Friday, September 23, 2011

Pity about your surplus - the Reserve's shocking year

Of course now that the dollar's falling again...

Australia's Reserve Bank lost $4.9 billion in the financial year just ended - its second straight loss as its overseas assets were devalued by the rising Australian dollar.

For the second year running the government will receive no dividend from the Bank after getting an outsized $6 billion, paid over two successive financial years, from the Bank’s performance in 2008-09.

The missing dividend will weigh heavily on the Commonwealth budget which had forecast a paper-thin surplus of $3.5 billion in 2012-13.

The annual report says the losses will be absorbed by the Bank’s Reserve Fund - a buffer that allows the Bank to maintain a strong financial position.

“Nonetheless, the prudent course will be to apply future earnings to rebuilding the Fund before the resumption of dividend payments,” governor Stevens says in the report. “The government’s budget projections have been made on this assumption.”

The Bank holds $40 billion of overseas securities, almost all of which were devalued. Around 19 per cent were in US bonds, buffeted by the decision of Standard & Poor’s to downgrade US government debt from AAA to AA+. The Bank said the downgrade had had “no material impact” on its financial position.

The Bank has a substantial exposure to securities in the troubled Euro zone, including those of Germany, France and the Netherlands. It does not quantify the exposure.

The Reserve Bank's polymer bank-note maker Securency, which has faced two years of federal police investigations over allegations it bribed officials overseas to win contracts, made only a $2 million after tax profit in 2010-11, down from a $24 million the previous year and $172 million the year before that.

Securency and another Reserve Bank firm, Note Printing Australia are listed to appear at the Melbourne Magistrates Court today... along with eight former senior executives of the firms who are facing a range of bribery charges.

Governor Glenn Stevens, Australia’s highest paid public servant, received another pay rise of 3.7 per cent in the past financial year, taking his salary to $834,200 and his total remuneration to $1.08 million.

In August Treasurer Wayne Swan stripped the Bank board of its ability to set future governor's pay after discovering it had boosted Mr Stevens’ pay by one quarter of a million dollars during the financial crisis. Future governors will have their pay range set by the Remuneration Tribunal.

The annual report reveals the bank paid $60,000 to PricewaterhouseCoopers for “remuneration benchmarking” and $25,000 to Cato Council for “advice on public communication”.

The Bank intervened little in the foreign exchange market during the year, describing 2010-11 as “less unusual than the preceding two or three years”.

Published in today's SMH and Age

Related Posts

. A Reserve Bank firm was willing to supply prostitutes and pay bribes...

. Victory for The Age. Victory for investigative journalism.

. Poetic justice. Pay restraint for the governor