Investors Were Losers In 2008 | 

Investment

Investors Were Losers In 2008

The many losers on the Australian share market in 2008 far outweighed the winners, and they were mostly ordinary mum and dad investors.

The year was pockmarked by company collapses, profit warnings, strategy reversals, abandoned takeovers and chief executives losing their jobs as global credit markets tightened up and stock markets, economies and confidence spiralled downward.

CommSec chief equities economist Craig James said the tone for 2008 was set by the sub-prime mortgage crisis in the United States.

"No one predicted just how aggressively it would overwhelm financial markets over the year, dragging down otherwise healthy economies and producing recessions in many parts of the globe," Mr James said in a research note.

"The tragedy is that the sub-prime crisis - which became the global financial crisis - again reflected failures by authorities in the world's largest economy - the United States - causing global economies to weaken and drying up sharemarket wealth."

Colonial First State head of investment markets research Hans Kunnen said the distribution of losers in 2008 was widespread.

"Credit markets were crunched, equity markets were crunched, some property markets were crunched, some foreign exchange traders probably got crunched, people planning holidays got crunched - very few escaped some fallout," he said.

"And there were many (losers) because optimism was high and nobody was really expecting a 50 per cent fall in share prices."

The biggest losers of the year were those who borrowed a lot of money, only to see the value of their investments plummet and to be left with few options to refinance their loans.

"This includes businesses such as (childcare operator) ABC Learning, as well as individuals whose equity market investments were based on margin loans," Mr Kunnen said.

"The atomic bomb may as well have fallen on their heads."

Mr Kunnen said many investors had placed their trust in institutions and had begun to believe that annual returns of 20 per cent seen in previous years were normal.

There was less attention paid to risk.

"Complacency, maybe," Mr Kunnen said.

"I would say there were some bankers in the United States who should shoulder some responsibility, but we all took part.

"We all had the opportunity to ask the hard questions and do the analysis, so no professional investor can really say it's somebody else's fault."

Mr Kunnen said the property and investment banking sectors probably suffered the most in 2008, with investors abandoning them in droves.

He said the demise of RAMS Home Loans and near-collapse of Centro Properties Group were early signs of trouble and were followed by a "hospital list" of debt-burdened companies.

Home-lender RAMS was unable to refinance $6.17 billion of debt, and subsequently sold its brand name and distribution business to Westpac.

The credit crunch hampered Centro's ability to refinance around $6 billion of debt and also had to write down the value of its shopping centre assets due to a slump in property markets.

Centro's stapled securities fell off a cliff, dropping from $5.70 in mid-December 2007 to under 10 cents by mid-December 2008.

Centro's dramatic loss in value has prompted several law suits from aggrieved shareholders.

Allco Finance, which was a key player in the consortium that made last year's failed takeover attempt for national carrier Qantas Airways, was placed in receivership and voluntary administration after collapsing under the weight of $1 billion of debt.

Investment firm Babcock & Brown, whose market value has fallen to $57 million from a peak of almost $13 billion last year, was pushed off its perch by $3.7 billion in debt and is now seeking to sell assets and become a smaller company focused on infrastructure investment.

Babcock & Brown shares plunged 99 per cent in value in the 12 months to December.

OZ Minerals, which became Australia's third largest diversified miner in July through the merger of Oxiana and Zinifex, was placed in a trading halt in late November that could stretch into next year amid market concerns about its $1.28 billion debt burden.

OZ Minerals may be forced to sell prized mining assets.

OZ Minerals shares fell by nearly 86 per cent in the year to December 2008.

ABC Learning Centres, the nation's largest childcare provider, went into receivership, with liabilities of more than $1.6 billion in Australia alone.

Eddy Groves was earlier ousted as chief executive after company profits dived in the wake of rapid expansion fuelled by debt and share sales.

Mr Groves had to sell his shares in ABC to meet margin calls. His Brisbane Bullets basketball team also folded when he was unable to find a buyer.

2008 was also marked by the abandonment of global miner BHP Billiton's $US66 billion ($A96.38 billion) bid for rival Rio Tinto.

Rio Tinto, which was labouring under $US41 billion ($A59.87 billion) of that debt, subsequently announced that it would slash its workforce, more than halve its capital expenditure and significantly cut debt in response to the global economic downturn that ended the commodities boom.

Rio Tinto's share price, which was above $156.10 in May 2008, had plummeted to around $40 by mid-December.

The global credit crunch also forced media heir Lachlan Murdoch to scuttle a surprise $3.3 billion deal to privatise Consolidated Media Holdings with friend and fellow tycoon James Packer, who is deputy executive chairman of Consolidated Media.

The collapse of unlisted stock lender Opes Prime Stockbroking was one of the most far-reaching debacles of 2008.

It left around 1200 Opes clients hundreds of millions of dollars out of pocket, affected nearly 100 stocks listed on the stock exchange, created a legal morass that may continue for years and gave the ANZ bank a giant headache.

Opes owed secured creditors - mainly the ANZ and investment bank Merrill Lynch - more than $1 billion. To recover their money, the banks sold shares that investors had placed with Opes Prime in return for margin loans.

The sale of the shares caused chaos among dozens of mainly small companies listed on the stock exchange, and prompted a plethora of law suits from aggrieved shareholders who wanted the ANZ and Merrill Lynch to return their stocks.

The troubles of 2008 also led to the departure of some prominent chief executives.

Foster's Group head Trevor O'Hoy quit the global beverages group after several years of sour results from Foster's wine operations and after the group admitted it had paid too much for the wine assets.

Futuris Corporation boss Les Wozniczka left the agribusiness and automotive parts supplier after conceding that he had lost the support of investors following one too many profit downgrades.

A disappointing fall in profit also forced out chief executive Matthew Slatter from gaming giant Tabcorp Holdings.

Challenger Financial Services Group chief executive Mike Tilley resigned less than a year after his contract was extended until 2011, as the group reported an annual loss.

Babcock & Brown Ltd chief executive Phil Green stepped aside as the company reported a 30 per cent fall in interim profit.

West Australian Newspapers Holdings chief executive Ken Steinke also stepped aside this year, along with half of the company's board, reportedly following disagreements on the board over the company's strategy.

Fairfax Media chief executive David Kirk left after three years in the job, with Fairfax chairman Ronald Walker providing no explanation for the move.

Fairfax reported a rise in annual net profit in fiscal 2008 but is facing a soft advertising market this year.

Fairfax warned shareholders their dividend payout for the first half would fall as the company retained funds to pay down debt.

Among the biggest losers in 2008, on paper at least, were casino operator Crown Ltd's billionaire executive chairman James Packer and the chief executive of iron ore firm Fortescue Metals Group, Andrew Forrest.

In May, Mr Packer surrendered the top spot on BRW magazine's Rich 200 list to Mr Forrest.

Mr Packer dropped to third spot from No.1, with his estimated wealth falling to $6.10 billion, from $7.25 billion last year.

Mr Forrest amassed a fortune of $9.41 billion.

However, the fortunes of both men fell as the share prices of their respective companies declined.

Some estimates say Mr Forrest had a paper loss of more than $8 billion in the stock market rout.

Mr Kunnen said that given the losses and losers in 2008, investors would become a lot more questioning and conservative over the next five years.

"When you've been bitten as hard as you've been bitten, conservatism will reign," he said.

"People will still take debt, but not as much. From the borrowing side, they won't want as much; from the lending side, they won't want to give as much.

"There'll be more exit strategies - for anything."

 
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