Touches of the bizarre seen in banks and major corporates

Friday 15th February 2002

Observers of the financial and economic scenes had minor and major news to ponder in the three holiday-shortened weeks, apart from Parliament's re-opening on Tuesday.

News ranged from the standard to the almost bizarre, although readers can form their own conclusions into which category resumption of the politicians' talkshop came in an election year.

Kiwibank's product launch last week was a standard affair but reaction from one of the major trading banks bordered on the amusing.

The new bank's activities should have little effect on the big operators but the latter could argue that anything eating into their business, even at the margin, warranted a response.

Adjustments to some mortgage rates and general bank fees were small when set against total revenue from those sources. They indicated a willingness to make life as tough as possible for the new player.

The big banks, rightly or wrongly, have a PR problem with their fee structures. They produce public notices advising customers of changes but do not itemise reasons for the new structures.

That procedure, again rightly or wrongly, gets a negative response from the customers, most of whom are unable to go through the hassle of switching accounts.

A similar response hits power companies and other utilities that unilaterally alter charges while failing to itemise the reasons on the basis that tied customers find clear and understandable.

Kiwibank has a battle to carve out a position in the financial services industry. It is unlikely to make realistic profits in the near future, which will give its opponents more ammunition, particularly as taxpayers contributed the organisation's basic capital.

The statement from Contact Energy about the failure of Edison Mission Energy's offer for the company had an element close to the bizarre.

Contact chairman Phil Pryke was quoted as confirming Edison's offer had lapsed.

The company's statement quoted him as saying "we respect shareholders' decision not to sell their shares at this time and view it as a vote of confidence in the future of the company. We look forward to continuing to enhance shareholder value through pursuit of the company's strategy."

As chairman of Contact, Mr Pryke's prime duty is to that company and its shareholders, but, for practical purposes, he effectively holds office at the pleasure of the majority shareholder.

The statement could have been rewritten to say shareholders not accepting the offer expressed no confidence in the offer terms.

A statement from Edison Mission Energy's Asia Pacific senior vice-president, Bob Driscoll, effectively made the best of a bad job.

Mr Driscoll said the lapsing of the offer did not affect his company's commitment to Contact or New Zealand: "We are Contact's majority shareholder and plan to remain so. We are confident Contact will continue to perform well. We are committed to being a long-term player in the New Zealand energy sector."

Maybe, but that depends on how "long term" is defined, whether currently unforeseen circumstances will intervene or future developments in the parent company will affect the current commitment.

Takeover proposals under the current regulatory regime have had mixed success, a situation which could make other companies think carefully about the terms of potential offers.

Snags were seen in other areas of corporate activity. Cinema operator Force Corporation's rights issue of convertible notes got a third extension, until close of business today.

It was an unusual situation but the issue could still come right.

Other news with an indirect effect on investors had a bizarre element but only for its coincidence.

Pending retirements of Stock Exchange managing director Bill Foster and Securities Commission chief executive John Farrell were announced within weeks of each other.

Mr Foster has been in his job for 13 years and Mr Farrell for 18. Each executive began his position at what could be called "interesting times" and will leave in another interesting period.

Mr Farrell arrived at the Securities Commission when the great investment boom was taking off and went through the subsequent bust, after which there were howls for greater regulation and more powers for the commission.

Mr Foster moved into the Stock Exchange when the fallout from the bust was engulfing listed companies, several broking firms and individual operators in the securities industry.

Both executives had important roles in clearing up the debris and setting new foundations.

The Securities Commission has been underfunded for years, although some interests preferred to see it that way.

At least the commission had a fair idea of where it wanted to go. The Stock Exchange needed a cultural change and seemed to get it.

Others, particularly insiders (in the non-sinister sense) can assess Mr Foster's contribution to that process. It is clear to outsiders that the Stock Exchange, its operations and its controls are very different today from the situation before 1989, or 1987 to take the watershed year.

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