Allco's biggest losers
There are four broad categories of victims from the $1.1 billion Allco Finance Group collapse.
Firstly, there are the shareholders and subordinated note holders who will now have to join the queue behind the banks. There is unlikely to be much sympathy for shareholders or bond holders at this late stage in the game.
The writing has been on the wall for Allco since March when the share price collapsed from $3 to below $1 and then later to a trading range of between 10 cents and 20 cents.
Actually, the writing was on the wall long before March this year. Legendary financial commentator Trevor Sykes under his better known pseudonym Pierpont raked over the various conflicts of interest and uncertain mathematics that underpinned the Allco Max business model, a clone of Allco, in August 2005. He gave a clear warning to steer clear.
The dismal plight of subordinated debt holders owed $350 million is unlikely to cause many tears. They were sophisticated investors who were punting on the banks maintaining their patient approach to Allco's controlled liquidation.
Shareholders in the Allco managed Record Realty are not affected by the Allco collapse. But their fortunes got caught up in the Allco slipstream once Allco took over the management of that fund in 2005. That change in management control enhanced the reputation of Tony Berg who resigned soon after Allco took over.
The second group of victims from the collapse are the Allco founders and management. They were so caught up in making money that they missed the most significant change in the credit cycle in 80 years.
Led by David Coe, the founders and Allco managers were so blinded to the change in the credit cycle that their own shareholdings, worth about $50 million, were margin called and contributed to the slump in the Allco share price.
One anecdote that sums up the money making mantra was the story that former Allco director Gordon Fell believed the pinnacle of his stellar career was paying $28 million for a house in the eastern suburbs of Sydney.
It sounds apocryphal but it is probably true. Fell is said to be a lovely bloke, but that $28 million came from the $300 million Rubicon trusts deal, a transaction overflowing with conflicts of interests. It turned out to not be in the interests of Allco shareholders.
A third group of victims are the financiers. They were entranced by the euphoria of the asset inflation bubble and will now let their shareholders pick up the bill for their failures in risk management. They are owed about $670 million.
The syndicate that bankrolled the bulk of Allco's $1.1 billion debt includes at least three banks currently enjoying the protection of an Australian government guarantee: Commonwealth Bank, Westpac Banking Corp and National Australia Bank. The fourth member of the syndicate is Royal Bank of Scotland subsidiary ABN Amro.
The banks were forced to appoint their own receivers, Ferrier Hodgson, once the Allco directors took the decision to appoint voluntary administrators in McGrathNicol.
Finally, there were the directors who were willing to lend their formidable reputations to the Allco corporate moniker. They either failed to ask enough searching questions or were happy to remain at arm's length from a management team running its own race.
The list of names that have graced the Allco Finance board table is impressive, but only four were left in the end: acting chairman Bob Mansfield, Neil Lewis, Rod Eddington and chief executive David Clarke.
To be fair to Clarke he was only called in at the end to clean up the mess. He did a valiant job but the mess was too big. Mansfield also deserves credit for sticking around. He had the guts to try and dig Allco out of a hole.
Other directors who headed for the exit this year in a vain bid to avoid being tarred with the Allco brush were: Barbara Ward, David Coe, Gordon Fell, David Turnbull and Michael Stefanovski.
Allco's banks will be hoping that the four asset classes that form the foundation of the Allco's direct financing business – aviation, shipping, rail and real estate – will remain sufficiently robust to allow them to recover their debts.
The management rights to the range of funds managed by Allco will now be up for grabs. At this early stage it is not clear whether the Allco collapse will trigger conditions or clauses in the management agreement or pre-emptive rights.
Steve Sherman of Ferrier Hodgson said that he remained hopeful of being able to "maximise the return on available assets". He said the receivership would probably take at least two or three years because there were "some difficult assets with complex structures".
However, Sherman said that Allco management already had some asset sales under way and it was possible these could be completed in quite short time frames.
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