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Banks’ figures a community concern

IT is a brave man who dares criticise the concept of community banks. The name seems to say it all, especially when the emphasis is put on that meaningless word, community, which conjures up visions of “one for all, and all for one” ... etc etc.

Briefcase (aka hardcase to his friends) has always argued that true believers in community banks totally misunderstand the second word in the name – bank – which is all about security, caution and prudent lending practices.

The idea that a bank has anything to do with service is totally foreign, and always has been.

Community banks, however, are different, or so we are told by worthy citizens running around Perth and country towns, singing the praises of a locally run bank while bucketing the big banks as bastards for closing their local branches.

No-one, not even Briefcase, will defend the bastards. But people increasingly are looking at small banks and asking whether they have all the skills to avoid being picked off as easy targets by the “Dodgy Brothers” and other disreputable borrowers who have no intention of paying back the money they borrow.

Bendigo Bank, a darling of the community bank advocates, is an interesting example of what can happen when banking descends to a village level.

It is starting to suffer from an embarrassing blowout in bad and doubtful debts, enough to earn it an investment downgrade from the stockbroking arm of a big rival, Deutsche Bank.

“So what”, the defenders of community banking might say. Just another case of a big bank beating up the small fella. Perhaps, though Bendigo’s numbers for the half-year to December 31 were disturbing, including a 65 per cent, or $10 million, increase in provision for “impaired loans”.

This is the very point that Briefcase made last year. Community banking sounds fine in principle, and probably works well when making loans to reputable people who run solid businesses. Sadly, not everyone fits this description. The real world is full of miniature versions of Laurie Connell and Alan Bond.

Deutsche says Bendigo’s profits will continue to rise, though at a slower rate. But the most telling comments published in the mid-May bank review are about the number of new ventures launched by Bendigo, which will absorb management time, and “a marked deterioration in the bank’s asset quality” – stockbroker code for an attack of the Dodgy Brothers.



Is family beef now on the backburner?

THE Holmes a Court name will soon make its way back into daily business news with the June 27 re-float of The Australian Agricultural Company.

AA, as it is known, is being spun out of the Futuris/Elders camp as a pure beef play (not beefcake for those seeking a bit of titillation). The company runs cattle stations across northern Australia and has a herd totalling about 365,000 head.

Profits at AA, which claims a heritage dating back 177 years (making it Australia’s second oldest company), are rising, thanks to Britain’s repeated food scares.

But, better trading and the magic of Young Hacca at the helm, might not be enough to make AA an attractive investment.

Beef, no matter what anybody says, is a damned hard way to make a living, with the return on capital, even in the best years, rarely getting above 10 per cent.

There also is the worry that AA might try and grow too quickly, with reports of the company seeking to reach one million head in five years.

One of the easiest ways to hit that target is for Young Hacca to buy cattle assets from mum, Janet to her friends.

If this is the plan it deeply disturbs Briefcase because it could continue a history of difficult relations between the Hacca family and Futuris boss (and former Hacca acolyte) Alan Newman for more than a decade.



Stock of the Week

KEEP an eye on Hardman Resources, plaything of Alan Burns.

Hardman’s second oil explor-ation well off the coast of Mauritania (West Africa) was spudded on June 8 and is expected to take about four weeks to reach its targets.

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