One of Crikeys all-time favourite corporate directors, Elizabeth Nosworthy, fronted the Babcock & Brown liquidators hearing in Sydneys Federal Court yesterday and remained steadfast in her own abilities. Apparently, it was those nasty, short-selling hedge funds that were responsible for Babcocks demise, not the poor directors or executives.
Nosworthy remains one of Australias most unlucky non-executive directors. The Brisbane-based former solicitor rose to the upper ranks of Australian boardrooms, at one stage, holding the posts of chairman of Babcock & Brown (no longer listed on the ASX), chairperson of Commander Communications (no longer listed on the ASX), a director of Ventracor (no longer listed on the ASX) and a director of GPT (whose share price fell by 95%). (Nosworthy was also a director of David Jones between 1995 and 2003, a terrible period for the retailer).
Nosworthy also served as chairman of Prime Infrastructure until 2004, shortly before it agreed to an alignment transaction with Babcock & Brown (by the time of the deal, Nosworthy had become a director of Babcock). In 2005, Prime was valued by the market at $1.50 per unit (or about $1 billion). Four years later, BBI was taken over by Canadian infrastructure group Brookfield for 4 cents per unit after announcing a $977 million loss. Between 2005 and 2009, BBI paid Babcock fees of $314 million.
While her record of as non-executive director was dubious, Nosworthy didnt appear to be taking a great deal of responsibility for Babcock & Browns fate apparently, everyone else was to blame. Nosworthy told the Federal Court hearing yesterday that no one could have anticipated the depth and ferocity of the global recession and she hadnt seen [Babcock] as a high-risk business. Nosworthy must not have concerned herself with the fact that Babcock earned the vast majority of its profits from charging fees to highly leveraged related parties while paying staff almost 50% of revenue. In fact, Babcock was so reliant on fees from its satellite funds that in 2007, only $25 million of Babcocks $2 billion in revenue came from non-Babcock entitles.
During the hearing, Nosworthy (who was giving evidence under the protection of privilege) blamed short-sellers for setting in motion trigger events that precipitated Babcocks downfall. While short-sellers may have been partly responsible for the collapse in Babcocks share price, they played no role in Babcock amassing a debt burden of almost $50 billion, or in the $5.6 billion loss which the company announced in 2009. Short-sellers also had no influence on the payment of $280 million in cash to Babcocks dozen most senior executives over its four-year life as a listed entity. In fact, that was the responsibility of Babcocks remuneration committee of which Nosworthy was a proud member.
Nosworthy also claimed that former Babcock CEO Phil Green, the individual most responsible for the rise and fall of the investment bank, was a decent and honourable man. That view may not be shared by Babcocks creditors or shareholders, who saw the value of their loans and investments fall to nothing, while Green has maintained a fortune worth upwards of $50 million. Green is understood to have retained a 5% stake in Tourism Asset Holdings, a business formerly owned by Babcock, which is the largest owner of hotel rooms in Australia. Green is also believed to own half-share in a Hunter Valley property (bought with Lance Rosenberg, former Tricom boss), purchased for $23 million in 2006. Green lives in a harbour-side mansion in one of Sydneys best streets in exclusive Point Piper.
Nor would creditors of Babcock have deemed the act of lending $35 million of the banks precious capital to stockbroker Tricom as a particularly honourable act especially given Green himself had $15 million in Babcock shares trapped within the ailing broker.
Nosworthy also claimed that in the circumstances [she didnt think] that any other CEO would have done better. Given Babcock lost $5.6 billion in 2009 (the greatest loss made by an Australian company), its hard to think of how any CEO could have done much worse.
Adam Schwab is the author of Pigs at the Trough: Lessons from Australias Decade of Corporate Greed, featuring the story of the collapse of the House of Babcock
http://www.crikey.com.au/2010/08/03/former-babcock-chief-short-sellers-responsible-for-fall-of-company/
BNB
babcock & brown limited
