Bendigo and Adelaide Bank shares marked time yesterday as the market awaited the update from the meeting of creditors of Great Southern, the failed managed investment scheme promoter in which Bendigo has clients with loans of around $615 million.
The shares eased but then rose to finish steady on $6.20.
The news from the meeting wasn’t good for investors, with media reports that they might see the value of their investment slashed.
If that was to happen, it would be bad news for Bendigo and its associate, Adelaide Managed Funds.
Between the two of them they have thousands of clients with loans totalling over $700 million (around $82 million in Adelaide Managed Funds).
If that was the case, the two companies would be faced with unenviable task of pursuing customers with loans secured by assets that were worthless, or close to it, and trying to get money, or get them to keep paying.
It’s a recipe for bad publicity and big losses for clients and for the two companies, and other banks involved as well.
Figures released by the administrators yesterday show that as of April 30, 2009, Great Southern had total liabilities of $996.4 million, including loans and borrowings of $833.9 million.
The loans and borrowings included $375 million from the group’s banks. The secured creditors include ANZ, Commonwealth Bank and BankWest.
A report yesterday of the meeting from AAP said "Investors in Great Southern Ltd fear they may be left with nothing as the failing manager of agricultural projects’ bankers seek to recover money owed to them.
"At the first meeting of about 400 creditors and investors in Great Southern on Wednesday, investors in the group’s managed investments schemes (MIS) expressed concerns they may not be ultimately designated as creditors.
"The concerned investors said Great Southern’s secured creditors which includes a group of banks, had appointed receivers – who would act in the interests of the banks, not the interests of investors in the managed investments schemes.
"The receivers, McGrathNicol, were appointed just days after Great Southern appointed Ferrier Hodgson as voluntary administrators.
"The receivers have precedence over the administrators in the control of the Great Southern assets in which it holds security.
"Lead administrator Martin Jones of Ferrier Hodgson told the meeting that Great Southern may be insolvent but investigations may show that some of the MIS might still be viable."
At the same time, a banking analyst at Citigroup has questioned the adequacy of Bendigo Bank’s provisions for potential losses on its $615 million of loans to investors in Great Southern, and the bank’s understanding of the concentration of risk it now seems to be carrying in its loan book.
Citi’s Craig Williams wrote yesterday:
"While the market was aware that the ADB Portfolio funding business (in the old Adelaide Bank, which merged with Bendigo) had some substantial “partner” relationships, the end customers were claimed to be relatively diversified – hence mitigating perceived concentration risk.
"However it is now clear that the performance of the “partner” is key to the ongoing performance of the end customers. As a result, concentration risk appears more abundant than management may have realised.
"With the MIS schemes in jeopardy and returns to investors now dubious, it is likely that some will choose not to meet outstanding commitments on otherwise unsecured loans.
"While it is impossible to quantify how much of the $600m exposure is at risk, the bank’s current individual and collective provision coverage of $78m (excluding GRCL of $79m) looks small by comparison."
His client note was issued after the bank’s disclosure yesterday that 8,200 customers had loans totalling $615 million for investments in Great Southern and its schemes, while an associated company, Adelaide Managed Funds revealed on Monday that a further 4,200 investors had loans totalling more than $82 million.
Bendigo and Adelaide Bank is the responsible entity for Adelaide Managed Funds, and in February proposed a takeover of the funds management group.
That was knocked on the head in March by the key regulator, APRA, without explanation to the market.
"In discussions with Australian Prudential Regulation Authority (APRA), APRA has advised the Bank of APRA’s position that it will not allow the Bank to proceed with the proposal," Adelaide Funds Management’s statement said in part.
The Bendigo Bank and Adelaide Funds Management have so far not told the market why the regulator rejected the merger, one of the few that has been publicity knocked on the head by the regulator in recent years.
Could the Great Southern involvement and other funding of Managed Investment Schemes be a reason for this APRA rejection of the takeover?
In any case, APRA, the bank and the fund management company need to make a statement, especially now that there’s some unease about the level of exposure at Bendigo Bank to Great Southern.
Citigroup’s Craig Williams raised a small red flag over Bendigo announcement yesterd
