue of a booming d bond market. ‘‘What we are seeing is that when you dig into more of corporate Amer- ica and go outside the Fortune 500 it gets very messy very quickly,’’ Mr Bangia says. Deutsche Bank tells Oz staff bonuses to return From page 17 ‘‘The people that lost trust in Deutsche Bank, they should’ve left two years ago,’’ Mr Steinmuller said. ‘‘Now we are absolutely in the right direction and we don’t see any major changes.’’ The comments come after a tumul- tuous year for Deutsche Bank globally, culminating in a €2 billion loss in the fourth quarter as it addressed litigation charges in the United States, impair- ments, restructuring and the like, and the board’s decision to limit bonuses. Under the bonus edict, bankers at vice-president to managing director level will not receive any bonus based on individual performance for the year to December 31. Bankers below that level can receive an individual, but lim- ited, variable compensation award. An unspecified number of senior bankers in ‘‘crucial positions for the fur- ther success of the bank’’ globally were offered long-term incentives, partly in shares deferred up to six years. Mr Steinmuller said a number of Australian bankers were offered long- term incentive packages, but declined to say how many. He said Australia was an important market for the German bank; it is the third biggest under his control in the Asia Pacific region. The bank’s Australian arm is estim- ated to have made more than €1 billion profit in the past decade, based on regu- latory filings and other sources. Its Aus- tralian revenue predominantly comes from fixed income and equities markets business, as well as corporate finance activity including mergers, initial public offerings and associated financing. ‘‘We are strong, we want to win and I am very proud of what we have here in Australia,’’ he said. ‘‘Our clients are looking for investments which produce stable revenue and income. And here Australia has utilities companies, tele- com companies, commercial banks – just to mention a few sectors – where a lot of investors are interested. When you look from the world to Asia, Aus- tralia is extremely well positioned.’’ Mr Steinmuller is also expected to take the opportunity to meet candidates for the top Australian job at Deutsche Bank, with well-regarded country head Michael Ormaechea stepping down after 22 years with the bank. ‘‘We are evaluating candidates and at the right moment will have a decision,’’ Mr Steinmuller said. ‘‘When I’m looking to any position, I always look internally and externally. This is what I am responsible for, and I will make a recommendation to the Deutsche Bank board and then it is for them. ‘‘I want it to be as quick as possible, but the person needs regulatory approval, board approval and Michael is still here. I want it to be soon ... it is head of my priority list.’’ Mr Ormaechea said he would remain at the bank until a successor was anointed and an orderly handover had been made. The outgoing country head said local staff were not thrilled about the bonus edict, but understood they were being treated in line with offshore colleagues. ‘‘I think the majority of staff see this as a one-off event,’’ Mr Ormaechea said. ‘‘And given the tenor of the employ- ees, I think they will take this as a one- off as part of the broader contribution everyone is making and towards resolution and go forward.’’ WAM’s Geoff Wilson has described the situation at Hunter Hall as a ‘‘corporate governance crisis’’. PHOTO: DANIEL MUNOZ Third horse in Hunter Hall saga, EGM called Vesna Poljak The battle for Hunter Hall, the $900 million-plus ethical investment empire founded by Peter Hall, has taken another twist with Stuart McAuliffe revealing his intent to secure up to 20 per cent of the company at close to market prices. Mr McAuliffe, via his NSX-listed John Bridgeman and ASX-listed Henry Morgan, already owns 5.81 per cent of the in-play Hunter Hall and he is will- ing to pay up to $2.40 a share, exceed- ing the $2-a-share that Pinnacle and Washington H. Soul Pattinson have both offered Mr Hall for his remaining 24 per cent stake. Hunter Hall closed at $2.42 on Tuesday. Soul Patts controls 19.9 per cent of the funds manager and sweetened its offer from $1.60 on Monday. Pinnacle and Soul Patts’ bids ‘‘significantly undervalue’’ the company, Mr McAuliffe said, suggesting his bet on Hunter Hall could yield a five- or ten- fold return for his investors. ‘‘I’m buying stock, we’ve been quite open about that. There’s two bidders, one I believe paid $1-a-share and the other one doesn’t have any stock at all, I’ve paid up to $2.85. This is a business where you need to put your money where your mouth is,’’ Mr McAuliffe said. He observed it was once worth around $17 a share and ‘‘now we’re talking about $2 as if someone might be tempted, it’s ludicrous’’. Mr McAuliffe believes Hunter Hall and he share a high conviction mental- ity. ‘‘A lot of fund managers are gener- ally looking for something incremental, if the market’s going to do 10 [per cent] they’re looking for 11. The boutique fund manager like Hunter Hall was going out and finding these opportunities that went up five fold, ten fold.’’ He is open to accepting a board seat. The exit of Mr Hall, coupled with poor investment performance and instability around the shareholder register is an opportunity in his view. ‘‘This is where the market’s really at, the shareholders are saying ‘we think there’s more value there’. And what we’d like to see is a strategy to increase the value of the company.’’ Meanwhile, Geoff Wilson’s Wilson Asset Management has described the situation at Hunter Hall as a ‘‘corporate governance crisis’’ and warned that if it is successful in replacing the board of listed investment company Hunter Hall Global Value, the performance of its investment manager will be held to account. Amid the escalating stoush between Mr Wilson’s WAM and HHV, Mr Wil- son promised an equal-access buyback at net tangible asset value, higher dividends and improved governance and engagement if he succeeds in rolling the board. ‘‘We are fighting for this choice because it is the desired out- come for ourselves and for many retail HHV shareholders who, in our view, have been ignored by the current board.’’ WAM has already backed three new directors it plans to install at the listed investment company – on 50 per cent lower fees – if it succeeds: Glenn Burge, Emma Davidson and Kym Evans. On Tuesday it formally sought an extraor- dinary general meeting detailing its con- cerns. Hunter Hall is HHV’s investment manager. Mr Hall resigned as chief investment officer in December setting off an auc- tion at Hunter Hall and disquiet at HHV. Mr Wilson’s WAM, the biggest shareholder in HHV ahead of Soul Patts, has sought the buyback as a means for shareholders to voluntarily exit the stock. Subscribe Subscribe to The Financial Review Newspaper and digital (including iPad app) subscriptions visit afr.com/sub- scribe Contact us Subscription and customer service inquiries call 1800 646 990
Transcript of 15/02/2017 AFRGA1 A020 - · PDF fileAFRGA1 A020 Wednesday 15 ... financials’’...
AFRGA1 A020
AFRWednesday 15 February 2017The Australian Financial Review | www.afr.com
20 Companies&Markets Financial Services
Antipodes puts faithin European banks
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Jonathan Shapiro
ING has handled well the low interestrate environment. PHOTO: BLOOMBERG
There are few sectors more out offavour than Italian banks. Up to theireyeballs in non-performing loans, awipeout of shareholder capital has onlybeen averted by last-ditch state bailouts.
But Sydney-based global equitiesmanager Antipodes sees one Italianbank asa screaming buy.Mediobanca isItaly’s version of Macquarie Bank. Andif Italy’s banks need to merge or raiseequity capital, owning an Italian invest-ment bank could be a smart trade.
A potential fee bonanza from fixingthe banking sector is just part of theinvestment thesis. The bank is a lenderto Australia’s corporate sector and wellplaced to profit from Italy’s under-serviced but relatively wealthy savers.
‘‘Mediobanca is growing its earnings,paying a 6 per cent dividend and tradingat a 0.8 times price to book,’’ Antipodeshead of execution Sunny Bangia says.
‘‘There are lots of these opportunitiesin Europe that are presenting them-selves because the market is beingshunned by investors.’’
Antipodes sees opportunity inEuropean equities, which are being dis-counted because of political uncer-tainty. There is no escaping the risks. Astring of elections and a rising populisttide could put further pressure on thestruggling eurozone project.
But the economic data offers a farmore positive picture. The Europeaneconomy is growing, while oncetroubled regions are achieving current-account surpluses as the weaker cur-rency boosts competitiveness.
The most positive aspect is theemployment picture which Mr Bangiasays is improving at a faster rate thanthe US when one factors in employmentrelative to working age population.
‘‘The 10 per cent headline unemploy-ment number is sometimes unfairwhen you look through the surface andsee large portions of the population arecoming back to work,’’ he adds.
With Europe’s economies improv-ing, Mr Bangia says the fund is ‘‘findingincredible value in western Europeanfinancials’’ that are not only cheap butin some cases highly profitable.
Dutch lender ING is a favourite of thefund’s analysts, particularly for the wayit has ‘‘beautifully managed’’ the lowinterest rate environment that hassqueezed bank profits.
The kicker for these stocks will be ifinterest rates rise. Again, while muchof the focus has been on rising US bondrates, it is European bonds that havemore catching up to do.
Historically, the 10-year bond hasbroadly tracked economic growth and,while the US economy is on track for 3to 4 per cent growth, the bond ratelingers around 2 per cent.
Growth in the European workforceof 0.5 per cent plus the productivitygrowth of developed service-based eco-nomies of about 2 per cent implies agrowth rate of 2.5 per cent, Mr Bangiasays. Europe is achieving that, but bondrates are at 1 per cent, suggesting rateswill have to rise.
The risk that most concerns the teamat Antipodes is China and the potentialfor ‘‘a debt hangover’’ as debt levelsacross that economy continue to rise.
The yuan ranks as the most expens-ive currency globally on the fund’s cur-rency valuation models, which takeinto account trade and interest rate dif-ferentials relative to trading partners.
The Chinese currency has beenpegged to a rising dollar even thoughthere are deflationary forces within theChinese economy. The fund hashedged half the value of its Chineseequity exposure out of the yuan.
An additional hedge has been to buythe Norwegian krone. The so-calledcommodity currencies, which includethe Australian dollar, are among thecheapest based on their model. Norwayis a major oil producer and as the oilprice has fallen it has been affected. But‘‘unlike Australia, Norway saved itscommodity boom’’.
Norway has a large current-accountsurplus and its oil-linked investmentdividends flow back through the econ-omy. Growth is positive, inflation highand rates likely to rise and give the cur-rency a lift.
A theme Antipodes has continued totrade is to bet against weak US com-panies that have loaded up on debt byvirtue of a booming d bond market.
‘‘What we are seeing is that whenyou dig into more of corporate Amer-ica and go outside the Fortune 500 itgets very messy very quickly,’’ MrBangia says.
Deutsche Bank tells Ozstaff bonuses to return
From page 17
‘‘The people that lost trust in DeutscheBank, they should’ve left two yearsago,’’ Mr Steinmuller said. ‘‘Now we areabsolutely in the right direction and wedon’t see any major changes.’’
The comments come after a tumul-tuous year for Deutsche Bank globally,culminating in a €2 billion loss in thefourth quarter as it addressed litigationcharges in the United States, impair-ments, restructuring and the like, andthe board’s decision to limit bonuses.
Under the bonus edict, bankers atvice-president to managing directorlevel will not receive any bonus basedon individual performance for the yearto December 31. Bankers below thatlevel can receive an individual, but lim-ited, variable compensation award.
An unspecified number of seniorbankers in ‘‘crucial positions for the fur-ther success of the bank’’ globally wereoffered long-term incentives, partly inshares deferred up to six years.
Mr Steinmuller said a number ofAustralian bankers were offered long-term incentive packages, but declinedto say how many.
He said Australia was an importantmarket for the German bank; it is thethird biggest under his control in theAsia Pacific region.
The bank’s Australian arm is estim-ated to have made more than €1 billionprofit in the past decade, based on regu-latory filings and other sources. Its Aus-tralian revenue predominantly comesfrom fixed income and equities marketsbusiness, as well as corporate financeactivity including mergers, initial publicofferings and associated financing.
‘‘We are strong, we want to win and Iam very proud of what we have here inAustralia,’’ he said. ‘‘Our clients arelooking for investments which producestable revenue and income. And hereAustralia has utilities companies, tele-com companies, commercial banks –just to mention a few sectors – where alot of investors are interested. Whenyou look from the world to Asia, Aus-tralia is extremely well positioned.’’
Mr Steinmuller is also expected totake the opportunity to meet candidatesfor the top Australian job at Deutsche
Bank, with well-regarded country headMichael Ormaechea stepping downafter 22 years with the bank.
‘‘We are evaluating candidates and atthe right moment will have a decision,’’Mr Steinmuller said. ‘‘When I’mlooking to any position, I always lookinternally and externally. This is what Iam responsible for, and I will make arecommendation to the Deutsche Bankboard and then it is for them.
‘‘I want it to be as quick as possible,but the person needs regulatoryapproval, board approval and Michaelis still here. I want it to be soon ... it ishead of my priority list.’’
Mr Ormaechea said he wouldremain at the bank until a successorwas anointed and an orderly handoverhad been made.
The outgoing country head said localstaff were not thrilled about the bonusedict, but understood they were beingtreated in line with offshore colleagues.
‘‘I think the majority of staff see thisas a one-off event,’’ Mr Ormaechea said.
‘‘And given the tenor of the employ-ees, I think they will take this as a one-off as part of the broader contributioneveryone is making and towardsresolution and go forward.’’
WAM’s Geoff Wilson has described the situation at Hunter Hall as a ‘‘corporate governance crisis’’. PHOTO: DANIEL MUNOZ
Third horse in HunterHall saga, EGM called
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Vesna Poljak
The battle for Hunter Hall, the$900 million-plus ethical investmentempire founded by Peter Hall, hastaken another twist with StuartMcAuliffe revealing his intent to secureup to 20 per cent of the company atclose to market prices.
Mr McAuliffe, via his NSX-listedJohn Bridgeman and ASX-listed HenryMorgan, already owns 5.81 per cent ofthe in-play Hunter Hall and he is will-ing to pay up to $2.40 a share, exceed-ing the $2-a-share that Pinnacle andWashington H. Soul Pattinson haveboth offered Mr Hall for his remaining24 per cent stake. Hunter Hall closed at$2.42 on Tuesday.
Soul Patts controls 19.9 per cent ofthe funds manager and sweetened itsoffer from $1.60 on Monday. Pinnacleand Soul Patts’ bids ‘‘significantlyundervalue’’ the company, MrMcAuliffe said, suggesting his bet onHunter Hall could yield a five- or ten-fold return for his investors.
‘‘I’m buying stock, we’ve been quiteopen about that. There’s two bidders,one I believe paid $1-a-share and theother one doesn’t have any stock at all,I’ve paid up to $2.85. This is a business
where you need to put your moneywhere your mouth is,’’ Mr McAuliffesaid.
He observed it was once wortharound $17 a share and ‘‘now we’retalking about $2 as if someone might betempted, it’s ludicrous’’.
Mr McAuliffe believes Hunter Halland he share a high conviction mental-ity. ‘‘A lot of fund managers are gener-ally looking for something incremental,if the market’s going to do 10 [per cent]they’re looking for 11. The boutique fundmanager like Hunter Hall was going outand finding these opportunities thatwent up five fold, ten fold.’’ He is open toaccepting a board seat.
The exit of Mr Hall, coupled withpoor investment performance andinstability around the shareholderregister is an opportunity in his view.‘‘This is where the market’s really at,the shareholders are saying ‘we thinkthere’s more value there’. And whatwe’d like to see is a strategy to increasethe value of the company.’’
Meanwhile, Geoff Wilson’s WilsonAsset Management has described thesituation at Hunter Hall as a ‘‘corporategovernance crisis’’ and warned that if itis successful in replacing the board oflisted investment company Hunter
Hall Global Value, the performance ofits investment manager will be held toaccount.
Amid the escalating stoush betweenMr Wilson’s WAM and HHV, Mr Wil-son promised an equal-access buybackat net tangible asset value, higherdividends and improved governanceand engagement if he succeeds inrolling the board. ‘‘We are fighting forthis choice because it is the desired out-come for ourselves and for many retailHHV shareholders who, in our view,have been ignored by the currentboard.’’
WAM has already backed three newdirectors it plans to install at the listedinvestment company – on 50 per centlower fees – if it succeeds: Glenn Burge,Emma Davidson and Kym Evans. OnTuesday it formally sought an extraor-dinary general meetingdetailing its con-cerns. Hunter Hall is HHV’s investmentmanager.
Mr Hall resigned as chief investmentofficer in December setting off an auc-tion at Hunter Hall and disquiet atHHV. Mr Wilson’s WAM, the biggestshareholder in HHV ahead of SoulPatts, has sought the buyback as ameans for shareholders to voluntarilyexit the stock.
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