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Lateline Business -

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(generated from captions) moving to embrace the euro

instead of the pound within the

next couple of years at least.

Does that limit the European

Union's ability to move forward

in a unified fashion? No, it

does not. I think it's a pity

that he thinks that because the

euro today shows that we are a

very strong economy and this is

an economy of nearly one half

billion people in the European

Union of 27 member States. So

to say represented by for

instance one commissioner like

me. Why do you think the

British won't move forward on

that then? This is a decision

of each and every member State

and they think with the city in

London and with the

possibilities that are there,

they still need not move. But

I think in the future there

will be the moment when also

the British will want to move.

By the way, we have moved on

this weekend to really having a

reform treaty that means to

progress also on the political

side. For two years we have

now been somewhat in a

stealmate although we have been

working a lot on results --

stalemate, and will be an important player on the world

scene. That treaty puts in

place a basic unifying

structure. Does it take a step

closer to Volkswagen European

superstate? No, not at all. It

is more a e... but we are

working together by a president

of the European council, by

Foreign Minister that is not

exactly called Foreign

Minister, but we call him in

the future high representative

for foreign and security

policy. But the reality is we

try to unite more and more our

foreign policies in order to be

strong and act in many crisis

as we already have been

doing. It was difficult work to

get that treaty come together,

though. It came about because

the constitution had fallen

over. On the weekend we saw

disagreement between e-Germany

and Poland and Britain and

France over market reform. Was

that an example that the

European Union still remains

very much a collective of

competing States with different interests? Well, of course.

These are still the nation

State bus the nation States

voluntarily try to get together

more and more. And it's

natural. It's a real

negotiation. But the important

thing is the result and the

result was a very good one.

And I must say 95% of the

substance of the former treaty

has been preserved and I think

this is what really counts. Is

this going to be the pattern,

though, for the EU in the

future of this great difficulty

of finding ways to move forward

as a team? I don't think so we

have unanimity of course it is

not easy. There are different

interests of different States

but I think the important thing

is we all know we have to be

solitare, we have to want to go

forward in order to become a

more and more effective player

on this world stage in the 21st

century and I think this is a

big step forward. There's a big debate in Britain about whether or not they should put that

treaty to a referendum. What

happens if some of the nations

won't ratify it, is it back to

the drawing board then? Well, I

think this time many States

will want to ratify it in the

parliaments and indeed it is

quite a change treaty we have

to say, and particularly in the

United Kingdom there are some

optouts which I think will

satisfy also the Parliament to

just ratify it. You had

meetings today with the Prime

Minister Mr Howard and the

Foreign Minister Mr Downer. In

the joint statement issued by

you and Mr Downer you talked

about a range of countries from

Fiji to Afghanistan, and East

Timor to Iran. But there

wasn't mention of Iraq at all.

Why was that? We just didn't

spot it, but of course it's

another of these important

issues where the international

community that means on the one

hand Australia and on the other

hand the European Union have to

work to stabilise this country.

After the war we are working

very steadfastly to do so. As

a commissioner and as a

commission we work on the civilian side not on the

military side. We try to

reconstruct Iraq and there is a

so-called compact in which we

are one of the biggest donors

working for the energy and the

Trade Ministeries for instance

to be really reconstructed,

working for the livelihoods of

people, for giving them a

chance for better health care.

But also for seeing what we can

do for more democracy. For

instance, all the elections

that have taken place have

taken place with our

support. Do you think that the

militaries of the US and their

allies should withdraw from

Iraq? I don't think I as a

commissioner can answer. It is

really for those countries that

are there to answer the

question. But we also have to

see what would be the

objective. I think what we

have to do is to stabilise

Iraq, and for that, I think we

will still have to wait until

the military and the police

forces of Iraq themselves will

be ready to take over. Mr

Howard recently announced that

he would try to use APEC to

create a regional agreement on

climate change and hes the

dismissed and Kyoto Protocol

when he was talking about as

prescribtive and euro ecentric,

what does the EU make of the Prime Minister's proposal to

allow APEC nations including

China and India to pledge their

own etargets on this issue? Well, I think first of

all we welcome any initiative

that goes towards the right

direction and the right

direction has to be to cut

greenhouse gas emmission s

because we see if we do not do

anything in the next 15 years

on that radically we will have

a climate catastrophe and not a

climate change. We Europeans

have taken the lead on that and

we have said that we on

ourselves are ready to cut

greenhouse gas emmissions by

20% by 2020. But if other

developed countries like

Australia would go with us, we

think we could even have a cut

of 30% by 2020. And our

regular goal would be with

developed and developing

countries to come to a 50% cut

by 2050. Now we had a very

important summit of the G 8

leaders in Germany, and there I

think a great breakthrough took

place, because also the United

States but many, many of the

eother countries felt that we

have to work for a post-Kyoto

Protocol within the framework

of United Nations. But, of

course, whoever takes an

initiative to bring people

towards that goal is certainly

very welcome. Commissioner,

thank you for joining Lateline. Thank you very much.

A court case in Victoria has

intensified calls for the

State's and Territories to

better protect journalist who

is use confidential sources of

information. Two journalists

from Melbourne's 'Herald Sun'

newspaper have escaped jail

sentences, but been convicted

and fined after refusing to

reveal who gave them

confidential information for a

story written three years ago.

Helen Brown reports. News Limited journalist Gerard

McManus and Michael Harvey

walked into the Victorian

County Court not sure if they

had be walking out. They had

pleaded guilty earlier this

year to several charges of

contempt after writing a story from information leaked to them

about a Federal Government plan

to cut war veterans'

entitlements. It was a good

story, it was accurate. The

Government saw fit, though, to

refer it to the police for investigation. Someone was

charged and we got drawn into

it that way. They emerged from

court with criminal convictions

and a fine of $7,000 each. It's

going to be on their record for

the rest of their life. It's

not something that will come

off like a speeding ticket in a

few years from now. The two

journalists refuse to say who gave them the information from

inside the Department of Vetran

Affairs. Outside court,

McManus said he'd simply

adhered to the journalist code

of ethics and would do it again. Protecting your source

is paramount for any journalist

and any other journalist in the

country would have done the

same. In sentencing the two the

chief judge said the defendants

understood the consequences of

their contempt and the law

didn't recognise it as a lawful

excuse. The Federal Government

has protected laws that protect journalists in some instances.

But media law adviser Nicholas

Pullen says those laws still don't offer much

protection. The concept of a

journalist being put in the box

to reveal their sources doesn't

happen all the time, only in

rather exceptional circumstances and those exceptional circumstances will

always be because the court

needs to disglo. For the

so-called shield laws to be

truly national it seems similar

legislation from the States and

Tets. That hasn't yet happened.

The Federal Attorney-General

Philip Ruddock says it needs to

happen as matter of priority.

The journalists' union says

more members are likely to find

themselves facing legal action

with a clampdown on

whistleblowers. There's no

doubt these two convictions today and last week are

intended to send a message

throughout the public sector

that whistleblowers should be

very cautious of leaking

because they'll be found and

they'll be prosecuted. Now

that's bad for democracy and

bad for the public's right to

know. The MEAA is calling for

stronger laws to protect both

whistleblowers and journalists.

Now to the weather:

That's all from us. Lateline

Business coming up in just a

moment. If you'd like to look

back at tonight's interviews or

review stories or transcripts,

you can visit our website. Now

Lateline Business with Emma

Alberici. Thanks very much,

Leigh. Tonight - Australian

investors chasing bricks and

mortar overseas, as another

listed property group expands

into Europe. Limited

opportunities to buy here and

also it's a case of

diversifying maybe just out of

the Australian market, so

they're actually picking up the

different traits in other

countries. And catching the

crooks - renewed criticism that

inside traders aren't

prosecuted. The number of

investigations being undertaken

indicates there is activity out

there, that the regulators know

there's activity out there but

we're not seeing the numbers

translate into the courts at

the present time. First to the

markets, and Friday's selloff

on Wall Street had ripple

effects in Australia. Stocks

shed 1% today. The All

Ordinaries lost ground for a

third session, led lower by

market heavyweights BHP and

Macquarie Bank. The benchmark

ASX200 gave back 53 points. In

Japan the Nikkei fell 0.5%, the

Hang Seng also lost ground. In

London the FTSE 100 is down for

a sixth day, its longest

consecutive fall in six months.

The property market is back in

the headlines again with the

second billion-dollar capital

raising in two weeks. Listed

property trust Valad will use

the money to buy British-based

group Scarborough. The

company, run by two former LendLease executives entered

Europe for the first time in

February spending $300 million

buying stakes in 13 office

buildings in four countries. Dana Robertson reports.

Investment markets are awash

with cash and the big players

are using it to their

advantage. Two weeks ago

Westfield raised $3 billion to

help extend its global empire.

Today it was the smaller listed

property group Valad's turn.

It's hoping to raise $1.2

billion through the issue of

new securities to help fund its

move into Europe. Valad

executive chairman Stephen Day

told analysts the purchase of

Scarborough will give it an

immediate presence in 11

countries. Includes France,

Germany, Denmark, Sweden, the

Netherlands, Hungary, Poland,

Czech Republic and ro maina.

It's also got significant joint

venture relationships and as

people explain it's got deep

warehousing capacity for future

ro growth. There is a simple

reason why big property players

are looking overseas. They're

starting to look overseas

because there are limited

opportunities to buy here.

It's diversifying out of the

Australian market. They're

picking up different traits in

other countries. For those buying in the Australian property market it's a sector

running at two speeds, with commercial, industrial and

retail doing well off the back

of the strong economy, while

residential continues to

struggle with investment yields

well below other assets.

Robert Mellor covers the property market for BIS

Shrapnel. The market has 12 or

18 months where it could drop

back further if we saw another 25-point interest rate rise.

Probably we're looking at

another two to three years

before we could be back to 5%

per annum growth. Also having

an impact on the property

market is the stock market with

share prices booming over the

last few years plus dividend

and franking credits equities

are attracting capital that would otherwise be placed into residential investment properties. On the other hand,

though, the stock market is

being underpinned by strong

company profits which is

helping boost demand for

industrial and commercial

eproperty. Stronger demand for

office space means falling

vacancy rates. That means

stronger rental growth and ultimately, and probably

falling yields in the market.

Thus justifying significant

growth in values and that's

encouraging more funds probably

to flow into the commercial property market, at

least. Investors, though, are

wary after a stellar

performance in 2006, the ASX200

listed property index is down

0.75% so far in 2007. With

time running out on its bid for

the Coles group Wesfarmers is

courting the support of retail

investors in the troubled

retailer. Wesfarmers says it's

thinking of increasing the

script part of its $20 billion

offer but hasn't made up its

mind. The move, which defers

capital gains tax would be an

attractive deal for Coles's

biggest retail investor base.

Under Wesfarmers' proposed

scream of arrangement it must

win a 75% majority of the value

of Coles shares as well as half

of votes cast. Coles which has

a headline of Saturday morning

for eligible bids today closed

6 cents below the Wesfarmers

offer price at $16.41. For all

the other action on local

markets I spoke earlier this

evening to Julie Lee at Hubb

Financial. Julie Lee, not

quite the drop we might have

expected following that weak

lead from Wall Street? We saw a

huge drop from Wall Street,

Emma. The Dow dropped by 185

points and it was mainly on

stories of the subprime

mortgage market. That flowed

through onto the Australian securities Stock Exchange

today. We saw the financials,

the worst performing sector.

We also saw rising bond yields

and that impacted Neville once

again on the financial sector.

The big four banks ended the

day mixed. Westpac had the

worst performance. We saw Macquarie Bank drop

significantly, 2.4% and there

were rumours in the market

today it was getting ready to

buy Goldman Sach's 40 #30%

stake in a South Korean cable

TV operator. We saw our material sector almost in

positive territory and come

back again. BHP Billiton down

1.2% dragging onto market. Rio

Tinto down 0.4%. Woodside

Petroleum was also down 1.1%

and that was after comments

from the CEO downplaying

Woodside Petroleum as a

possible takeover target. On a

positive note, information

technology was the only really

positiving sector. Computer

share gained another 1.1% on

the market today. The other

sector in the spotlight was the listed property trusts.

Excitement in that sector, with

another big I capital raising.

Not enough to convince

investors to throw anymore

money into the stocks? Property

trusts were in the spotlight

today and they were the worst

performing sector for a number

of reasons. First of all we

had rising bond yields which

makes property trusts

unattractive to the market. We

saw them sold down but the majority of property trusts

trading ex-dividend. The whole

property trust area probably

took ten points off the index.

We saw Stockland property

decrease by 4.5%. Centro

property down by ?p? 3.6%. Certainly the worst performer

on the market

today. Engineering and

construction group McMahon

Holdings seemed to buck the

trend? It was the best performing in the large

category. We saw shares rise

6% on the back of an

announcement which was made on

Friday that it was a preferred

tenderer for a Queensland Rail

contract worth $250 million.

And certainly a lot of good

things seemed to be coming out of the Queensland economy at

the moment. The Queensland

economy has outperformed the

national economic growth of

Australia for the 11th

consecutive year. Not only did

we see an impact on McMahon

holdings but also on Leighton's

which won a $500 million

contract from a Queensland

mining company. Positive news

out of the Queensland economy. Sky chief executive

announced a decision to retire. That made investors

happy? There have been calls

for Evan Davis to step down

from his CEO role especially

when the company forecast

earnings would decrease by 18%

in the next financial year.

The company has been in trouble

for a while and looking at

selling off the Adelaide

Casino, also its cinema

holdings and its Auckland

casino holdings as well. The

Adelaide Casino asset is

probably the biggest worth

about $350 million and we could

see possible bids from James

Packer's company or perhaps

even from Tattersalls or even

from Tabcorp itself. With

assets ready to be auctioned

off next month and the CEO

stepping down, there are plenty

of rumours circling around that

Sky City could be the target of

the next takeover bid. There

has been rumours for a while

that PBL would be interested,

but now there are rumours that

Private Equity is looking at

the group. That had a positive

effect on shares today which

rose by almost 3%. Julie Lee,

thank you very much. Thanks,

Emma. For a quick look at the

other major movers on the

Australian market. The Australian Bureau of Agricultural and Resource

Economics says the world's

insatiable appetite for our

minerals should boost commodity

exports to a record $150

billion in the next financial

year. ABARE expects mineral

and energy exports to make up

the bulk of that, worth around

$117 billion. The 8% rise is

being driven by higher demand

from China and increased

investment in our mines and

equipment. Farm exports are

tipped to rebound 3% from their

drought-affected lows with

grains, wine and livestock as

the most likely best

performers. A new report has

revealed that a record $708

billion wot of investment

property changed hands around

the world in 2006. The

statistics put together by

global real e state group DTZ

say there's $4 of capital

chasing every $1 of

international property assets.

Australia is front and centre

of the property boom. In just

the few months foreign bidders

have paid $10 billion to buy

out three of the country's

biggest publicly listed

property groups. Just as

foreign buyers are active on

Australian shores, Australians

have been chasing real estate

overseas. As we heard earlier

in the program the Valad

property group will raise money

to fund the $2 billion purchase

of Scarborough in Europe. The

value of Australian property

investment overseas is double

what it was in 2004. Joe

Valente joins us now from

London. Welcome to Lateline

Business. Joe Valente, in

Europe the US and Australia,

residential property is largely

considered unaffordable, but it

certainly appears not the case

with commercial property? It's

certainly true, Emma. I'm glad

to be here. The sort of liquidity boom we've seen

around the world affects both

residential as well as

commercial. What we have to

remember is that on the

commercial side it's really the

first time that real eat a time

has -- estate has become a real

asset class. What's driving

this trend in what you call "

cross-border real estate"

rather than investing in our

own backyards? Possibly because

there is only so much

investment stock in our own

backyard. So Australian

investors are leaving Sydney

and Melbourne and Perth if you

like and taking planes to

Europe. UK investors are doing

exactly the same but the other

way round. So sometimes it

seems that the only strategy

that really exists is by way of

airline lounges. How big a role

are the pension funds playing

in this trend towards commercial property

investment? They are playing an

incredibly important role.

They always have been in many

of the global regions. But the

big difference at the moment,

certainly over the course of

the last two years, is that

they have disinvested from

direct holdings and put

increasing amounts of capital

into limited funds and private

funds and so on and so forth.

So they're going to new

markets, new regions indirectly

as opposed to buying direct property. Given pension funds

are increasingly chasing scarce

assets and now driving into the

commercial property arena, what

happens when the good times

turn sour, as they inevitably

always do? I think that's a

very important point. As of

now, there is no sign of a

let-up in the total amount of

capital chasing real estate.

It's a useful reminder that

property like any other market

goes up and down. What you are

seeing at the moment, though,

is the capital being much more

discretionary and selective

around the globe. Do you see a

property bubble emerging? I

don't think it's a bubble,

because the total amount of

money swoshing around the globe

has actually begun to

decelerate and bubbles don't

decelerate, they burst. That's

the difference between real

estate in 2007 and the the dot

come in the second half of the

1990s. How sustainable is the

current property boom? As long

as inflation scpe interest

rates remain where they are or

throbts there is sufficient

demand from investors for real

estate, I think the only other

key determinate is how equitys

and bonds are performing.

Equities haven't done very much

over the course of the last

five, six, seven years. That's

one of the reason why capital

has left equities and bonds and

come into real estate. Some of

that money will go back into

equities when the good times

are back. That will remove

froth from this market. But we

are seeing global bond yields

rising and so this wouldn't

appear to be the best time to

invest in property, be it in

the UK or in Australia? There's one big difference and that is

that bond yields are clearly very important and interest

rates are on the rise and

likely to rise further over the

course of the next six months

or so. That will mean that

highly leveraged investors will

become less competitive in the

market. But there is plenty of

pure equity in the market. If

we look at Middle Eastern

investors they have a surplus

of about $250 billion US of

which they're investing about

10% in property at present.

That's pure equity. That's nothing to do with where interest rates are at the

moment. Your report says there

is something like 50% more

funds available than there are

property assets to invest it

in. Is it that fund managers simply can't find the right

properties, or is it that the

money is flowing too fast to be

channelled back out? It's a bit

of both. As an industry I

think we've come a long way in

terms of being able to place

capital in the market. But

it's not like equities or

indeed the bond market. It's

much more difficult to actually

place capital in an efficient

Mahon. Even though we've made

an improvement, 50% of capital

that's been raised over the

course of the last two years is

still standing on the sidelines

wanting to join the game as it

were. Now some of it will find

its way into new economies,

emerging markets and so on and

so forth. Others will find

their way into the public

markets, into the public arena.

Now you say this isn't a bubble

and you can't quite pick when

it might turn, but I do note in

your report that UK investors

are increasingly looking

offshore having decided in your

words, that the domestic market

is now close to or at its

peak. Yep. Now that doesn't

augur particularly well for

Australians whose retirement

savings are currently tied up

in UK property plays? But the

geography of Australian capital

has also changed very

dramatically. I think that

just three years ago, perhaps

less than three years ago,

something like 80% of

Australian capital coming into

Europe was actually coming into

the UK. At that time, the UK

market was still very

significantly on the up and up.

Now things have slowed down.

There hasn't been a recession.

There hasn't been a crash in

that market. Three years on

most of Australian capital is

now spread fairly evenly across

mainland European markets. So

the geography has changed in

order - in fact, reflecting the

opportunity in the market. Joe

Valente, thank you very much

for joining us this

evening. Pleasure, Emma.

Australia's insider trading

laws are in focus this week

after shares in had Challenger

Financial Services jumped 10%.

Reports are emerging Challenger

could be a takeover target.

Neal Woolrich reports. In

2005, Steve Vizard was fined

and banned as a company

director for improperly using

confidential information to

trade in shares. The Australian securities and investment commission should have been celebrating a

high-profile scalp. But

instead it was criticised for

not pursuing criminal insider

trading charges. Those laws

and their application are again

under scrutiny after rapid

share price swings on the stock

market this year. Certainly the

number of referrals from the

ASX to ASIC, the number of

investigations being undertaken

indicate that there is activity

out there, that the regulators

know that there's activity out

there, but we're not seeing the

numbers translate into the

courts at the present time. Dr

Lion s suspects insider trading

is prevalent but there's no way

for anyone to know how

widespread the problem really

is. He says the recent spate

of mergers and acquisitions

makes the market ripe for

abuse. There's lot of price

sensitive confidential

information as people are

putting together deals, talking

about deals. And the wider

that's spread then that

indicates that insider trading

has a fertile ground in which

surge is Challenger Financial to breed. The latest stock to


It ran out of steam today

losing 4%. But speculation is mounting that Challenger could

have been a takeover target for

some time. There is a certain

level of credence that must be

given to the view that it is a

takeover target. It has been

mooted for some time with

regard to one of the majors

banks having a look at them.

We believe the business is

strong. We've been investors

for a number of years. The ASX

says Challenger's recent share

price movement has been in line with its peers and while the

number of shares traded last

week was higher than normal, it

wasn't out f of the ordinary.

Moreover some analysts say there's no insider trading

because there's little or no

prospect of a takeover given

that James Packer's

Consolidated Press holds 20% of

Challenger. For someone to take over Challenger they had

basically have to get

Consolidated Press to sell down

and we think that is highly

unlikely and the reason we say

that is that financial services

is a big part of the PBL

strategy. The flipside is we

think it's difficult for Consolidated Press to move

beyond the current stake given

the restrictions. A criminal

charge of insider trading remains notoriously difficult

to prove forcing ASIC to rely

more heavily on civil proceedings. That approach

will be tested again later this

year when Citigroup faces

judgment in the Federal Court.

The investment bank is accused

of using inside noftion buy

shares in Patrick Corporation

in 2005 when Citigroup's client

Toll Holdings was preparing to

launch a takeover bid. And now

a look at tomorrow's business

diary. The Housing Industry

Association releases its latest

new home sales figures. Shares

in uranium explorer Atom Energy

begins trading on the ASX. US consumer confidence figures are

out, as are US new home sales

figures for May. A look at

what's making news in the

business sections of tomorrow's

local newspapers. The 'Age'

examines the rise in Southern

Cross shares on the day John

Laws announced his retirement.

They say his departure brings a

big cost saving for the

company. The 'Australian' is

following the ABARE report

showing mineral and energy

exploration up 25% thanks

mainly to the China-driven

commodities boom. The

'Australian Financial Review'

says Government regulation of

the sector is hurting the

public and energy retailer.

The 'Sydney Morning Herald'

leads on Valad's $2 billion

move into Europe. That's all

for tonight. The London market

is down 25 points and in New

York the Dow has opened the

session around 10 minutes ago,

up 40 points. If you want to

review any part of tonight's

program, you can visit our

website. You can watch the

entire program online or

download it as a vodcast. We'd

also love to get your feedback. I'm Emma Alberici. Goodnight. Closed Captions by CSI



I'm not doing that again.