Accounting management Essay Writing Analysis: Evaluation of Australian Public Companies in Terms of Their Financing Situation in Present World Situation of Financial Crisis

The Global Financial Crisis

 The Global financial Crisis is the series of events which was most heavily felt by the banking organizations in U.S. and Europe, but not in Australia. The global capital markets underwent a crisis situation when troubles started occurring in the US subprime mortgage market (June 2007) and reached to its highest point when Lehman Brothers collapsed (September 2008). It has been witnessed that the Australian financial system has the power to respond very quickly to the external shocks in effective manner and then return back to the usual mode as and when the conditions normalize. It was all because of the regulatory framework of financial  sector followed in Australia which helped in avoiding some of the problems which emerged in other economies (Capital Raising in Australia:Experiences and Lessons from the Global Financial Crisis, 2010).

Australia’s Response to Global Financial Crisis

 The impact of Global financial crisis has been seen on Australian economy too but Australia has been very strong enough to withstand the worst effects in better manner because of two main factors:

• Underlying strength of Australian Economy
• Swift and Decisive Government Decisions

 The sound fundamentals of Australian economy and regulatory framework coupled with four of the strongest banks residing in Australia helped it in getting over the global financial crisis. These fundamental strengthen of Australian economy coupled with the quick savior actions of Australian Government helped it in saving from the worst effects of global recession.

 Every company was seen to be impacted by the global financial crisis (GFC) but relatively few collapsed due to it in Australia and the reason being they had common features that is these were the companies which were mostly funded by debt and marveled mushroom growth during the boom period. These companies were controlled by entrepreneurs who has seen good and growth times and got paid good amount of money as salary.

 Babock & Brown had inbuilt firewall which helped in protecting the main shareholders and the management but this public listed company was left with an inherent problem which proved very harmful for the company The Co-investment model of the Centro was mainly based upon the expansion plan for the company so it could barely handle the contraction which occurred due to GFC. The venture capital enterprises were funded through debenture raising by Elderslie. On the other hand MFS was found to be making too much profit margin by selling off its assets to the concerned parties and that too at very inflated prices. They were very often supported by vendor finance which clearly indicated that MFS did not sell really sell them anything.

 Opes was found to be including the clients into stock loans which most of the clients never even understood what they were. Storm also overgeared its clients and did not prepare any kind of strategy to handle or to deal with the huge market downturn during GFC (Sykes, 2010).

Margin Lending and Gearing in Australian Market

It has been found that when markets fall , the returns also go down , but debt is found to be constant while when the market are rising the debt keeps on enhancing the return for the investors in the public companies. Therefore a company which has borrowed too heavily should not overstay a bullish market. In such case if the market falls unaware the value of the assets of the company falls and it would be very hard to sell them off. Therefore any company which is more based on equity capital financing is found to be hard to get broke. The best example i.e. ABC learning which was primarily based on equity capital did not underwent debt till the time it planned to expand its base internationally into United Kingdom and United States. That is why when the markets turned the ABC Learning had to face severe debt crisis as it lost on its assets.

The longer boom period in the economic market made the borrowers as well as lenders very complacent in relation to the marginal loans and this lead to the downfall of many public companies during GFC.

Global Financial Crisis and Changes in Business Practices

 The Australian business especially the public companies have shown key responses to the GFC and they have continued to carry their operation sustainably by following the business practices like:

•  Avoiding risks completely both short terms as well as medium term risk.
• By being more concerned about the shareholders specifically the ones which have to raise capital.
•  They have become more open and humble in communications like clearer cut messages are being conveyed.
•  The pay scales of the executives have been reduced which is more the result of pressure rather than a voluntary action.
• Taking greater span of control of the costs and debts even some of the public companies have started acting like small businesses (Global Financial Crisis – What caused it and how the world responded, 2009).

 Role of Australian Government in the Global Financial Crisis

 The Australian Government has received great accolades for acting very quickly in response to GFC. They acted through:

• Guarantee of Credits:  Australian Government promoted financial system stability.
•  Financial Stimulus: The Australian Government enhanced and increased the confidence level of the consumer and they ensured that the retail industry will continuously keep on improving and growing (The impact of the global financial crisis, 2010).

However the public companies want to reduce the regulations imposed on them by the government, but it has been witnessed that due to lack of regulations only this crisis of global impact in finance arose, and that took internationally. Due to the catastrophic impact of GFC which might arise  and deeply impact the Australian economy the Federal Government planned to fund and guarantee sums of  $20,000 which was announced on 12 the October 2008. A comprehensive guarantee through the government for all retail deposits for three years was announced.

 The bank wholesale borrowing scheme was announced as guarantee scheme by Australian government so that the Australian Banks can effectively compete for funding against the government supported banks around the world.

Outcomes of Global Financial Crisis

 Although the impact of 2008 Global Financial Crisis on Australian public sector organizations is not much deeper and lesser than the other companies in other countries, it took time for Australian public sector also to reviver. However the Australian economy has found to recover in better manner than other developed economies. The other developed countries have shown deeper impact in public sector in the form of rise in unemployment and major recession periods. The Australian Financial System has shown resilient features where most of the major banks of Australia have shown stable economic condition as they did not need any capital findings or injections from the government (Pride et al., 2011).

 Although the Australian government has been able to avert the GFC’s catastrophic impacts on the public sector but there have been deep impacts on the real economy of Australia. The lending standards have become strict, the consumer has turned weaker and loss of business confidence reading public institutions has risen and the demand for Australian commodities has decreased during the years after GFC, Australasia will have to face some impact of GFC.

 The government is hoping that with the stimulus package of $10.4 billion it would be able to protect Australian economy on the whole from global recession , but few economists believe that Australian economy has “de-coupled” from the rest of the world and other developed world economies (Mule, 2008).

 As a result it has been found that Australia Securities Exchange (ASX) plays major role in the capital raising process for the public companies in Australia. It requires companies to issue a prospectus or product disclosure statement (PDS) when raising capital from retail investors. It also raised the minimum admission requirement in order to get listed in ASX

So in the wake of GFC ASX is reviewing its decision to assess the minimum requirement of raising test assets from $2 million to $ 4million in order to get included in the ASX listing (Capital Raising in Australia:Experiences and Lessons from the Global Financial Crisis, 2010).

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