MIS payment strike a drag on Bendigo earnings
Bendigo and Adelaide Bank yesterday revised its earnings guidance for the 2008/09 financial year as a result of provisions against its loan exposure to the managed investment schemes of agribusiness from Great Southern, as well as some troubled commercial loans.
Due to present its results on Monday, the bank will report earnings per share of around 63 cents, down from the 70 to 75 cents per share it gave as guidance in April.
Bendigo and Adelaide said it has 8200 borrowers with a total of $556 million of loans taken out to fund investments in Great Southern managed investment schemes.
The bank has raised $20.2 million in specific and collective provisions relating to the Great Southern exposure.
An additional $14.4 million has been raised in specific provisions due to the deterioration in asset values in the commercial property sector.
Great Southern went into voluntary administration in May, when it appointed Ferrier Hodgson as administrator. A few days later creditors appointed McGrath Nicol as receiver.
The group, which had raised $1.8 billion over the past five years in 45 schemes, was declared insolvent in July.
In the 12 months prior to the appointment of the receiver the average arrears (overdue 90 days or more) on Bendigo and Adelaide's $556 million portfolio was 1.1 per cent.
Since the receivers were appointed, the number of borrowers who missed two or more payments has jumped to 2.7 per cent by value and 2.3 per cent by number.
Efforts by collection staff have turned non-performing loans into performing loans, so perhaps twice as many MIS borrowers have at some stage suspended payments. Business Spectator also reported yesterday, citing legal sources, that refusal to pay was escalating and that a more current estimate of delinqincies than the June data cited by the bank would be higher.
The bank has established a project team, separate from the rest of the bank, to manage the portfolio. It has appointed Grant Samuel to assist with "assessing, developing and valuing scheme options".
Bendigo & Adelaide managing director Mike Hirst said the bank had identified two types of borrowers in arrears: those facing financial hardship and those who had made a "strategic decision" to stop making loan repayments.
Many of those in the strategic arrears category were assumed to be in contact with one of a number of law firms investigating class actions.
For example, law firm Slater & Gordon confirmed late in July that it was considering a class action against planners who put their clients into Great Southern funds, and also against directors, auditors and legal professionals who approved product disclosure statements.
Hirst said that almost half those in arrears were in the strategic category.
Hirst said: "Some people are waiting to see what happens. These people are looking at their legal position."
He said the bank made contact with these people to remind them that they still had an obligation to repay their loan, regardless of what happened to their investment, and many had resumed their payments.