The former Babcock & Brown chief executive says the company had a low-risk model.
Babcock & Brown's (BNB) investment banking model was in essence low risk, according to the company's former chief executive Phillip Green.
"I still believe our model wasn't particularly high risk," Green said at a Federal Court hearing into the company's collapse in Sydney yesterday.
Asked by barrister Peter Wood, who acted as counsel for the liquidators of BNB, whether low-risk business models should have been able to withstand the effects of the market downturn in 2008, Green, speaking under court privilege, said: "There were any number of organisations that were considered low risk prior to March 2008 that came under stress and had to be bailed out by their own governments."
Green seemed to argue that BNB had missed out on a similar bailout when he said the company was not unique compared to its international peers, but "fell through the gaps" in terms of government support.
BNB's model has been heavily criticised for assuming too much debt in order to expand its business.
Green told the court that under its model, BNB could leverage up to 50 per cent of its gross assets on a recourse loan basis.
He said this was not uncommon and that Westfield and Lend Lease had similar models.
"We thought it was appropriate according to the model at the time," he said.
BNB has also been castigated for informing investors too late about concerns about delivering on its profit forecast for 2008 of $750 million.
The liquidators asked why the company had not expressed its concerns in a market update in June.
Green had written in an internal email earlier that month that the fall in the company's share price would have implications for its corporate debt facility, which could subsequently hamper its ability to do transactions.
But Green said it had given guidance to the market at a UBS conference, where BNB head of global infrastructure Peter Hofbauer gave a presentation that was subsequently posted on its website and released to the ASX in line with disclosure rules.
According Green, the presentation said the realisation of forecasted profit was dependent on "our ability to recycle capital".
The two non-consecutive alphabetic letters encountered most often last week caused more controversy than the underlying policy they represented, Wouter Klijn writes.... read more »
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