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  • What Beyonce Can Tell Us About M&A
    Bloomberg

    What Beyonce Can Tell Us About M&A

    (Bloomberg Opinion) -- If you could have bought the future earnings of the members of Destiny’s Child in 2001, would you really have turned it down because you weren’t sure where Kelly Rowland’s career was headed?That’s a good analogy for Ares Management Corp.’s interest in AMP Ltd., the Australian asset manager that’s lost more than two-thirds of its value over the past three years amid an official investigation into misconduct in the financial sector, combined with boardroom turmoil and a sexual harassment scandal. While the focus has been on the problems of AMP’s retail divisions, it still has a Beyonce on its books that a bold investor can pick up on the cheap.Years of bad publicity have been devastating to AMP’s retail-focused wealth management business. Revenues that were running at more than 1.1% of assets under management five years ago will be in the region of 0.7% this year. Even that’s not enough to stem the flood of withdrawals from customers. Net cash outflows since the start of 2018 have amounted to about A$14.67 billion ($10.34 billion), equivalent to nearly half a billion dollars a month.Things look very different, though, when you consider AMP Capital. This division is a global infrastructure and real estate business that could be likened to Macquarie Group Ltd., with investments in airports, rolling stock, parking garages and office blocks across multiple continents.Macquarie is currently valued at about 7.6% of its A$607 billion in assets under management, at the higher end of the typical 3% to 8% range for the sector. Ares, for its part, runs at about 6.1% of its $179 billion AUM. Even after surging 22% Friday on news of the takeover interest from Ares, the whole of AMP is worth only A$5.36 billion. That's roughly 3.4% of AMP Capital’s A$190 billion in AUM, and 2.1% compared with the A$253 billion at the group as a whole.Suppose the retail-focused wealth management business and bank turn out to be duds. Ares is still picking up a global infrastructure investor on the cheap, at a time when the prospects for such businesses look rosy. Record-low interest rates and pandemic-hit global economies are likely to start channeling yet more money into physical assets over the coming years.The problems with AMP’s core business have even been modestly beneficial to AMP Capital. The fees it charges to the company’s wealth management arm, at 18.1 basis points in the first half of this year, are not much more than a third of the 45.7 basis points levied on external investors. As AMP’s wealth management customers withdraw their cash and external investors show ongoing demand, that’s weighting the business more and more toward its most profitable clients. Fee income last year was up 56% over its levels five years earlier.To be sure, any buyer is going to have to decide what to do with those retail businesses. It’s anyone’s guess when the tarnished image of AMP’s wealth management arm will recover. Meanwhile, its bank has a A$20.21 billion mortgage book that’s likely to suffer from a shaky pandemic-hit property market and net interest margins that are being squeezed by competition. Still, it’s not impossible that a new American owner could help on that front. AMP was traditionally one of Australia’s most widely held stocks. Only Commonwealth Bank of Australia has more individual shareholders than AMP’s 723,387. That means that the twists and turns of its half-yearly reporting cycle are a constant reminder of its troubled past to local investors who should be its core customer base. If you wanted to rebuild AMP’s image, there would be worse ways of doing it than burying its performance in humdrum aggregate numbers reported out of Los Angeles.This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.David Fickling is a Bloomberg Opinion columnist covering commodities, as well as industrial and consumer companies. He has been a reporter for Bloomberg News, Dow Jones, the Wall Street Journal, the Financial Times and the Guardian.For more articles like this, please visit us at bloomberg.com/opinionSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.

  • Money Laundering Detectives Have Been Out at the Pub
    Bloomberg

    Money Laundering Detectives Have Been Out at the Pub

    (Bloomberg Opinion) -- Why did it take media reporting to get Australia’s money laundering investigators to start looking into casino operator Crown Resorts Ltd.?Shares in the gambling company previously controlled by billionaire James Packer slumped 8.2% Monday after it said the country’s financial-crimes regulator Austrac had started a probe into the handling of “high risk and politically exposed” individuals at its Melbourne casino. The investigation started two months after Nine Entertainment Co. newspapers published a series of articles about the activities of high-rolling Chinese gamblers at Crown’s properties.It’s the latest in a string of prominent cases led by Austrac, after a A$45 million ($32 million) award against racetrack betting operator Tabcorp Holdings Ltd. in 2017, a A$700 million penalty against Commonwealth Bank of Australia in 2018, and a A$1.3 billion settlement with Westpac Banking Corp. last month.That’s quite a turnaround. For much of its 31-year history, Austrac has been a pretty somnolent organization, tending its ballooning database of suspicious transactions reported by compliance officers without carrying out much of the aggressive enforcement that you might expect. Just look back at the cases that Austrac has brought over the years. Until recently, the majority of actions involved nickel-and-dime businesses like a pub in southern Brisbane or a cafe in western Sydney.That’s clearly not going to do the job. Money laundering, by its nature, requires moving large volumes of either physical or digital cash. That means regulators need to be laser-focused on the activities of the companies that trade the largest volumes of those assets — casinos, in the case of notes and coins, and financial businesses, in the case of electronic transactions.“Until recently they were showing all the symptoms of a regulator who’d been captured by the industry they were supposed to regulate,” John Chevis, an independent anti-money laundering consultant, said by phone. The string of recent cases shows that things have at last started to change. Paul Jevtovic, a former police officer who took over at Austrac in 2014 before joining HSBC Plc’s compliance department in 2017, pushed the regulator toward a more proactive culture and kicked off the Tabcorp and the Commonwealth Bank investigations. Still, it’s clear that the agency is some way from being as aggressive as it should be. Last year’s media reports aren’t the first time that public accusations about money laundering breaches have been made against Crown. Independent legislator Andrew Wilkie in 2017 told parliament that casino staff exploited loopholes to avoid disclosing reportable transactions to Austrac (Crown denied the claims).Better funding and collaboration with other agencies would probably help. The number of suspicious transactions reported to Austrac has more than tripled over the past five years, but funding from government and its own paid-for activities is only up by about a third. As it is, the regulator’s relatively small staff is stretched to sort through all the information they’re receiving. Extracting legal penalties from large companies is even more expensive.Meanwhile, criminals aren’t standing still. The latest avenue for money laundering is probably over- and under-invoicing of traded goods, but that’s even harder to track. Unlike cash laundering, which involves a relatively small number of casinos and financial businesses, invoice-based laundering can take place between almost any two companies in the world.Austrac’s gradual shift toward a more active stance in recent years is welcome, but it will need to go still further. If you want to hunt rats, it’s no good hanging out in your kitchen. Going down into the sewers may be a thankless task, but it’s the only way to get the job done.This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.David Fickling is a Bloomberg Opinion columnist covering commodities, as well as industrial and consumer companies. He has been a reporter for Bloomberg News, Dow Jones, the Wall Street Journal, the Financial Times and the Guardian.For more articles like this, please visit us at bloomberg.com/opinionSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.

  • Commonwealth Bank of Australia (ASX:CBA) Share Prices Have Dropped 16% In The Last Year
    Simply Wall St.

    Commonwealth Bank of Australia (ASX:CBA) Share Prices Have Dropped 16% In The Last Year

    Investors can approximate the average market return by buying an index fund. But if you buy individual stocks, you can...