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Long time reader of Itulip from Australia and thought this turn of events may be of interest......
For those not familiar, a bit of background....... Australia has had its own tussle with the turn in credit markets since August 07. One of the most high profile collapses has been Allco Finance Group - Australia's 3rd largest investment bank, and Babcock & Brown - Australias 2nd largest
Both banks have grown aggressively with a business plan centred around creating publicly listed satellite vehicles that buy assets (typically infrastructure with high leverage) and then charging them hefty management fees that are passed back to the mothership bank. During the debt binge and asset price boom everyone was happy, and not too many questions asked... Often the investment banks were paid management fees based on asset size (not profit), so there was an incentive to overpay for assets shovelled into its satellite funds... again in a rising market no one asks too many questions...............
Then the credit crunch came... debt markets seized up right when they were all still in expansion mode.... Suddenly banks and investors started asking questions.
Ultimately Allco (ASX Code AFG) was brought undone by paying too high a price for commercial real estate investments (rubicon) right when the market peaked. Spooked investors bailed, hedge funds moved in to sell the stock short and the rest is history;
http://www.theaustralian.news.com.au...27-643,00.html
the former 4.5 billion investment bank is now on life support trading at a market cap of 370 million.
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Cut to a few months later, and the second in line Babcock & Brown (ASX code BNB) (who most thought was much too big too fall the same way Allco did), is now being pushed to the wall..... a few surprises from satellite fund refinancing issues and lack of confidence in its business model saw its price battered in half last week, after already being significantly down from 2007 highs. The market cap has now been pushed below the level that could see banks review debt funding across the group...
the former 10 Billion Australian giant is now a shadow of its former self (market cap now 2 Billion) with asset sales seemingly the only way out
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Then today I see a big announcement from both banks in trouble, that they may be able do extracate themselves by selling some assets..... in my mind i'm thinking just what exactly have they bought in the last few years that would be worth more than what they paid for under fire sale conditions???
The answer
Wind Farms!!!
http://www.bloomberg.com/apps/news?p...&refer=germany
...... and so we move onto the next bubble :cool:
For those not familiar, a bit of background....... Australia has had its own tussle with the turn in credit markets since August 07. One of the most high profile collapses has been Allco Finance Group - Australia's 3rd largest investment bank, and Babcock & Brown - Australias 2nd largest
Both banks have grown aggressively with a business plan centred around creating publicly listed satellite vehicles that buy assets (typically infrastructure with high leverage) and then charging them hefty management fees that are passed back to the mothership bank. During the debt binge and asset price boom everyone was happy, and not too many questions asked... Often the investment banks were paid management fees based on asset size (not profit), so there was an incentive to overpay for assets shovelled into its satellite funds... again in a rising market no one asks too many questions...............
Then the credit crunch came... debt markets seized up right when they were all still in expansion mode.... Suddenly banks and investors started asking questions.
Ultimately Allco (ASX Code AFG) was brought undone by paying too high a price for commercial real estate investments (rubicon) right when the market peaked. Spooked investors bailed, hedge funds moved in to sell the stock short and the rest is history;
http://www.theaustralian.news.com.au...27-643,00.html
the former 4.5 billion investment bank is now on life support trading at a market cap of 370 million.
----------------------------
Cut to a few months later, and the second in line Babcock & Brown (ASX code BNB) (who most thought was much too big too fall the same way Allco did), is now being pushed to the wall..... a few surprises from satellite fund refinancing issues and lack of confidence in its business model saw its price battered in half last week, after already being significantly down from 2007 highs. The market cap has now been pushed below the level that could see banks review debt funding across the group...
the former 10 Billion Australian giant is now a shadow of its former self (market cap now 2 Billion) with asset sales seemingly the only way out
-----------------------------
Then today I see a big announcement from both banks in trouble, that they may be able do extracate themselves by selling some assets..... in my mind i'm thinking just what exactly have they bought in the last few years that would be worth more than what they paid for under fire sale conditions???
The answer
Wind Farms!!!
http://www.bloomberg.com/apps/news?p...&refer=germany
...... and so we move onto the next bubble :cool: