Macquarie, ABC Learning, Slaters AGM and plunging Rich Listers

February 2, 2010

Dear Mayne Reporters

First up today, here are the edited audio highlights from the Slater & Gordon AGM on Friday in Melbourne:

1. Do any of the executive directors have a margin loan? The $1.3m debt.

2. How are we going with all these shareholder class actions?

3. Would we sue our own auditor, Pitcher Partners?

4. Happy to have gone public and will future acquisitions be cheaper?

5. Soaring revenues from personal injury claims

6. Why don't we value our own brand on the balance sheet?

7. Why not pay back Westpac and build a cash pile for coming big battles?

No-one else spoke at the meeting so it was good to put the directors of Australia's most feared and aggressive plaintiff law firm through their paces on a few issues, albeit in a friendly way as it would be good to work with Slaters into the future on some shareholder class action matters. We're already in email correpondence on one no-brainer issue that emerged during the current AGM season.

ABC Learning Creditors Meeting

I'm heading to Brisbane at sparrows tomorrow for the ABC Learning creditors committee meeting after three days of argy bargy over exactly who is permitted entry and what status shareholders and noteholders have.

The administrator is aiming to have a 10-person creditors' committee and it sounds like there will be a surplus of people trying to get on.

Whilst holders of the $600 million in unsecured notes will formally be represented by the trustee, Australian Executor Trustees, my argument is that the minority non-CBA noteholders should have their own representative on the creditors' committee.

How can ComBank sit in the senior debt category with $240 million on the line and also dominate the unsecured notes category, where it has already written off the full $445 million investment, which represents 75% of all notes on issue?

CBA AGM transcript of ABC Learning unsecured notes write-off

You can listen to the audio from last Thursday's ComBank AGM about ABC Learning, but we've also now transcribed the relevent parts which established this $445 million write-off:

Mayne Report: Have we written off the ABC Learning unsecured subordinated reset convertible notes to zero?

CEO Ralph Norris: they're provided for, at that level, yes.

Mayne Report: We've written them off to zero. Okay, now this is clearly the biggest debacle in the history of the Commonwealth Bank... etc etc, rave, rave...

(a few minutes later after another shareholder raised ABC Learning) Mayne Report: Just to clarify on Ralph's last comment about the security, clearly there's no chance of getting the $450 million. I mean that's unsecured. We rank behind the local florist or newsagent. So, I'm presuming that must be the biggest loss in the bank's history. Are you aware of another account where we have just lost, without doubt, $450 million to start with?

CEO Ralph Norris: I think the issue here is that a, certainly the notes are at this point valueless, and certainly they have no ranking of any significance. So you are absolutely right there. In regard to the history of loans or whatever, I've been chief executive for three years and there's no doubt that in my three years as chief executive, this is the largest write-off that we've had. And as I said earlier, Mr Mayne, it's something that aggrieves me, and certainly I'm not happy about it. Certainly the board is not happy about; and my senior management team are not happy about it. And certainly I have concerns as I said earlier, about the information that was provided to us in order for us to action that particular provision or accommodation to ABC. So I will leave it at that point.

All of this was explained on Sky's Business View program on Friday as you can see here.

ComBank insider on ABC Learning fiasco

A ComBank insider writes:

I read the report in your newsletter earlier today. I am not sure of your source, but 10 people being sacked for their involvement in ABC Learning is incorrect. All people involved are still working at the CBA.

The person who headed this debacle is David H. His team is Stephen Larkins, Peter Wade and Angus O'Grady as well as others - all still gainfully employed by CBA.

Another interesting fact for you. David H is mates with Martin Touw. Both worked together at Shinsei Bank in Japan and Martin employed David to work under him before that debacle. Check out The Australian's big feature on Martin Touw.

Also if you chat with anyone who works in corporate finance in the world, then there is no way that a firm would solely take on the risk of a underwriting of that size without risk mitigation. Everyone knows that you would always sub-underwrite the risk at least.

Secondly while Ralph Norris seems to placing the blame on the information flow from ABC, what happened to the due diligence process? You don't simply take a companies word for it. You check contracts, meet with suppliers, go through the accounts. If you don't have the capability then you hire an accounting firm to do accounting due diligence and check that what the company says is correct. Especially when you're going naked and underwriting an issue over half a billion dollars and not sub-underwriting to others.

Why did the board let David and team undertake an underwriting of this size? Is there a failure in the chain of command - Board, Ralph Norris, Stuart Grimshaw, Ian Saines, David H.

Another part of lesson 101 when doing corporate finance is that you test the market when issuing a new security to gauge interest, then you know if you will successfully get it away. Did they do this? Most likely not because they failed miserably. To do a $600 million issue and only sell 25% is a catastrophic failure. Looks like amateur hour by David H and his team, yet he still works for the CBA.

What will Macquarie Group come up with tomorrow?

The market is abuzz with speculation about what Macquarie Group will tell the market about its half year result tomorrow morning and investors are clearly very nervous as shares in the Millionaire Factory plunged more than 9% to a 5-year low of $20.60 today.

Then again, Babcock & Brown plunged 7c to 41c today so as the imitators stagger on the edge of the cliff, Macquarie is still capitalised at $5.8 billion and remains more than 300% above its $6 float price back in 1996.

Then again, given the losses for investors in the various satellites funds and the fact Macquarie has tapped the market for more than $1.5 billion in new equity over the past three years at prices as high as $87, investors are now collectively net losers from their association with the Millionaires Factory. But the bank itself has still created several hundred millionaires, even if the customers and fellow shareholders haven't done too well.

With the Brisconnections debacle getting worse by the day, the Macquarie infrastructure halo has been well and truly smashed with investors. Watch the video in the next item to see where I reckon Macquarie will be at in two years time.

Business View commentary

We had a lively one hour debate on Sky's Business View program last Friday with Steve Johnson from The Intelligent Investor and Greg Peel from FN Arena. We've edited down the most interesting contributions to the following:

CBA's ABC Learning debacle

Predicting Macquarie Group will halve its workforce in two years

Why Sir Rod Eddington is completely inappropriate and the best man for ANZ.

Eight fallen Rich Listers

The Mayne Report Rich List is still easily the most popular feature on our site, so we've started the process of revaluing the entries for the new reality of the global financial crisis and the 50% plunge in global equity values from the peaks of last year. Here is an example of eight founders or directors of listed Australian companies who've taken a big hit in their paper wealth:

Andrew Abercrombie: the founder and former chief executive of leasing company FlexiGroup, which listed in late 2006. The stock has plunged from more than $3 to 27c so his wealth is back to just $50 million from clipping the ticket on transactions.

Kenneth Ambrecht: non-executive director of Fortescue Metals whose stake has crashed from more than $50 million to just $11 million.

Peter Anderton: executive chairman of the struggling Australian Ethanol but has done far better from his 2.25 million shares in African coal play Riversdale Mining, althese these are now down from $20 million to $5.6 million.

Chris Aylward: the man who ran the Grollo construction empire for many years got rich by founding APN Property Group but his 49 million shares have plunged from more than $100 millin to just $11.2 million.

Nick Bain: the Allco Finance Group infrastructure chief owns 11.75 million shares which used to be worth more than $150 million but are now worthless.

Charles Bass: a non-executive director of Queensland coal miner Aquila Resources who owns 13 million shares worth are today only worth $51 million, although BRW reckons he was worth $342 million as recently as May.

Andrew Bassat: co-founder of, Australia's leading online jobs site, whose share wealth has plunged from more than $100 million to $39.5 million.

Bill Clough: non-executive chairman of the emerging Mirabela Nickel which is developing the highly prospective Santa Rita nickel mine in Brazil that will come into production in 2009. Owns 8 million shares which have plunged from $60 million to just $11.4 million over the past few months.

That's all for now.

We'll be back in touch tomorrow after the ABC Learning creditors' committee meeting in Brisbane.

Do ya best, Stephen Mayne

* The Mayne Report is a multi-media governance website published by Stephen Mayne with occasional email editions. To unsubscribe from the emails click here.