Golf handicap must wait as iron man takes a swing at banks, regulators and critics
Sydney Morning Herald
Thursday March 25, 2010
The Don is not going gently into the corporate night. On the eve of of his baton-pass to Jac Nasser, BHP Billiton's chairman has gone on the record to warn Australia's banks against over-reliance on home lending, defend his leadership of the world's biggest mining group and ask whether global regulators should be able to stymie BHP's planned iron ore merger with Rio Tinto.Argus says he wants to work on his golf handicap after a career that saw him run NAB between 1990 and 1999 and chair BHP from then until now, but the range of subjects he covered suggests his diary will continue to be crowded.Take the banking sector. Argus said some banks were becoming "giant building societies" and contributing to a corporate funding shortage.And as the finance sector tries to head off the post-crisis imposition of new barriers between banks and investment banks, Argus said commercial banks shouldn't be "anywhere near" investment banking, a business they didn't understand. "The test would be to ask any bank director what a CDO (collateralised debt obligation) is, and how it works." he said. CDO values imploded inside banks during the financial crisis, and bank boards didn't see it coming.Argus said the Australian banks had done well out of focusing on the local market, and said overseas expansion had sometimes come at the expense of local growth. That's an interesting comment given NAB's history. The bank owned its British banking franchise when he became CEO, and has always struggled to make it work. Under Cameron Clyne it will probably be sold off.And NAB acquired the Homeside mortgage processing business in the US on Argus's watch. Homeside was sold to Washington Mutual in 2001 after racking up losses of over $US2 billion ($2.2 billion): Argus has always rejected suggestions that the business was bad from the get-go, attributing the huge losses to bad management.Argus took over as chairman of BHP in April 1999, as BHP's American import CEO, Paul Anderson, was redesigning the business, and he says some of his happiest moments in the chair came early, as the results of Anderson's makeover came in, including an exit from steel-making, the closure of unprofitable businesses and a focus on top-tier assets.In 2001 the pair led BHP into a merger with Billiton. The terms were criticised for being too generous to Billiton, which had grown quickly under Brian Gilbertson, who led the merged group briefly before being pushed out after failing to get board backing for a merger with Rio Tinto.BHP Billiton's top mining assets were BHP's before the merger, so I asked Argus whether BHP was in the powerful position it is in because of Billiton, or despite it."The question always is, show me the assets that you got from Billiton," he replied. "But what do you get in an acquisition? BHP was a steel-manufacturing company. We had some good mining executives, but we had nowhere near the talent base that Billiton had. Cynics will say this comment is a cop-out, but if you don't have talented people, the chances of success are diminished. Can I quantify that? I can't."Asked whether it mattered where BHP was headquartered, the man some see as being patriotic to a fault replied: "I would like to see Australia reap the endowment," he said, "but it is up to investors to decide if they like these things or not."The headquarters location in the end doesn't really matter: for the moment it probably makes sense for the headquarters and the chief executive to be based here, but if you look forward 20 years . . . I am not sure what the composition of ownership will be."The merger of BHP's Pilbara iron ore interests with Rio's is the next growth step, and Rio Tinto iron ore boss Sam Walsh said on Tuesday regulators including the European Commission might take all year to review it. Argus sees little reason for Europe to be interested. It was, he said, "an upstream joint venture, and one dealing with Australian assets - I question whether other jurisdictions should have a say."Rio and BHP first flirted with marrying their iron businesses in 1999, and failed to agree on terms. Argus says the union still makes sense, and is overdue. Rio ditched a $US19.5 billion alliance with China's state-owned Chinalco to grab the BHP merger option.BHP subscribes to the "stronger for longer" commodity price concept, and Argus said China's industrialisation was a "once in lifetime" trend. But as metal prices rallied in the expectation that Chinese demand will underpin a renewed global growth surge, he remained guarded. The industry's forecasting record was "not strong", he said, and "the view of many experts . . . who were careless enough to go on record in the past makes amusing reading today."The Maiden family owns BHP shares.