ABC cuts mild compared with Fairfax’s

Some perspective on the cuts to the ABC: if it had the intestinal fortitude, the government could rip a cool $254 million it needs from tax-dodging multinationals. It could probably do it in a single year.

This is the sum to be snipped from the ABC over five years, 4.6 per cent of its $5.2 billion in funding. In the scheme of things the cuts are not too hairy. Take Fairfax Media, publisher of this content and an ABC rival in the market for eyeballs.

To borrow from Crocodile Dundee, “That’s not a knife, this is a knife”.

Over the past five years, Fairfax has reduced headcount by 3010. Since the peak in 2008-2009, operating expenses have dropped from $2.2 billion to $1.6 billion, staff costs (before redundancy costs) are down $952 million to $732 million, cash from customers by more than $1 billion and borrowings by more than $2 billion.

These are raw numbers, without stripping out asset sales and acquisitions. It has not been pretty. Nonetheless, Fairfax has the highest audiences for its news websites in the country.

Like drunken punters – and despite the advent of the internet – former management wagered double-or-nothing on the big acquisition of Rural Press newspapers in 2006, but somehow the business staggered on, all the while paying full-freight corporate income tax, unlike rival Rupert Murdoch’s News, and without the subsidy of el cheapo licence fees lavished upon the cartel of commercial TV networks.

So the cuts are hardly earth-shattering for the ABC, though it would be preferable for funding to be frozen than cut. The ABC does a good job (it is certainly without peer in the field of pursuing journalism awards!) and frankly government has less of a spending problem than a revenue problem.

Despite this revenue problem, and all the huffing and puffing about multinational tax-dodgers prior to the G20, the outcome of the big Brissie gab-fest was nothing more than a recommitment to a recommendation to share information in three or perhaps four years’ time.

Secret upsizing concerns

Here is a terrific idea for those raising money on the sharemarket. Get your stockbrokers hot on the deal, then upscale. They won’t find out until you lodge your form Appendix 3B; that’s when you are required to tell the ASX the amount of shares on issue.

It works for Morgans Stockbroking. Jonathan Barrett, formerly a dealer with Morgans, says the firm has “the cute little habit of upsizing placement deals in favour of their corporate clients without informing the brokers who are bidding into the deal or the ‘sophisticated investor’ clients”.

Barrett has since left. He complained about the upsizing. They attempted to put him on a “performance review”, Barrett refused to sign the form and his contract was terminated.

He has a point. Take the placement of shares in QRX Pharma last November. The term sheets for the deal made no mention the deal size might be increased.

Then, presto, the appendix 3B was lodged and the shares on issue had been upsized by 50 per cent.

“There are a number of advisers who are angry that neither they nor their clients were informed of the new deal structure,” says Barrett, whose claims are supported by his clients. “Neither advisers or clients were given the opportunity to confirm or amend their bids which is their ethical and legal right”.

A spokesman for Morgans said Barrett was told of the extra shares but the firm was unable to provide any written memo. Brokers were informed verbally, he said.

“What makes this even worse is that those clients who got placed more stock than they should have at 60c have made significant loses with the stock now trading at 1.9c, says Barrett.

The placement for Pura Vida in December 2013 is another example. The deal was upsized by 35 per cent, again without advisers or their clients being notified until the 3B emerged.

Then there was Asia Pacific Data Centre Group. Three days after a pep-up meeting on the stock, and two days after the publication of “Two Great Yield Picks”, of which Asia Pacific Data was one, came a  20 million share block trade, 17 per cent of the company at a 1.4 per cent discount to the prevailing share price. Barely a third of the trade was completed says Barrett.

Good old stockbroking, plus ca change c’est la meme chose.

Pro-fund difference

Moving right along to the land of funds management. Last week we revealed a study by Stockspot which identified all the Fat Cat funds, and their plush fees even for lagging the ASX benchmark returns.

Here is an example of how predatory the superannuation system has become. Take the same fund and two different platforms – and this is before financial advice and other fees.

Take the average 30-year-old worker on a $60,000 salary (conservative assumptions: 8 per cent average growth, 9.5 per cent super contribution, 2 per cent income growth.

Were this worker to invest in the Suncorp Fidelity Australian Equities fund (fee 0.85 per cent) he or she would have $1.748 million in super at age 70. The same worker investing in the same fund with ANZ, the ANZ/OnePath OneAnswer Fidelity Australian Equities fund (fee 2.85 per cent) would have $1.035 million in super at age 70.

That is a breath-taking 70 per cent compounding difference of paying $224,000 in fees to the little bank or $500,000 in fees to the big bank. Same fund, different platform. Say no more.