Wednesday, January 31, 2007

Australian buyout spree could end in tears

good to hear some honest words from a ceo of a major bank. unfortunately he is by far the minority. some big players in the us are increasing their exposure (just ask morgan stanley etc....)

tut gut ehrliche worte von einem hochrangigen bänker zu hören. in der zwischenzeit fahren gerade in den usa einige häuser ihr engagement gen norden ( morgan stanley etc....)

National Australia Bank Ltd. (NAB) chief executive John Stewart said Wednesday the local multibillion dollar private equity market is starting to overheat and is headed for a correction. (i think it could be a severe correction...., tippe auf ne "ernsthafte" korrektur...)

Stewart told shareholders at NAB's annual meeting the boom in private equity could "end up in tears". .

NAB - which ranks as Australia's largest bank with a market value of A$65.9 billion - is "very cautious" about its own participation. ( with a pe 16/17 there is really no room for error..../ bei nem kgv von 17 bleict auch kein raum für fehler....)

"We are a big player in private equity but we don't hold it," he said. Stewart said the NAB Capital unit, which originates most of the bank's private equity business, repackages the loans and sells the risk on to institutions. (like hedge funds, pension funds etc....thin ice.../ dünnes eis....)

....Merger & acquisition activity in Australia more than doubled last year to a record US$103.4 billion, according to data firm Dealogic, with the market ranking as the region's most active outside Japan. ......

With the board of Australian icon Qantas agreeing in December to a A$11 billion bid from a consortium led by Macquarie Bank Ltd. (MBL.AU) and Texas Pacific Group (TPG.XX), analysts say no company seems out of reach.

"We have now got private equity coming in and they are starting to look at very well run companies. And we see this often in any cycle where things just go too far," he said.

Central Bank Also Has Concerns

Westpac chief executive David Morgan said in November the big four bank is reluctant to play a key role in the wave of debt-funded buyouts, citing the high leverage of many of the deals.

"We are very, very wary about the private equity segment, have very low exposure to it and are approaching it very, very cautiously," Morgan said after unveiling the bank's annual profit.

the chairman of consortium member Allco Finance Group (AFG.AU), has questioned the sustainability of the private equity boom with deals being done at increasingly high leverage.

"If we neglect to ensure sustainable cash flows, if and when the markets turn down, we will see a crisis," Coe told Dow Jones Newswires in an interview this week.

"If we gear the bejesus out of business, we will see a crisis."

Reserve Bank of Australia Governor Glenn Stevens in December warned the trend toward more leveraged deals could heighten the risks to Australia's continued financial stability.

Paul Masi, the chief executive of Merrill Lynch in Australia, says buyouts have become more debt laden over the last few years.

"In the private equity space, deals were typically two times geared, now they are seven times geared," Masi told Dow Jones Newswires in an interview last month. ( add to this the explosion in australian hedge funds.......dazu noch die explosion der australischen hedge fonds....)

"There is some pretty heavy leverage in the system that is being manufactured, and I don't think that has been really completely understood.

"But to get the returns people want, gearing levels are going up. As long as the cycle stays good, it's fine." ......Australia's equity market is "highly vulnerable to the slightest disruption".

"It's all too easy, and in my view, the step up in private equity activity has brought a real complacency to the market. The market seems to think private equity will take them out of everything," he said in a client newsletter Tuesday. ( same globally , afdter every warning multiple "possible" bidders/buyers are in the news....dasselbe weltweit, nach jeder warnung werden diverse "mögliche" bieter/käufer genannt.)

Aitken estimates there is at least 400 basis points of "private equity hype" reflected in the country's benchmark S&P/ASX200 index. (close to 7% )

"And that's the 400 basis points that will be wiped out in the pending trading correction as bond yields rise," he said. The index fell 0.7% Wednesday to 5773.4 points.

Craig James, chief equities economist at Commonwealth Securities, urged investors to show "great diligence" in terms of assessing the potential impact of private equity on the market, with rising global interest rates posing a risk. ( or just rising spreads!)

"The fallout would be if one of these transactions goes south and that leads to an unraveling across financial markets," said James. .....

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