Saturday, 24 January 2009

Bye Bye Babcock & Brown Shareholders

With Babcock and Brown's announcement Friday morning, shareholders have effectively been wiped out. Here is the money quote from the announcement:

Consistent with the announcement on 7 January 2009 regarding the Company’s negative net asset position at 31 December 2008, the Board believes that in the current market environment and based on continuing discussions with the banking syndicate there will be no value for equity holders under the revised business plan and balance sheet restructure of Babcock & Brown International Pty Ltd and negligible or no value for holders of the Company’s subordinated notes.

So that's it for BNB shareholders, thanks for coming. BNB was the poster child for the leverage your way to prosperity model that has all but vanished. This was a smoke and mirrors operation that thrived on the near limitless access to cheap credit and the false assumption that asset prices always go up.

Macquarie Bank has actually been doing the same thing for longer, however they have a much stronger capital postion, lower leverage and a better ability to service their debt obligations through a more diversified revenue base. However it is difficult to see how a bank like MQG will prosper unless they radically alter the way they do business. goign forward.