Liquidator to probe B&B directors

THE creditors of Babcock & Brown, the failed investment bank, have been asked to fund a campaign to have liquidators forensically examine whether directors acted solely in their own personal interests instead of their shareholders’ during the final months as the empire crumbled.

Creditors yesterday officially voted to liquidate B&B, the former high-flying investment group that failed in March after it was worth nearly $10 billion at the height of the bull market.

B&B collapsed under debt of up to $40bn across the group and liquidators from Deloitte are now keen to further investigate the motives of the board in the final few months when the company, started as a private investment group by Jim Babcock and Phil Green, started to unwind.

The deeper probe, however, will be funded by creditors despite the expectation that potential returns will be close to zero.

The return to B&B’s subordinated noteholders is expected to be just 1.5c in the dollar while shareholders will receive nothing.

The 8000 noteholders and creditors, which could be up to 30,000, were yesterday asked by Deloitte to voluntarily contribute $400 in a bid to raise up to $600,000 to finance the more in-depth forensic examinations of the company’s intricate debt-laden structure.

The closing date for contributions is September 15 and Deloitte confirmed a number of major litigation funders could become involved in the process.

The request came at a meeting of just a few B&B noteholders at a creditors meeting in Sydney.

Deloitte liquidator David Lombe said he was keen to investigate further the potential conflicts of interest between the directors on the B&B board, and the board of Babcock & Brown International, the main trading entity of the complex group of companies.

The probe will examine whether B&B traded while insolvent as it battled to stay alive, and whether troubled assets were not officially impaired by the board when they should have been.

“In particular, we are interested to further investigate a key question, at what stage did the B&B directors have regard to the interest of noteholders and creditors in making their decisions about the conduct of the group’s business,” Mr Lombe said. The official liquidation of B&B will grant Deloitte greater powers, but could prove embarrassing for the former board of the group which could be forced to publicly defend allegations of impropriety.

“Liquidation will allow us to investigate the matter in greater depth, conduct public examinations and, as a liquidator, receive increased powers to commence recovery actions,” Mr Lombe said. The collapse of B&B came after the bank built a “mini-Macquarie” model in which it would buy assets, create separately listed funds and implement high gearing levels.

It listed in 2004 at $5 a share and soared to a peak of $34.78 a share which gave it a market capitalisation of $10bn, with assets under management reaching $70bn globally.

An initial report from Deloitte found that B&B became insolvent in November last year, more than three months before it was tipped into administration after noteholders voted against a last-ditch bid to restructure B&B’s debt.

The run-down of B&B has resulted in a number of asset sales held by the main company, while the surviving satellite funds have cut ties with the Babcock name.

Suncorp directors’ fees frozen

SUNCORP has frozen director fees and is cutting executive bonus pools after shareholders were yesterday presented with a 40 per cent dive in annual profit and a cut in the dividend by more than half.

The Queensland-based diversified bank reported that net profit slumped from $583 million to $348m, which was at the lower end of guidance, as a growing number of its commercial property and residential loans struck trouble, resulting in a tenfold increase in bad debt provisions.

Suncorp chairman John Story, who has been on the board of Suncorp for 13 years and oversaw the disastrous Promina acquisition, said the board realised shareholders would be unhappy with the bank’s profit performance over the past year.

“We — by that I mean the board — accept responsibility for what has been an extremely disappointing result,” Mr Story said. “We have been the subject of some very extreme events, both from the point of view of the weather and from the financial crisis and that has impacted each of our lines of business.

“So I think we’re in a position where we’ve probably (been) subject to the greatest of the impact that I think every Australian company has received. But as I said before, it has been a disappointing result for shareholders and we accept our share of the responsibility.”

The board of Suncorp cut the final dividend from 50c last year to 20c, which took the total dividend from $1.07 to just 40c — one of the largest dividend cuts by an Australian bank in recent history.

As a result, Mr Story has ordered non-executive director fees be frozen and the bonus pool for executives be cut, as the bank prepares for new chief executive Patrick Snowball, who takes control next Tuesday.

“I think that we have to recognise the reality of an extremely disappointing financial outcome for our shareholders and recognise the relationship back to the remuneration of our senior team,” Mr Story said.

“There needs to be an alignment between the two and I think we have achieved that alignment.”

The contribution to Suncorp’s bottom line from the banking business fell more than fivefold, as its profit declined from $633m to $117m and higher provisions were forced across the lending book.

The full-year impairment soared from $71m to $710m after Suncorp was exposed to the corporate troubles of Babcock & Brown and Raptis, in addition to its souring property portfolios.

Suncorp acting chief executive Chris Skilton said the bank believed it was not under-provisioned leading into the financial crisis, but the financial market crisis had proven worse than initially expected.

“The conditions that existed up to September last year were quite benign and in October-November they deteriorated significantly,” he said. “So at the end of last year we were absolutely appropriately provided, but the market has deteriorated substantially. If you look at all banks, their impairment charges have gone up markedly in the last 12 months.

“Our book is very well secured and so in good times our impairment charges are … significantly lower than the majors.”

Suncorp blamed a string of weather events, primarily storms and bushfires, for cutting profitability by up to $255m, resulting in the insurance trading result falling from $607m to $462m.

The Suncorp Life business, which encompasses wealth management, recorded an underlying profit of $122m, down from $146m last year.

BofA board loses two more directors

JOSEPH Prueher and Tommy Franks resigned from the Bank of America board this week, increasing to seven the number of directors who have left since late April amid calls for improved corporate governance at the banking giant.

The latest departures could deepen scrutiny of chief executive Kenneth Lewis, who lost his post as chairman earlier this year.

The company earlier this month added four outside directors with experience in banking or financial oversight, a move aimed at satisfying suggestions from federal regulators.

The latest resignations were effective Wednesday. The board now has 16 members.

“Each director’s decision to resign was not as a result of any disagreement with the corporation or its management,” the company said in a Securities and Exchange Commission filing.

Mr Prueher, 66, is a retired admiral in the US Navy who was named to the board in January, while Mr Franks, 63, is a retired general in the US Army who oversaw all combat operations in Iraq and Afghanistan in 2003. He joined the board in 2005.

theaustralian.news.com.au

Lloyds directors to lose bonues

ALL five board directors at Lloyds Banking Group in the UK are to be barred from receiving bonuses which could have doubled their salaries.

The revelation comes five days after chief executive Eric Daniels said he would waive his 2 million bonus for the year.

Those to forgo bonuses are Tim Tookey, finance director, Archie Kane, Truett Tate and Helen Weir. It is thought other senior staff will also not receive annual pay-outs.

This decision has caused huge tension at the bank. At the time of the takeover of HBOS, the government told Lloyds TSB that it could pay their bonuses so long as they were in shares. That decision has been reversed by the government, which owns a 43 per cent stake in the bank.

Lloyds said on Friday it was expecting a 10 billion loss for 2008. A large part of that relates to write-offs in HBOS’s corporate-lending department which was headed by Peter Cummings.

One top 10 investor said: “The City has long looked askance at the antics of Cummings. Now the full extent of those problems has been laid bare. By the time his payout was agreed the government was already the bank’s biggest shareholder. Someone at UK Financial Investments must have signed off their approval on that. We want to know what they are now going to do about trying to claw that back.”

Lloyds is facing a City witch-hunt with leading investors demanding the return of a 660,000 pay-off granted to Cummings.

At the weekend Andy Hornby, former HBOS chief executive, voluntarily agreed to terminate his 60,000 a month retainer.

Investors are not yet calling for the head of Mr Daniels but, as one said: “The heat is on”. Shareholders have launched a stinging attack against Mr Daniels after his admission, in front of the Treasury committee of MPs last Wednesday, that the bank had only conducted limited due diligence prior to the takeover of HBOS.

They are incensed that even in December Mr Daniels gave no indication the situation was going to deteriorate. He appeared relaxed about the capital position and about repaying preference shares.

Lloyds insisted it did as much due diligence as possible.

However, one investor said: “It runs completely contrary to what we were all being told in investor meetings ahead of the shareholder vote on the deal. Everyone acting for Lloyds assured us the board had done their homework.”

Mr Daniels may find himself accused of misleading the Treasury committee over claims about the bank’s capital strength before the HBOS deal.

He told the MPs that Lloyds “would not have had to have taken government money had we not bought HBOS”. He also said: “Lloyds was, in fact, I think well capitalised. I did not think we needed state aid or capital”.

However, in a shareholder circular last November 18, days before the deal went through, Lloyds said it would need 7 billion in new capital.

theaustralian.news.com.au