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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