MALCOLM MAIDEN June 09, 2012
End of Story. Photo: Luis Enrique Ascui
ECHO Entertainment's decision to show chairman John Story the door and James Packer's response, to call off an extraordinary meeting seeking Story's removal and the appointment of former Victorian premier Jeff Kennett to the board doesn't end the Sydney casino battle, but it does represent detente.
Echo's board decided that Story had become a lightning rod, not only for Packer's assault, but for shareholder unease and New South Wales government anger over Echo's leaking of emails related to the sacking of the managing director of Echo's flagship Star casino in Sydney.
It also knew, however, that institutional shareholders, including 8 per cent shareholder Perpetual, did not support the push by the 48 per cent Packer-owned Crown casino group for a seat on Echo's board on the basis of the 10 per cent stake it had acquired.
James Packer did not have the numbers, and yesterday's moves put the game on a new basis, with Echo installing a NSW corporate and government insider, John O'Neill, as acting chairman, and Crown killing not just its superseded push to oust Story but its nomination of Jeff Kennett as a director.
Echo's board is still going to oppose any attempt by Packer to take over Echo by stealth. The view, supported by shareholders including Perpetual, is that if Crown wants to control Echo, it should come in through the front door, takeover offer in hand.
The change of chairman suggests, however, that Echo will pick up the phone when James Packer rings, and at least talk about whether there can be talks about areas of common commercial interest.
Crown has not given up on a board seat. It said yesterday that it continued to believe that Kennett would be a worthwhile addition. Its suggestion that this is best achieved by Echo appointing Kennett is unlikely to be picked up by Echo's board, though. Packer's response if he is rebuffed over Kennett will depend on what else Crown and Echo discuss, and what progress is made.
Talks if held would still be influenced by the fact that while Echo operates in different geographical markets to Crown in Australia, it is now competing with Crown for Asian high-roller gambler revenue after spending $900 million upgrading its Star casino in Sydney. The groups are not just chasing the same high rollers, but competing for services that support them - top-flight entertainment, restaurants and chefs, for example.
For those reasons Packer's early proposal that the two split Star's casino licence and develop a new high-roller casino in the Barangaroo development on Sydney's Darling Harbour is difficult for Echo to back.
What may be possible, however, is co-operation to develop Australia generally as a high-roller destination. So too might be co-operation in the development and expansion of other markets, with Brisbane probably holding first spot in the queue.
Singapore casino operator Genting is the new wildcard. It was one of the founding shareholders in the Burswood casino that was acquired by PBL in 2004 and later folded into Crown, and has built a 4.9 per cent stake in Echo.
It has enough cash on its balance sheet to fund a takeover. Alternatively, it could back James Packer, or the Echo board. A fairly useful place to be as the game begins anew.
INVESTORS have been looking to Greece's June 17 election and Spain's struggle to recapitalise its banks for the next big market shock, but it may actually come from credit ratings agency Moody's, in the form of sweeping credit ratings downgrades for the world's biggest banks. On the timetable Moody's has published, they are imminent.
Moody's warned in mid-January that global bank credit ratings were under pressure and were likely to decline this year. It had already begun a country-by-country stocktake of bank credit ratings by then. The big four Australian banks were downgraded by one notch in May last year as part of the process, but retained their ''rare as a rocking-horse'' AA status.
In mid-February, however, Moody's announced that 17 banking and investment banking groups that had global capital markets operations faced ''challenges that are not fully captured in their current ratings'' and were being separately inspected.
Fragile funding conditions, wider credit spreads, tougher regulation, weak operating conditions and internal vulnerabilities including ''opacity of risk'' meant the global groups had ''diminished longer-term profitability and growth prospects'', Moody's said.
The markets knew from the statement which banks were involved, and what downgrades were possible. It is an international who's who of banking, and some of the downgrades will be brutal.
Credit Suisse, Morgan Stanley and UBS could be cut by up to three notches. Barclays, BNP Paribas, Citigroup, Credit Agricole, Deutsche Bank, Goldman Sachs and HSBC could be cut by up to two notches (Australia's Macquarie Group was listed, but received a one-notch downgrade in March). Bank of America, Nomura, Royal Bank of Scotland and Societe Generale could be cut by one notch.
The preview won't head off a reaction when the downgrades are confirmed. Their breadth and magnitude will command attention. Traders will also watch individual banks, including Morgan Stanley, closely to see if downgrades close off some trading windows with counterparties.