does Macquarie or other banks have a plan b? - see below
"Banks must push to ensure Babcock & Brown's survival
James Kirby
June 15, 2008
HERE we go again … the stockmarket is suddenly losing traction and a leading company has been "knocked out by hedge funds" … only this time it's a bank.
How has Australia's second-biggest investment bank - Babcock & Brown - fallen from grace so fast, and what will happen next?
A few weeks ago a friend of mine was invited to meet B&B chief executive Phil Green.
At the time, which must now seem like another lifetime to Green, the bank was worth about $15 a share - this weekend it's worth a third of that at $5.25 after falling 45% in recent days.
Green wanted to meet for a coffee and explain why some investors were getting it all wrong about B&B.
The meeting began at 10.30am. Three hours later, Green was still explaining why the bank was not in trouble.
"What you do speaks so loudly in my ears I cannot hear what you say," said the American writer Ralph Waldo Emerson … and it still rings a bell. If a bank chief must spend his days elaborately explaining how everything is just fine, then everything is probably just rotten.
In the coming days we'll find out just how rotten things are at B&B as a series of meeting with financiers gets under way, but the stockmarket isn't waiting for another three-hour explanation from Green - the sell-off is severe.
Ostensibly, a $300 million deal can't be financed but an investment bank that loses 45% on the stockmarket in a week never returns to grace. As another American, Richard Nixon, once said "you can't put the toothpaste back in the tube".
For investors and everyone else with a bank account the immediate issue is whether the B&B funding crisis can be quarantined in the way that that the US and British markets have so far quarantined their banking casualties (Bear Sterns in the US, Northern Rock in Britain), or whether the system fails to shelter the wider market from the ferocious collateral damage that could be caused when a market's "second-biggest investment bank" gets into trouble.
Since last November the sharemarket has been hit with a succession of negative blasts - we've had near-death experiences for ABC Learning Centres, Allco and Centro and now B&B is in the emergency ward. But this is the most worrying case because an investment bank has interconnections with literally dozens of other banks and hundreds of companies.
And though there will be bleating about mysterious hedge funds and evil traders "shorting" the B&B stock, the truth is that the stockmarket does not lie - if Australia's second-biggest investment bank has sellers at $5 … then that's what it's worth.
What most people want to know next is whether trouble at an investment bank means trouble for "banks". The answer must be yes.
But every bank in Australia will now be pushing hard to ensure B&B survives - it must."
BNB
babcock & brown limited
