Malcolm Maiden
THE Rudd government has bought itself more time for talks with Telstra about a national broadband network deal by pushing out the date for the introduction of its Telstra break-up bill in the Senate until next Thursday.
The bill was originally to be introduced next Tuesday, then next Wednesday. On Thursday it will be in a cul-de-sac, set to come on after debate about the government's proposed private health insurance rebate means test that will probably run long enough to swamp it.
If it is sidelined next week, the bill will next be up for debate in a fortnight when the Senate returns after a break, and that may not be bad thing.
The bill contains a triple threat: to break up Telstra, deny it the right to bid for new broadband spectrum, and force the sale of Telstra's 50 per cent stake in the Foxtel pay TV group.
The threats are designed to push Telstra into a deal to sell its copper wire telephone network (and, in effect, its copper network customers) into the new broadband network, and moving the bill into the Senate risks destabilising talks to that end that are under way between the government and Telstra.
If the bill does go live in the Senate next week, the government could attempt to calm Telstra by including new clauses giving Communications Minister Stephen Conroy clear discretion to de-fang it if a deal is reached, by removing the Foxtel and spectrum threats, and downgrading the separation of Telstra.
But that creates another problem. If Conroy is given broad discretion in the legislation to either retain or remove the threats and an NBN deal between Telstra and the government is subsequently struck, Telstra shareholders would need to approve it as precondition for the minister exercising his discretion in Telstra's favour. Sufficient shareholder support is far from guaranteed in those circumstances.
There is real risk, too, that the negotiating leverage the government has created with the triple threat will be destroyed if the bill is brought on, because its passage in the Senate is far from assured.
Simply announcing that the bill is being held back is unacceptable inside the government, too: the threat that the bill will be passed in its current form is the source of the government's negotiating leverage, and delays undermine its bargaining position.
Best, on balance, to make it look like you are serious about getting the bill on to the floor, while also actually sidelining it for a fortnight. Sheer artifice: but it gives the negotiators breathing room, so neither side is likely to make a song and dance about it.
NAB shares fell yesterday because the bank's first-quarter cash profit didn't match those recently posted by Westpac and Commonwealth Bank, but that flows more from the way NAB is positioned than the way it is being run.
NAB's $1.1 billion December-quarter profit was up 20 per cent on the September quarter, but unchanged on the December 2009 quarter. Westpac's $1.6 billion December-quarter profit was 33 per cent above the September quarter, and CBA posted a 54 per cent jump in December-half earnings to $2.943 billion.
But NAB is a business lender primarily - it has the leading business lending share - and Westpac and NAB are primarily home lenders, with about 60 per cent of their loan book committed to residential lending, compared with 40 per cent for NAB.
And as government propped up consumer spending last year and as the Australian government increased hand-outs to first home buyers, CBA and Westpac profited. Their results reflect the surge in home lending last year, and the fact that they also boosted their home lending market share.
Businesses, meanwhile, are paying down loans and pushing expansion plans that will require new debt out. NAB maintained business lending volumes last year, adding market share as system-wide business lending declined, but weak corporate demand for loans shows in the group's result, as does its exposure to the sluggish British economy through its banking network there.
Its profit outlook is a microcosm of the challenge for the global economy. So far the economic recovery has been fuelled by the household sector, which in turn has been supported by low interest rates and government stimulus.
What's needed now as rates begin to rise and government stimulus fades is for the growth impetus to pass from households to the business sector.
If and when that happens, the global economic recovery will be much more secure - and the strategic settings that are currently taking wind out of NAB's sails will be more like a spinnaker. NAB boosted its stable funding base - that is, deposits and other customer-sourced funds plus wholesale funding that has a term of more than one year - from 78 per cent to 81 per cent in the December quarter as it borrowed on longer maturities, pushing its average wholesale funding maturity to just under six years, above Westpac's 4.8 per cent and twice what the Australian banks were running ahead of the financial crisis.
All the banks are headed the same way, and the process will continue, because they are major users of global wholesale markets, and even with only 20 per cent of their wholesale funding set at 12 months and less, they will be exposed if the debt pipelines freeze again.
It is the Achilles heel of an otherwise very solid system, as NAB chief financial officer Mark Joiner said yesterday, and it is inevitable that the bank regulator, APRA, will oversee a move to a 100 per cent stable (but also more expensive) mix of deposits and medium-term funding.
The Maiden family owns NAB shares.
mmaiden@theage.com.au
