Goldman Sachs NZ sales drop in year of fewer high-profile deals, more offshore work

Goldman Sachs New Zealand Holdings, the local unit of the New York Stock Exchange-listed investment bank, reported a 52 percent drop in revenue and a small loss for 2014, a year marked by fewer high-profile deals and more offshore advisory work.

The loss was $2.87 million in calendar 2014, compared to a profit of about $16 million a year earlier, according to the Auckland-based company’s financial statements. Sales dropped to $23.4 million from $48.9 million.

The 2014 results follow a boom year in 2013, when Goldman Sachs won a share of deals including the floats of Z Energy, Meridian Energy and Synlait Milk, Tower’s asset sales, Harvard University’s forest sale and the selldown of Air New Zealand, which drove a 63 percent surge in sales. Deals in 2014 included joint lead manager of MightyRiverPower’s $300 million bond sale, underwriter and joint lead manager of Evolve Education Group’s $132 million initial public offering, adviser to A2 Milk on its ASX listing, arranger of a bond sale for ASB and an adviser to Kathmandu on its capital structure.

The company won’t comment on its local results but BusinessDesk understands the drop in sales is at least partly because local investment bankers and analysts were drafted into deals offshore, including Medibank Private’s A$5.9 billion IPO in Australia, where Goldman Sachs was a lead manager along with Deutsche Bank and Macquarie Capital. The fees generated from such deals are typically booked by the local Goldman Sachs unit.

Operating expenses for Goldman Sachs NZ fell to $25.1 million from $29 million in 2013. Of that, the biggest decline was in employee related costs – with salaries, bonuses and benefits falling to about $12 million from $13.5 million, and employee incentive plan costs declining to $2.2 million from $3.57 million. Market development costs rose to $1.7 million from $1.46 million.

The bulk of the company’s revenue comes from fees and commissions, which fell to $24.4 million from $46.7 million. Trading income was a loss of $293,000, from a small gain of $34,000 in 2013. Investing income was also a negative number at $756,000 from a gain of $2.2 million in the previous year. The company held $42 million of cash and equivalents as at balance date, down from $78 million a year earlier.

Notes to the company’s accounts show its various New Zealand units were amalgamated in October last year, under the ownership of the holding company.

Its Wall Street parent last week reported a 40 percent jump in first-quarter earnings to US$2.84 billion, beating analyst estimates.

RBNZ appoints Conor English, Tony Caughey as external monetary policy advisers

New Zealand’s Reserve Bank, the independent body which sets the benchmark interest rate, has appointed Conor English, the younger brother of Finance Minister Bill English, as one of its part-time external monetary policy advisers.

Conor English, chairman of Agribusiness New Zealand and the former chief executive of Federated Farmers, will take up the role starting from the bank’s June monetary policy statement, the Wellington-based bank said in a statement. English has a farming background and has also worked in the insurance, oil, property and finance sectors, and at parliament.

Tony Caughey, chairman of Auckland department store Smith and Caughey, has also been appointed as an adviser, the bank said. Caughey’s experience as a chairman, director and senior manager covers firms involved in retail, property, construction, primary industries, export manufacturing, tourism and legal services.

Caughey and English will provide advice to the central bank’s governing committee leading up to the setting of the official cash rate eight times a year. They replace Luke Moriarty and Richard Townsend who are stepping down after three years in the advisory role.

“The Reserve Bank employs these advisers to bring valuable additional outside perspectives into our processes and to help ensure the bank is well informed about developments in the New Zealand economy,” governor Graeme Wheeler said in the statement. “These appointments add significant value to the bank by bringing in fresh viewpoints.”

The Reserve Bank is expected to keep its benchmark interest rate on hold at 3.5 percent at its next review on April 30.

GeoOp doubles annual sales as it chases US customers

GeoOp, the workforce management app, said annual sales doubled after a strong pick up in customers in the last month of its financial year.

Subscription revenue rose to $1.27 million in the 12 months ended March 31, from $610,000 a year earlier, the Auckland-based company said in a statement. Licensed users rose to 17,839, from 9,509 the previous year. It will release its annual results on June 11.

“After a seasonally slow start to the quarter through the summer period, March 2015 was a strong month, delivering half the quarter’s total result of around 1,450 new licenced users,” acting chief executive Anna Cicognani said.

In February, Cicognani was appointed in the head role temporarily, replacing Leanne Graham who is moving to the US to take up the position of executive strategic advisor for GeoOp. The company is foregoing short-term profitability in a bid to capture market share from the growing reliance on smart phones, where its app can help small- and medium-sized enterprises manage remote workforces.

In December, GeoOp said its first-half loss widened to $2.7 million from $1.6 million a year earlier even though its revenue surged 206 percent.

The company raised $10 million at $1 a share in a private offer before listing on the NZAX in October 2013. The shares last traded at 45 cents, and have climbed 22 percent so far this year.

‘Contentious posturing’ paying off, bullish UK fund manager Hugh Hendry tells Kiwis

Hugh Hendry, one of Britain’s highest profile hedge fund managers, has told New Zealand institutional investors his 2013 conversion from a bearish to bullish outlook is starting to pay off.

Speaking to an Auckland audience via Skype from the UK this week, Hendry said his Eclectica hedge fund, which he founded in 2005, was now up 14 to 15 percent this year and is currently one of the 10 best performing hedge funds.  It also made an 8 percent return in 2014 after disappointing returns in the two years prior to that. Since Hendry started Eclectica Asset Management in 2002, it has averaged a 9 percent compounded return.

New Zealand-based fund manager NZAM has invested in Hendry’s hedge fund since 2011, attracted to his contrarian investing and colourful style. Like Scottish comedian Billy Connolly, Hendry hails from Glasgow, has a great accent, and loves to tell a story.  His fund attracted attention after achieving a 31.2 percent return in 2008 in the depths of the financial crisis. He became a media figure, including a famous appearance on BBC’s Newsnight when he asked Nobel Prize-winning economist Jospeh Stiglitz: “Um, hello? Can I tell you about the real world?”.

This week he told Auckland private investors that the fund’s franchise was “contentious posturing” and that the most contentious thing you can say today is that you are bullish – a posture he adopted in 2013 and which he believes is now paying off.

Hendry says his assets under management fall from more than US$1.5 billion to US$300 million today after he told clients two years ago that he was being forced to leave his bearish outlook behind.

“What that tells me is I am the worst manager of a business you can imagine. It also tells me there is a profound bull market fear, people are just terrified that 2008 is going to repeat itself, that’s it’s going to be Greece, or Chinese collapsing, or Treasury bond yields surging higher.”

The terms bull and bear describe when markets trend upward and downward respectively.

The two last clients to fire him were two large North American pension funds who pulled the plug in October last year. “Since then we’ve made the best part of 40 to 45 percent,” he said. “That’s not to ridicule them. This is a tough, tough business”.

He’s currently investing more of the fund’s risk capital in China although it was set to record its weakest economic growth in years.

He had been concerned about China after making a video he put up on YouTube on the Wuhan property market, which illustrated how spending billions on buildings generated Gross Domestic Product growth but destroyed wealth because the market already had a 20 percent property surplus. That GDP growth objective saw the Chinese stockmarket fall the best part of 80 percent between 2007 and early last year, Hendry said.

He went from being the arch enemy of China to reconsidering its model of growth after being positively surprised in the past 18 months about how it has recalibrated its system.

Instead of putting a brake on domestic household consumption by keeping wages low, not allowing the renminbi to appreciate, and keeping interest rates negative, the Chinese government changed the model, which has seen both the local sharemarket and currency appreciate significantly, and household consumer wealth rise.

“A BMW bought by a Chinese consumer is about 40 percent cheaper now that it was two years ago. The biggest problem facing the world economy is a deficiency of demand. Today we have the prospect that China can be the conduit to being that buyer of last resort, so I’ve become bullish on China.”

Hendry’s fund is betting that Greece will find it too hard to leave the Eurozone. The US Federal Reserve’s decision to lift quantitative easing means it’s a good time to take a long investment position on European and Japanese equities and the US dollar, and short on other currencies, including the Australian dollar, he said.

“As a speculator, if policymakers are saying they’re okay with the dollar rising, I’m okay with it,” he said.

In a recent client newsletter Hendry said over the past five years it was indisputable that mass injections of loose monetary policy had both fuelled asset prices and staved off further crises.

“I am also absolutely persuaded that the global economy remains so fragile that modern monetary interventions are likely to persist, if not accelerate,. They will, therefore, continue to overwhelm all qualitative factors in determining the course for stock prices in the year ahead.”

Eclectica has made its biggest gains when taking contrarian bets on trends. After the tech bubble burst in the early 2000′s, Hendry had invested heavily in gold and commodities and made a 50 per cent return in 2003 . He also made a 50 percent return in October 2008 on treasury bonds after predicting that when the credit crisis occurred central bankers would cut interest rates.

In the investor newsletter, Hendry said there were times as an investor when you have no choice but to behave as though you believe in things that don’t necessarily exist.

“That means being willing to be long in risk assets in the full knowledge of two things: that those assets may have no qualitative support; and second, that this is all going to end painfully. The good news is that mankind clearly has the ability to suspend rational judgement long and often.”


NZ dollar falls against British pound as Bank of England minutes seen more positive

The New Zealand dollar declined against a stronger British pound after upbeat minutes from the Bank of England’s last meeting, stoking expectations the next move in UK interest rates will be higher.

The kiwi dropped to 50.92 British pence at 8am in Wellington, from 51.39 pence at 5pm yesterday. The local currency slipped to 76.60 US cents from 76.81 cents yesterday.

The pound, measured against a trade-weighted basket of currencies, rose after BOE policymakers were more upbeat on the Eurozone and the prospects for higher inflation in minutes to their April meeting, published yesterday. All nine members of the Monetary Policy Committee voted to keep rates steady at 0.5 percent at the last meeting.

“The pound climbed in the aftermath of the release of the minutes from the BOE April meeting,” Kymberly Martin, senior market strategist at Bank of New Zealand, said in a note. “While the vote at the table was unanimous (9-0) for holding policy settings, the minutes showed keeping interest rates at a record low was a “finely balanced” decision for a minority of officials.”

In New Zealand today, traders are awaiting a lunchtime speech by Reserve Bank of New Zealand assistant governor John McDermott to the Waikato Chamber of Commerce and Industry about inflation. Data released this week showed the consumers price index fell 0.3 percent in the first three months of this year, the second quarter of deflation, mostly due to falling petrol and diesel prices. The annual inflation rate was 0.1 percent.


“His speech today is expected to provide colour for markets ahead of next week’s Official Cash Rate review,” said Martin. “With our CPI held down by lower commodity prices (fuel) and the ripe New Zealand dollar generally, the speech from McDermott should provide an insight into the view of inflation expectations. Some might even call it a mini Monetary Policy Statement.”


Traders will also be eyeing March migration data scheduled for release at 10:45am, to see if the country continues to experience record net inward migration. Meanwhile, the ANZ-Roy Morgan consumer confidence survey for April is scheduled for publication at 1pm.


Elsewhere, updates of manufacturing activity will also be eyed today, with Capital Performance of Manufacturing surveys released in China, Europe, and the US.


The New Zealand dollar slipped to 98.64 Australian cents from 98.80 cents yesterday after Australian inflation data yesterday met expectations. The local currency fell to 71.38 euro cents from 71.53 cents yesterday and was unchanged at 91.85 yen. The trade-weighted index weakened to 79.92 from 80.08 yesterday.

Former PM Shipley keen to leverage Boao appointment for NZ Inc

Former Prime Minister Jenny Shipley wants New Zealand firms to take advantage of her appointment to the board of the Boao Forum, which is made up of global political and commercial leaders, to seek business opportunities in Asia.

Shipley was appointed to the board last month at the forum, which is focused on setting up the ‘One Belt, One Road’ initiative to build infrastructure across Asia and the establishment of the Asian Infrastructure Investment Bank.

New Zealand was a foundation member of the Boao forum and Shipley says her appointment is an example of the strong ties with the region.

“They always comment that New Zealand is small, but a very honest broker,” Shipley told BusinessDesk.

The New Zealand China Council, which counts Shipley as a board member, is working on a strategy for its business members and the wider bsuiness community can benefit from her presence on the Boao forum board.

“We sense a strategic opportunity being on the board,” she said. “The board creates the agenda of what can be discussed.”

The forum has grown to become a major event for world leaders to attend, in much the same way the Davos forum in Switzerland does. This year it attracted the likes of Microsoft founder Bill Gates, Tesla chief Elon Musk and Baidu head Robin Lu, who discussed the significance of innovation in building a sustainable future.

The former New Zealand prime minister has developed long ties with China, including a six-year stint on the board of China Construction Bank. She has since retired from the parent lender, but chairs its New Zealand subsidiary.

Shipley was today appointed chair of food exporter Oravida, which is looking to accelerate its growth aspirations in China where it has carved out a niche as a high-quality food supplier. Former Sanford managing director Eric Barratt was also appointed to Oravida’s board.

Shipley said China’s plan to build infrastructure across Asia should help drive economic growth across its neighbours, which in turn would protect its own pared-back growth ambitions.

Policy-makers in the world’s second-biggest economy are trying to transform its traditional modes of industrial activity to a more consumer-driven economy with a high level of services, while at the same time contending with a high level of local government debt and a stalling housing market.

That’s prompted a series of stimulatory measures by policymakers, including two interest rate cuts by the People’s Bank of China, in a bid to reinvigorate the economy.

Despite some of these recent blips, Shipley is optimistic about the strength of the Chinese economy, and the ability of Chinese policy-makers to overhaul their regulatory frameworks during the shift to a more open economy.

She points to the rapid rise in wealth, with the lifting of more than 100 million people from poverty over the past decade as testament to the political will to achieve substantial chance, and expects the investment in infrastructure across China’s west will have a similar effect.

Those maturing frameworks are something Shipley says New Zealand firms need to pay close attention to.

“It’s a highly direct, regulated, rules-based system – there will be a step-by-step opening up,” she said. “It’s an important time for China.”

NZ dollar near parity with Aussie, may push through on weak Australian inflation

The New Zealand dollar traded close to parity with the Australian dollar amid speculation weak Australian inflation data today could push it through the historic milestone. The kiwi touched a record against the euro on concern about whether Greece will exit the common currency.

The kiwi hit 99.59 Australian cents overnight and was trading at 99.51 cents at 8am in Wellington, from 99.35 cents at 5pm yesterday. The local currency touched a fresh record of 72.02 euro cents and was trading at 71.42 cents at 8am from 71.28 cents yesterday. It advanced to 76.65 US cents from 76.51 cents yesterday.

Traders have increased their bets that the Reserve Bank of Australia will cut interest rates at its meeting next month after governor Glenn Stevens, who kept the cash rate unchanged at 2.25 percent last month, said that further cuts were still “on the table”. Traders are now pricing in a 63 percent chance that the RBA will reduce rates at its May 5 meeting, up from a 56 percent chance yesterday, according to the Overnight Index Swap Curve.

A report out today is expected to show the Australian consumers price index rose 0.2 percent in the first quarter for an annual rate of 1.3 percent, according to a Reuters survey.

“NZD/AUD remained near historical highs ahead of the Australian Q1 CPI data, and a push for parity remains on the cards,” ANZ Bank New Zealand chief economist Cameron Bagrie and senior FX strategist Sam Tuck said in a note. “Weak Australia CPI figures today could see the parity corks popped.”

The New Zealand dollar could trade between 98.80 Australian cents and A$1.005 today, ANZ said. Should the kiwi reach A$1, it would be the first time since both currencies were floated in the 1980s.

The local currency touched a fresh high against the euro amid mounting concerns that Greece may exit the common currency as it fails to make progress in reaching agreement on its debt repayments. Reports overnight said European Central Bank staff had proposed to increase the insurance the ECB would demand in return for emergency funding to Greek banks.

The kiwi touched a three month high of 51.79 British pence, and was trading at 51.39 pence at 8am from 51.37 pence yesterday. The Bank of England minutes to its last meeting are scheduled to be released today.

The New Zealand dollar also touched a three month high of 92.10 yen, and was trading at 91.75 yen at 8am from 91.34 yen yesterday.

The trade-weighted index, the broad measure of the currency favoured by the Reserve Bank, touched 80.53, its highest level since July last year when it hit a record 82.03. The TWI was at 80.17 at 8am from 80.04 yesterday.

NZ dollar rises to 2-month high vs. pound after report shows no British inflation

The New Zealand dollar rose to a two-month high against the pound after a report showed Britain had no inflation last month, stoking speculation the Bank of England won’t raise interest rates any time soon.


The kiwi hit 51.54 British pence and was trading at 51.50 pence at 8am in Wellington, from 51.10 pence at 5pm yesterday. The local currency advanced to 76.46 US cents from 76.28 cents yesterday.


The pound weakened after data showed British annual inflation hit zero for the first time on record in February, from a 0.3 percent pace in January, raising speculation it could dip below zero next month. The longer inflation stays below the Bank of England’s 2 percent target, the less likely it is that the bank will raise interest rates any time soon.


“The news suggests that price pressures in UK remain non existent for the time being, leaving BoE on hold for the foreseeable future,” Boris Schlossberg, managing director of FX strategy at BK Asset Management in New York, said in a note. The pound “tumbled…in the aftermath of the release as traders pared any expectation of rate hikes to 2016.”


In New Zealand today, traders will be eyeing the release of Fonterra Cooperative Group’s first-half earnings for an update on the dairy exporter’s forecast payout to farmers. Separately, trade data for February is also scheduled for release.


The New Zealand dollar was little changed at 97.18 Australian cents from 97.22 cents yesterday ahead of the release of the Reserve Bank of Australia’s financial stability report today.


The kiwi advanced to 70.02 euro cents from 69.93 cents yesterday and gained to 91.50 yen from 91.38 yen yesterday. The trade-weighted index increased to 79.63 from 79.53 yesterday.

While you were sleeping: Data bolsters rate case

Wall Street moved lower as an unexpected gain in new home sales as well as solid data on inflation and manufacturing bolstered the case for the Federal Reserve to begin raising interest rates soon.


In afternoon trading on Wall Street, the Dow Jones Industrial Average fell 0.32 percent, while the Standard & Poor’s 500 Index retreated 0.35 percent, and the Nasdaq Composite Index slipped 0.11 percent.


Declines in shares of Pfizer and those of Cisco, recently 1.3 percent and 1.2 percent weaker respectively, dragged the Dow lower. Bucking the trend were shares of United Technologies and Home Depot, last up 0.8 percent and 0.6 percent respectively.


Shares of Google gained, last up 2.2 percent, after the company said it hired Morgan Stanley’s chief financial officer, Ruth Porat, as its new CFO.


US new home sales jumped 7.8 percent to a 539,000 annualised pace in February, the highest in seven years, and up from an upwardly revised 500,000 in January, according to Commerce Department data. Economists had predicted a decline, with 76 estimates in a Bloomberg survey ranging from 400,000 to 490,000.


Separately, a Labor Department showed the consumer-price index rose 0.2 percent. Core costs, excluding food and energy, also gained 0.2 percent.


Markit’s US manufacturing purchasing managers’ index rose to 55.3 in March, the highest level in five months, up from 55.1 in February.


“You have central banks lowering rates around the world, while we are talking about raising rates,” Andre Bakhos, managing director at Janlyn Capital in Bernardsville, New Jersey, told Reuters. “Our dollar is naturally going to get stronger.”


While the euro gained against the greenback earlier in the session, the US dollar moved higher later in the day.


“Any positive surprises from the euro area are further adding to this euro/dollar rally; however we think this is temporary,” Nikolaos Sgouropoulos, foreign exchange strategist at Barclays in London, told Bloomberg. “We still believe in the dollar strength trend going into the second half of the year.”


Markit’s euro-zone composite flash PMI rallied 54.1 in March, the highest level in almost four years, up from February’s 53.3.


“The eurozone’s economic recovery gained further momentum in March,” Chris Williamson, chief economist at Markit, said in a statement. “The improvement provides welcome news to a region awaiting signs that the ECB’s quantitative easing is stimulating the real economy.”


Europe’s Stoxx 600 Index ended the session with a 0.3 percent advance from the previous close. France’s CAC 40 Index rose 0.7 percent, while Germany’s DAX gained 0.9 percent.


Markit’s flash Germany composite output index rose to 55.3 in March, the highest level in eight months, and up from 53.8 in February.


“It’s important that Germany, the export engine of Europe, is managing to maintain momentum for the European recovery,” Witold Bahrke, an asset-allocation strategist at Nomura International in London, told Bloomberg. “It’s quite astonishing in the light of the global weakness we’ve seen that Europe has so far been doing so well.”


The UK’s FTSE 100 Index declined 0.3 percent from the previous day’s record-high close.


Meanwhile, China’s flash HSBC/Markit PMI dropped to 49.2 in March, the lowest level in 11 months.


“The deteriorating PMI confirmed that downside risks to China’s 2015 growth have started to materialise,” Jian Chang at Barclays told Reuters. “We expect an accelerated monetary easing cycle and somewhat loosening of the fiscal stance.”



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