17/02/2011 - 00:00

ASX merger to challenge eastern centres

17/02/2011 - 00:00


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Australia’s financial ‘centres’ might need to take a tip or two from Perth about how to make it as a branch office.

THERE can only be one head office. That is a fact Perth has learned, and which Sydney and Melbourne risk learning as the Australian Securities Exchange rushes to merge with the Singapore exchange, and globalisation grips the wider financial sector.

Stock exchange mega-mergers, bringing together European, North American and Asian exchange are being marketed as an essential step into the future. But to get a glimpse of that future the governments of NSW and Victoria should take a close look at Western Australia. It’s not pretty.

As recently as the 1980s, Perth was the centre of its own, admittedly small and sometimes corrupt, financial sector. It had its own stock exchange, there were locally based banks and building societies, insurance companies, and trustee companies. There was even a set of state corporate laws administered by the WA Companies Office.

In other words Perth, perhaps because of its isolation from the rest of Australia, developed its own financial district, which employed thousands of people and which functioned well for the best part of a century.

Then came nationalisation. The companies office closed when companies law went national. The Perth Stock Exchange became part of the ASX. Banks, building societies, credit unions and trustee companies merged with bigger national organisations and the Perth financial community shrank dramatically because there can only be one head office.

Today, Australia is travelling the same road as WA; and South Australia, if you’re looking for a second example of descent into irrelevance.

While the financial globalisation cheer squad say it will make the country more international, they cannot argue that will actually be good.

Arguments in favour of the ASX merging with Singapore include greater economies of scale, access to a larger pool of capital, and slicker technology to speed trading. No mention is made of how the listing rules of an Asian-focused stock exchange will affect Australia’s resources-heavy economy – or whether there will be two sets of listing rules.

To see how two sets of rules work look at London, where there is a main board of the London Stock Exchange and a second board called the Alternative Investment Market (AIM). Once thriving, AIM has suffered a near-death experience in recent years because the rules have been tightened to the point where they strangle smaller companies.

Banking regulation is another interesting point to consider as the Basel Committee on Banking Supervision seeks to enforce stricter capital adequacy and leverage rules, none of which are friendly towards resources financing, a risk category that few Swiss bankers understand, or like.

Basel 111, as the latest set of banking rules are known, is already causing concern among financiers because of the way they affect raising capital for mine and oilfield developments.

Perth today is a thriving centre for mining and oil. But, if you fired a canon down its main business street, St Georges Terrace, you might hit a handful of people working in the head office of a nationally important company – and they would all work for either Woodside or Wesfarmers. In Adelaide you might pot a Santos staffer.

There are no bank or insurance company head offices in Perth. The mega-miners that control the lion’s share of the state’s resources sector – BHP Billiton, Rio Tinto and Alcoa – are based in Melbourne, or overseas. The Perth office of the ASX is little more than a wall of pigeonholes for locally listed stocks to drop their reports.

Losing its financial heart has not destroyed Perth, but it has made it a branch office for national and international companies, and caused people in WA to focus more on doing business with the rest of the world, and less with the eastern states.

If, as seems likely a similar situation unfolds with the merger of the ASX and Singapore, and the Basel 111 rules bite deeply into resource financing, and national insurance companies are gobbled by global rivals, the question becomes how the financial communities of Sydney and Melbourne will look in 20 years’ time, especially as Victoria and NSW have failed to encourage points of difference, such as a big resources sector, to survive as a branch office.

WA has survived and prospers because it is plugged more deeply into world markets than anywhere else in Australia, partly because it has the resources, and partly because it had no choice.

Sydney and Melbourne – with significantly smaller financial communities with fewer head offices, a stock exchange based in Singapore or Hong Kong, banking rules written in Basel, and capital raising dominated by London, New York and Shanghai – might then face an interesting time learning how to function as branch offices.

Watch Malaysia

FORMER prime minister Paul Keating, if he follows the writing of a former US ambassador to Malaysia John Malott, will be doing his best to smile this week.

Back in 1993, Mr Keating upset Malaysia’s outspoken PM, Mahathir Mohamad, by describing him as ‘recalcitrant’ for boycotting a summit meeting of countries in the region.

That word recalcitrant, which means stubborn, obstinate or unmanageable, triggered a mini-trade war, a ban in Malaysia on Australia news media, and a decade of cool relations.

Mr Malott, who ran the US embassy in Kuala Lumpur during the recalcitrance spat, has now had his say on Malaysia, describing it as a country split by racial tensions, underperforming economically, and suffering a brain drain as skilled professional migrate to other countries, especially citizens from the Chinese minority.

“This steady erosion of tolerance is more than a political challenge. It’s an economic problem as well,” he wrote.

The former ambassador’s assault on Malaysia was published in an opinion article he wrote for the Wall Street Journal newspaper, and while there has been no reaction from Kuala Lumpur yet it is a wake-up call for Australia that an important country in the region could be sliding into trouble.


“The possession of power inevitably spoils the free use of reason.”

Immanuel Kant



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