Today is a big day for the tens of thousands of people with funds invested in Managed Investments Schemes with the failed Great Southern Group, not to mention directors, management, shareholders and some customers of other groups, such as Adelaide Funds Management and Bendigo and Adelaide Bank.
The first creditors meeting for Great Southern is due to be held in Melbourne later today (it will be webcast with links on the Great Southern website and on the website of administrators, Ferrier Hodgson).
Great Southern went into administration on May 16, and into receivership on May 19.
Ferrier Hodgson were appointed by Great Southern; McGrathNicol are the receiver managers appointed by the secured lenders, led by the ANZ and Commonwealth Banks who are owed together a reported $500 million of stated debts of $826 million.
The administrators will provide first estimates for losses, returns and will clarify the position of people with funds invested in the MIS.
Before trading in the shares was halted earlier this month,.
There were media reports suggesting Great Southern would lose $120 million in the year to June.
That will be the basis for the estimates for losses at today’s meeting. Shareholders can expect very little, if anything, back.
Bendigo and Adelaide Bank said yesterday it has indirect exposure to the troubled timber investor Great Southern through 8,200 customers with loans totalling around $615 million.
The bank told the ASX yesterday that it will work with its customers, with average loans of $75,000 used to invest in Great Southern schemes, to work out courses of action to best protect the interests of both parties.
In the meantime, the bank said, the borrowers’ obligations stand.
That means if the loans go bad, the bank will still chase the people for the full amount (full recourse).
That will generate enormous bad will for Bendigo.
Bendigo is also reported to have bought loans from a desperate Great Southern at 38 cents in the dollar. Why it did this hasn’t been disclosed. but the failure of Great Southern has exposed the management of the bank.
"These loans are full-recourse to each individual borrower, with an average exposure of $75,000 and are spread across every state and territory of Australia," Bendigo and Adelaide Bank said in a statement on Tuesday.
"The obligations of the borrower remain unchanged by the announcement by (Great Southern)" that it was entering administration.
The bank said it would work with its customers "to determine what steps can be taken to protect its interests and those of its customers".
Bendigo downgraded its 2009 profit expectations several months ago.
They said "Revised forecasts for the financial year are for cash earnings of between $205 million and $218m, which represents between 70 and 75 cents per share".
It looks like being lower now.
Although they are saying there’s no loss to the bank, there could very well be impairment or restructuring costs on customer loans for Great Southern investments.
That will depend on what the administrators say the carrying values for the investments are likely to be.
They could be 100 cents in the dollar, they could be less.
The latter is likely given the problems the company encountered in recent years and reported in various reports about its weakening financial position.
Many of the company’s biggest investors are in arrears with their loans to Great Southern and haven’t paid up.
While there’s no damage to BEN’s balance sheet, the point to remember is that in all corporate failures, the first estimate is always the best and the smallest: the losses worsen from now on.
For Great Southern it will be made harder by the failure of its competitor, Timbercorp.
Bendigo shares eased 13c to $6.20 yesterday.
Adelaide Funds Management (which is linked to Bendigo Bank) said this week it had around 1,000 investors with loans averaging $46,000 each in MIS schemes with Great Southern. This is a gross value of around $82 million.
