Hastie's collapse to hit banks

AUSTRALIA'S big four banks are facing write-downs totalling almost $250 million in the wake of Hastie Group's collapse into receivership at the weekend.

By InvestSMART · 28 May 2012

By InvestSMART ·
28 May 2012

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AUSTRALIA'S big four banks are facing write-downs totalling almost $250 million in the wake of Hastie Group's collapse into receivership at the weekend.

ANZ is the lead lender in a consortium of banks that includes Commonwealth Bank, National Australia Bank, Westpac, ANZ , Bank of Scotland, Ulster Bank, HSBC Australia and HSBC Middle East.

That syndicate is owed an estimated $500 million, according to sources close to weekend negotiations over Hastie's future.

The debt is believed to be a 50:50 split between loans and bonds.

In total, ANZ is believed to be owed $150 million. Commonwealth Bank, with $20 million, has the smallest exposure of the Australian banks. "The other two, Westpac and NAB, fall somewhere in between," BusinessDay was told by a source close to the negotiations yesterday.

The corporate regulator is now assessing claims that a $20 million "accounting irregularity" is in the books of one of Hastie's Queensland divisions. Discovery of that $20 million black hole scuttled a refinancing deal with the banks.

"We've sent the matter to ASIC," chief executive Bill Wild said on Friday. "We'll go step-by-step. We're still working on it."

In the wake of Hastie's $150 million December-half loss, and a share price that has plunged from $2.17 to just 16? in the past year, that accounting irregularity is worth almost as much as Hastie's entire $21 million market capitalisation.

The employee responsible has been suspended and remains on the payroll, but the fate of 2000 other employees was sealed in weekend meetings at the company's Auburn headquarters in Sydney's inner west.

That number of staff will go today as administrator PPB and receiver McGrathNicol go about their job of salvaging what can be saved for Hastie's staff and lenders.

"There seems to have been some window dressing of the books to make a loss look like a profit, and it dates back to 2009," said a source close to the weekend discussions. "Given the problems in the company, and the high level of debt, it was the straw that broke the camel's back."

In addition to the banks, a number of large Australian superannuation funds and investment firms are licking their wounds in the wake of Hastie's demise.

Perennial Growth, IOOF Holdings, Schroder Investment, Lazard Asset Management and Mackenzie Financial all hold significant stakes in Hastie.

Perennial Growth, which invests on behalf of a number of superannuation funds, holds 11.23 per cent of Hastie.

Thorney Holdings, the investment arm of the Pratt family, is the second-biggest investor in Hastie with 10.6 per cent.

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Frequently Asked Questions about this Article…

What happened to Hastie Group and why did it collapse into receivership?

Hastie Group fell into receivership after a damaging mix of a $150 million December-half loss, a high level of debt and the discovery of a suspected $20 million accounting irregularity in one Queensland division. That $20 million “black hole” scuttled a refinancing deal and led the company to appoint administrators and receivers to try to salvage value for staff and lenders.

Which banks and lenders are exposed to Hastie Group debt?

A syndicate led by ANZ — and including Commonwealth Bank, National Australia Bank (NAB), Westpac, Bank of Scotland, Ulster Bank, HSBC Australia and HSBC Middle East — are the main lenders. The syndicate is estimated to be owed about $500 million in total.

How much of the debt is expected to be written down by Australia’s big four banks?

The article reports the big four Australian banks face write-downs totalling almost $250 million as a wake-up from Hastie’s collapse. ANZ is believed to be the most exposed at about $150 million, while Commonwealth Bank has the smallest Australian-bank exposure at about $20 million; Westpac and NAB fall somewhere in between.

What was the $20 million accounting irregularity and what role did ASIC play?

The alleged $20 million accounting irregularity was found in one of Hastie’s Queensland divisions and reportedly undermined a refinancing attempt. Hastie’s chief executive, Bill Wild, said the matter has been sent to the corporate regulator and that they will work step-by-step with ASIC to assess the claims.

How will Hastie’s collapse affect shareholders and institutional investors?

Shareholders were hit hard: Hastie reported a sharp share-price fall over the past year (from $2.17 to a much lower level, as reported) and the company’s market capitalisation was around $21 million. Several large investment firms and superannuation-related managers hold significant stakes, including Perennial Growth, IOOF Holdings, Schroder Investment, Lazard Asset Management and Mackenzie Financial. Perennial Growth holds about 11.23% and Thorney Holdings about 10.6%.

What happens to Hastie employees after the receivership?

Around 2,000 Hastie employees were affected by weekend decisions at the company’s Sydney headquarters. Administrators PPB and receiver McGrathNicol are now managing the process of salvaging what they can for staff and lenders. One employee alleged to be responsible for the accounting issue has been suspended and remains on the payroll.

How was Hastie’s debt structured and what does a 50:50 split between loans and bonds mean?

Sources in the article estimate Hastie’s creditors are owed about $500 million, and that the debt is believed to be split roughly 50:50 between bank loans and bonds. That means roughly half the exposure is in direct loan facilities from banks and the other half in bond-type securities held by other lenders and investors.

What are the next steps for Hastie’s administrators and receivers?

Administrators PPB and receiver McGrathNicol will continue assessing Hastie’s assets, liabilities and contracts to salvage value for staff and creditors. The corporate regulator and ASIC are also investigating the accounting irregularity. Creditors, administrators and receivers will work through restructuring, asset sales or other outcomes as they determine the best course of action.