Spectacular Allco and ABC Learning developments
March 6, 2008
Dear Mayne Report subscribers,
Sorry to hit you twice in a day but there are two big stories this afternoon which raise the one question: how should banks deal with distressed clients during this unprecedented global credit crunch?
The cowboy executive team at Allco Finance Group have refused to put their $100 million worth of houses on the line so NAB released this statement at 4.20pm appointing adminstrators to take control of Allco Principals Investments, which owns 34.5 million Allco Finance Group shares and 4.1 million Allco HIT units.
There's now a scramble over who gets control with the API board attempting to appoint their own adminstrator, NAB claiming to have appointed two Grant Thornton accountants as "mortgagees in possession" and Bank of Scotland attempting to appoint a more traditional receiver.
The conflicts of interest, related party transactions and preferential payments throughout the Allco group in recent months will trigger a wave of litigation and investigation. For instance, Allco Finance Group would have a strong case against its board for the $45 million loan to the Allco Principals vehicles as the shop was going down in flames.
If the banks can get control of the Allco board, they would have access to all the files and could more effectively launch proceedings against Coe and his friends - who still have plenty of assets worth chasing.
The big global story in this unprecedented credit meltdown is how banks deal with their clients. NAB has seemingly been gentle with Allco in not yet selling a single share when the $110 million margin loan has been in negative equity territory for several weeks.
The Allco boys were promising additional security but have now walked away. No wonder Gordon Fell and David Coe quit the board last Friday. Fairfax's Michael West has been on fire in recent days and this opus is well worth a read for all the detail on the Allco empire.
The contrast with what happened at ABC Learning is stark indeed. Eddy Groves is used to suing unions for defamation and launching legal attacks on rival child care facilities, but now he's taking on the world's biggest bank, Citigroup, for allegedly sparking the run on his stock and then selling him out of his shares. The allegation was contained in this remarkable interview on Business Spectator. The key exchange is as follows:
EDDY: we even had analysts that don't do proper research and put into the marketplace their belief that the company is in breach of one debt covenant. That is without talking to the company. And then the question that they should have asked on the previous night, they asked at 11 o'clock the following day after they'd published their report. That's what sent the scare into the marketplace – that we were in breach of covenants. Because when we put out a confirmation that we weren't in breach of covenants the share price rebounded. So it was all about a debt story – that we were going to struggle with the debt and we were going broke or whatever.
KOHLER: I think that analyst was Citibank. Are you thinking of taking legal action against them?
EDDY: Mate, I wouldn't want to comment on that now. I'm just telling you that when you have those types of situations, that's a scary scenario isn't it? Considering the person that called my margin loans in was Citi.
KOHLER: Well that's right. So this was a co-ordinated operation?
EDDY: I'm not saying that...
KOHLER: Do you want to take this opportunity to clarify your own personal situation? What exactly happened with the margin call and were you a forced seller of stock?
EDDY: There's a whole discussion about this going on everywhere right now. Margin loans are just another form of financing. When you buy a house for an investment do you pay cash for it? No. You borrow against it so you can negative gear it. There are tax advantages there and so people negative gear.
If the bank comes to you and says we want you to reduce your debt, if you've got cash to do it, you could reduce your debt. Same with margin loans. So you borrow against stock within the company to build your stake – everybody talks about CEOs not having enough interest in the company. My stake has increased dramatically since the first day it was listed and I put everything back into the company.
Now if I had a phone call on that particular day saying ‘can you reduce your exposure because the shares have fallen', I could have written out some money for cash and reduced the stock. I never got that opportunity. We never even got a phone call. The stock was sold before I even blinked an eye.
KOHLER: So you didn't sell it, it was sold out from under you?
EDDY: Absolutely.
KOHLER: And what's your position now? Do you have any lending left against your shareholding?
EDDY: Look, I wouldn't want to comment on the current position. I'm happy to do another interview with you in a little while once I get through all this. But you know, from what they've done by doing that, it's put me in a terrible position. But I've got to live with that.
KOHLER: Who's they? Who did it?
EDDY: Citibank.
KOHLER: Right. So they were your personal lenders?
EDDY: Yeah.
KOHLER: And did you get any proceeds after the loan was paid off?
EDDY: No.
KOHLER: So you just lost that stock completely.
EDDY: Oh yeah. Twenty years of work gone in a phone call. Off the back of a piece of Citi research.
KOHLER: Do you intend to rebuild your stake?
EDDY: Oh mate, how do you do that?
Eddy whinges too much. His stock finished down 18% today so he's still left his investors more than $1 billion underwater. However, the claim that his personal banker sold him with no warning and that an analyst across the Chinese wall caused the share price rout with an unchecked debt covenant claim is just spectacular.
Ironically, Business Spectator is a well resourced business commentary website which relies 100% on advertising. Citigroup has been one of their biggest advertisers and they won't enjoy the Eddy Groves spray one bit.
Do ya best, Stephen Mayne
Finally, if you're only getting an occasional Mayne Report, why not try subscribing?
Sorry to hit you twice in a day but there are two big stories this afternoon which raise the one question: how should banks deal with distressed clients during this unprecedented global credit crunch?
The cowboy executive team at Allco Finance Group have refused to put their $100 million worth of houses on the line so NAB released this statement at 4.20pm appointing adminstrators to take control of Allco Principals Investments, which owns 34.5 million Allco Finance Group shares and 4.1 million Allco HIT units.
There's now a scramble over who gets control with the API board attempting to appoint their own adminstrator, NAB claiming to have appointed two Grant Thornton accountants as "mortgagees in possession" and Bank of Scotland attempting to appoint a more traditional receiver.
The conflicts of interest, related party transactions and preferential payments throughout the Allco group in recent months will trigger a wave of litigation and investigation. For instance, Allco Finance Group would have a strong case against its board for the $45 million loan to the Allco Principals vehicles as the shop was going down in flames.
If the banks can get control of the Allco board, they would have access to all the files and could more effectively launch proceedings against Coe and his friends - who still have plenty of assets worth chasing.
The big global story in this unprecedented credit meltdown is how banks deal with their clients. NAB has seemingly been gentle with Allco in not yet selling a single share when the $110 million margin loan has been in negative equity territory for several weeks.
The Allco boys were promising additional security but have now walked away. No wonder Gordon Fell and David Coe quit the board last Friday. Fairfax's Michael West has been on fire in recent days and this opus is well worth a read for all the detail on the Allco empire.
The contrast with what happened at ABC Learning is stark indeed. Eddy Groves is used to suing unions for defamation and launching legal attacks on rival child care facilities, but now he's taking on the world's biggest bank, Citigroup, for allegedly sparking the run on his stock and then selling him out of his shares. The allegation was contained in this remarkable interview on Business Spectator. The key exchange is as follows:
EDDY: we even had analysts that don't do proper research and put into the marketplace their belief that the company is in breach of one debt covenant. That is without talking to the company. And then the question that they should have asked on the previous night, they asked at 11 o'clock the following day after they'd published their report. That's what sent the scare into the marketplace – that we were in breach of covenants. Because when we put out a confirmation that we weren't in breach of covenants the share price rebounded. So it was all about a debt story – that we were going to struggle with the debt and we were going broke or whatever.
KOHLER: I think that analyst was Citibank. Are you thinking of taking legal action against them?
EDDY: Mate, I wouldn't want to comment on that now. I'm just telling you that when you have those types of situations, that's a scary scenario isn't it? Considering the person that called my margin loans in was Citi.
KOHLER: Well that's right. So this was a co-ordinated operation?
EDDY: I'm not saying that...
KOHLER: Do you want to take this opportunity to clarify your own personal situation? What exactly happened with the margin call and were you a forced seller of stock?
EDDY: There's a whole discussion about this going on everywhere right now. Margin loans are just another form of financing. When you buy a house for an investment do you pay cash for it? No. You borrow against it so you can negative gear it. There are tax advantages there and so people negative gear.
If the bank comes to you and says we want you to reduce your debt, if you've got cash to do it, you could reduce your debt. Same with margin loans. So you borrow against stock within the company to build your stake – everybody talks about CEOs not having enough interest in the company. My stake has increased dramatically since the first day it was listed and I put everything back into the company.
Now if I had a phone call on that particular day saying ‘can you reduce your exposure because the shares have fallen', I could have written out some money for cash and reduced the stock. I never got that opportunity. We never even got a phone call. The stock was sold before I even blinked an eye.
KOHLER: So you didn't sell it, it was sold out from under you?
EDDY: Absolutely.
KOHLER: And what's your position now? Do you have any lending left against your shareholding?
EDDY: Look, I wouldn't want to comment on the current position. I'm happy to do another interview with you in a little while once I get through all this. But you know, from what they've done by doing that, it's put me in a terrible position. But I've got to live with that.
KOHLER: Who's they? Who did it?
EDDY: Citibank.
KOHLER: Right. So they were your personal lenders?
EDDY: Yeah.
KOHLER: And did you get any proceeds after the loan was paid off?
EDDY: No.
KOHLER: So you just lost that stock completely.
EDDY: Oh yeah. Twenty years of work gone in a phone call. Off the back of a piece of Citi research.
KOHLER: Do you intend to rebuild your stake?
EDDY: Oh mate, how do you do that?
Eddy whinges too much. His stock finished down 18% today so he's still left his investors more than $1 billion underwater. However, the claim that his personal banker sold him with no warning and that an analyst across the Chinese wall caused the share price rout with an unchecked debt covenant claim is just spectacular.
Ironically, Business Spectator is a well resourced business commentary website which relies 100% on advertising. Citigroup has been one of their biggest advertisers and they won't enjoy the Eddy Groves spray one bit.
Do ya best, Stephen Mayne
Finally, if you're only getting an occasional Mayne Report, why not try subscribing?