Saturday, April 9, 2011

Singapore-Australia stock exchange merger: reasons for the veto

Mike Smith, the CEO of ANZ Bank (one of the big four Australian banks), has received a lot of press for criticising the Australian government veto of the takeover of the Australian stock exchange by the Singapore stock exchange.  I guess he is making the running but he is an ineffective lobbyist.

Senior management of at least one other big four Australian bank (won't tell you which one) privately lobbied the Treasurer Wayne Swan against the merger.  Their reason: Singapore is one of the dirtiest, most corrupt stock markets in the world and they did not want that syphilitic puss invading the Australian financial markets and in particular the Australian superannuation system.

You see Australia has a well-functioning and mostly honest privatized social security system we call “superannuation”.  Its one of the great economic achievements of this country.  It relies on a mostly honest financial market.

Singapore by contrast is one of the homes of Chinese fraud.  At one stage a quarter of the volume of the Singapore stock exchange was so called S-Chips – Chinese stocks listed in Singapore – and they were every bit as scummy as the Chinese reverse mergers listed in New York.  Singapore – in exchange for listing fees – allowed their population and their investment market to be raped by fraudsters.  (If you don't believe me look up a few of the S-Chips on the Wikipedia S-Chip scandal page.)

Singapore came to Australia saying they ran an honest market.

They lied.

At least one and possibly three of the big Australian banks knew they were lying.

Ultimately Wayne Swan knew they were lying.

He did the only decent thing and vetoed the merger and I applaud him for it.

Allowing that puss a place in the Australian market would be deeply damaging for the Australian superannuation system.  And Wayne Swan knew it.

Now interestingly three of the big four banks in Australia have substantial positions in Australian superannuation.  Westpac owns the old Banker Trust platform.  National Australia Bank owns MLC.  Commonwealth Bank owns Colonial.  Only ANZ does not have a seat a the table.  And so only ANZ – through their weakness – would not be a loser if the ultra-corrupt Singapore exchange got to control the ASX.

And ANZ does some trivial investment banking in Asia – so Mike Smith was talking his pocket book.

I know for sure at least one Australian bank lobbied against the merger.  I lobbied a little against the merger too.  But the merger was against Australia's interests and against the interest of three out of four of the big banks.

Wayne Swan – in vetoing the merger – acted clearly in Australia's interest against Singapore corruption.  I could not be prouder of him.





John

28 comments:

Nemo Incognito said...

Interesting points, though I'd argue that the ASX needs to be put out of its misery, or perhaps Gonski does. While SGX has some of dirtiest companies around listed (China New Town, ticker CNTD SP, aka c**nted by Singapore to its creditors) it does run one hell of a derivatives exchange. The idea that the most liquid and tradeable iron ore contract is traded in Singapore says more about the laziness of ASX than the brilliance of the SGX.

Anonymous said...

Sorry mate but that's just rubbish.
Pretty sure it was the responsibility of Monetary Authority of Singapore to enforce rules and laws regarding corporations and have very little to do with the exchange. An exchange's soul purpose is to provide a venue for trading and provide timely data flow...

John Hempton said...

Wrong. Look at the phrase "listing rules".

Singapore has a listing rule. If it is too scummy for Hong Kong they will just cut their rate to attract it.

John

John Hempton said...

Thanks Josh for this.

http://josh.sg/2011/04/hes-right/

Anonymous said...

hey what about P-chips listed on the Hong Kong stock exchange?

http://en.wikipedia.org/wiki/P_chip

During the Financial crisis of 2007–2010, P-Chips showed a dramatic increase in the rate of bankruptcy failures as compared to H Shares or Red Chips.

Anonymous said...

Look who is on the board of ANZ...

Anonymous said...

John
I applaud your post.
Whilst the financial press screams Swan was wrong.
Surely good governance is the foundation of any exchange.
And the bidder is, a smaller exchange, controlled by a government, controlled by a ruling family whose idea of good governance is entirely different to our.
Seems a bit like Holmes a' Court trying to take over BHP.
Logical argument can be advanced that it could happen, but does anyone really believe?
BobM

Richard said...

John,
I applaud the post as well - though my views are less inflammatory.
In my opinion SGX is a weak suitor. It has a weak balance sheet. It is losing listings to HK. There is far too much MAS-Singapore government involvement in its business for my comfort.
If ASX con't do better, maybe it shouldn't do anything. I am not convince that integration with Asian markets by this means is either necessary or wise.

Brooks said...

Nice post. Thanks for the info. As an American living here in Aus, the extra info helped. The only thing I heard reported in the 'news' was protectionism. Thanks for bringing to light other issues.

persistentone said...

And for some out of the box thinking: if Australia is the only honest exchange in Asia, maybe there is an interesting growth niche for ASX in acting as a home for *honest* Chinese companies.

"Honest Chinese company" may be an oxymoron, but if such a thing exists, ASX could develop special rules to test and regulate these entities, and once the success of that regulation had been validated by the market, ASX could become the preferred place to find Chinese smallcaps.

Anonymous said...

What a rubbish nationalist / racist post! So you think ASX is not corrupt, Australian companies and government are not corrupt? Wake up! The fact that the Singapore exchange lists companies that are dodgy is not the same as saying the exchange is corrupt. The info on the companies is all public knowledge and the investor should do his homework before investing. Just because it is listed does not mean it is a good company.
Or are you so used to the nanny Austrlian govt that you want the exchange to provide you guarantees for your investment? Investors should take responsibility for their decisions, the exchange does not guarantee your investment.
For the record, i am an Australian citizen, but have lived and worked in SE Asia for many years. It is racist, xenophobic attitudes like this among supposedly well educated Australians that is the downfall of Australia. It has made Australia into a backwater in the midst of booming Asia and but for its vast natural resources Australia would not merit a mention in the world.

John Hempton said...

I figured someone would say I was racist - but hey - I find shorts in Australia and America - but easiest place to find fraud short is China - and more specifically Chinese stocks listed outside China.

Is that racism? My money is where my mouth is.

John

Brian Maloney said...

UTA's been halted news pending at NYSE -- hasn't traded since just after the open. Any updates?

John Hempton said...

I have no more news on UTA than you. But some have relisted quickly (eg DGW) and others are still suspended a month later (CCME).

Your guess is as good as mine.

J

JK said...

This is an interesting post, but I would need to disagree with you John. It sounded like you labelled all chinese stocks in SGX are fraud. This is way way over-generalisation, unless you got numbers to support your claim.

Richard said...

"Racist!" Ouch!

I don't see SGX's listing rules as the problem. The abusive "anonymous" contributor is correct. There are dodgy companies listed all over the world.

What bothers me is the Singapore government, MAS and the influence they have over SGX. When push comes to shove, they will look after Singapore interests first, and let the "White Trash of Asia" (to use Lee Kuan Yew's term for Australians) go the Hell.

Michael said...

Whilst you can levy childish names at Singapore all you want fact is here a non shareholder of ASX (Swan) overruled the will of the shareholders and board to seize control of the company, in effect he just showed us that much like Zimbabwe and Bolivia there is no such thing as private property rights in Australia and he took away the opportunity for shareholders to make a return at what was an incredible PE ratio, rather than capital flowing into more efficient areas it is now stuck in ASX shares and set to evaporate in the coming weeks.

On a broader perspective this means a smaller amount of the trillions of Chinese and Singapore capital will flow into our stocks and our companies market caps will not rise as much as they could have. The fact 3/4 of our big banks (by far the most corrupt corporarist ventures in the nation) supported the blocking of this merger is not a good reason to do so.

Now why would you come out in support of blocking this merger? You've admitted knowing 3/4 banks were pressuring Swan to block the deal. Could it be because you acted on inside information and shorted ASX making a killing? I think so.

Michael said...

By the way on the topic of corrupt business surely you jest when you slander SGX and then hold 3/4 of our big banks up as moral authority on the merger. Have your forgotten the hundreds of billions they've robbed from Australians by pushing housing tax incentives, buyer bonuses and what not giving us the most overvalued market and highest mortgages in the world?

As for superannuation it isn't a "functioning and honest" social security system. For the average person it locks up capital away for decades where fund managers like yourself take huge commisions for below ASX index returns. The huge amount of regulation on managing ONES OWN fund makes super the biggest corporatist boon for fund managers and others of your ilk. It's functioning for men like yourself but not ones like myself.

Anonymous said...

Very interesting take. On UTA, what happens to options that are due to expire in two days if the underlying stock is suspended?

Thanks in advance. Great blog - keep it up!

John Hempton said...

UTA - the stock is suspended.

Your only choices that I know of are either to exercise the options or let them lapse.

Its a hard choice...

Anonymous said...

On UTA, you can exercise, but it is a hassle.

If you are a retail investor running a mini-Hempton short portfolio in your brokerage account (up like 800% Jon, thanks a lot!) then you will likely need to call your broker and verbally instruct them to exercise. Then you have to wait until the stock trades again to cover. Until then it is likely your broker will use the last trading price as the MtM of your position. For CCME that meant that the $5 puts for instance look like they are way out of the money (last trade around $11). They don't expire worthless though.

Anonymous said...

All stock markets have varying degrees of "leeway" , and the onus is on the investor to be sure of his/her risk profile and differentiate the options as per his/her objectives. However, i do agree that most investors will do well to steer clear of chinese stocks.

Anonymous said...

John,

I've only started erading your blog over the last month or so, but thanks for some really excellent posts.

I don't invest in anything I read on the internet (I like to make my own mistakes...), but the insights are great and very good for refining my general critical thinking skills.

Thanks again, and I hope you continue posting.

Richard said...

With respect to the governance framework of SGX, was that "leeway" or "Lee way"?

Paul said...

This is for Michael who accused many people of many different things, including high commissions for sub-index returns.

I'm not going to say anything about returns but concerning "commissions" (we'll call them management fees, just for fun), if you run your own superannuation fund, you get a choice of 1) holding shares directly (so no ongoing management fee), 2) ETFs, etc which are very low in fees or 3)managed funds OR if you're in a work related superannuation, the fees that are charged to manage those billions are pretty small (30bps is not unreasonable).

so, not defending anything bronte does (as i'm not informed on that side of things, but then neither are you (it would seem), i think you should do a little more research next time.

John Hempton said...

For the record - I did not bet on or against the ASX merger with the SGX and neither did Bronte's clients.

I am glad the Minister made the right decision - but it was to some extent to me a surprise. Politicians do not always make the right decision!

dd said...

in effect he just showed us that much like Zimbabwe and Bolivia there is no such thing as private property rights in Australia

Robert Conquest, the great writer on Communism, was the first to note that there is a particular pattern of rhetoric which was common among Stalinist parties in Western countries, but which of course was not exclusive to them. One of the key features was the use of the word "effectively", or the phrase "in effect", in contexts where it was clear that the word "not" was more appropriate. I think this is another instance, and I don't think even the author of the sentence quoted above would actually try to argue that Australia has a lack of property rights and rule of law similar to Zimbabwe.

michale wong said...

Your post is helpful, I am always searching for informative information like this. We appreciate your brilliant work please write some on SGX Singapore. Thanks for sharing with us.

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