On the Centro crash:

THE most senior executives at Centro Properties Group – which is facing collapse after suffering a $6 billion meltdown this week – were given 10-year interest-free loans by the company to buy $44 million worth of shares. However, seven of the company’s top executives, including Centro’s chief executive, Andrew Scott, chief operating officer, Graham Terry, and chief financial officer, Romano Nenna, may never have to pay the money back because of a legal clause in the generous share agreements that says the money does not need to be repaid if the share price collapses. – The Australian

THE vultures started circling Centro Properties Group yesterday as investors fled the company, while the management tacitly admitted defeat by considering a sale of prime assets. Investors’ lack of confidence in the company’s prospects was reinforced by a plunging share price that plumbed 42c yesterday, after peaking at $10.02 in May. The closing price of 80.5c was a dramatic discount to the $2.29 book value of its shopping malls. – SMH

“WHEN I look at some of the people offering syndicate deals, I ask myself how they are going to handle a crisis,” Andrew Pridham, then managing director of investment bank Warburg Dillon Read, told a property conference in September 1998. Late last week, as the long-term and trusted financial adviser to wounded property group Centro, he found out. – The Australian

On the Australian sharemarket:

BUYERS moved back into the share market yesterday afternoon, halting what loomed as another day of three-figure falls in the share market’s key index. Investor fears that the debt crisis still has some way to go before it washes its way out of the system sent the stock market plunging before it staged an afternoon recovery, the All Ordinaries index closing down only 39 points at 6292 points. After five negative trading days almost $100 billion has been wiped off the value of the stock market. But stock market watchers said yesterday’s yo-yoing was the result of investors initially losing their head. — News.com.au

SYDNEY – Shares in Centro Properties Group (CNP.AX: Quote, Profile, Research) bounced over 19 percent on Wednesday, having crashed in the previous two sessions after it revealed refinancing problems, on the view that buyers would emerge for its assets. Centro shares last traded up 17.4 percent at A$0.945, down from an early peak of A$0.96, but well above Tuesday’s lifetime low of A$0.42 hit after it became the latest victim of a global credit crunch. “A pile of hedge funds came in yesterday on the view a Mirvac (MGR.AX: Quote, Profile, Research) or a Westfield (WDC.AX: Quote, Profile, Research) will pick up the Australian assets, and plenty of U.S. players will pick up the U.S. assets, so it will be carved up and sold off. There is some equity value remaining,” said one fund manager who asked not to be named. — Reuters

St George Bank says it loaned money to troubled property investment fund Centro Properties Group — but won’t disclose by how much — adding that the loans are secured by first mortgages. “Centro’s trusts are a customer of the bank,” Chairman John Thame told shareholders at the bank’s annual general meeting. Mr Thame said St George could not disclose the size of the loans, due to client confidentiality. — News.com.au

The Fed vs the subprime meltdown:

WASHINGTON: The Federal Reserve moved Tuesday to impose new restrictions intended to curb unfair and deceptive home-lending practices and prevent a recurrence of this year’s meltdown in subprime mortgages. Skip to next paragraphBy a 5-to-0 vote, the Fed approved a plan that would tighten provisions meant to protect borrowers and apply them to a far larger share of home loans — whether from banks, mortgage companies or other lenders — than under current regulations. — New York Times

WASHINGTON: Until the boom in subprime mortgages turned into a national nightmare this summer, the few people who tried to warn federal banking officials might as well have been talking to themselves. Skip to next paragraphEdward M.Gramlich, a Federal Reserve governor who died in September, warned nearly seven years ago that a fast-growing new breed of lenders was luring many people into risky mortgages they could not afford. But when Mr. Gramlich privately urged Fed examiners to investigate mortgage lenders affiliated with national banks, he was rebuffed by Alan Greenspan, the Fed chairman. — New York Times

Aftershocks from the collapse of the U.S. subprime-mortgage market this year are taking an increasing toll on companies worldwide. In the U.K., banks’ reluctance to make money available to each other following the subprime debacle helps explain why home prices fell 3.2 percent this month. This decline is the steepest since Rightmove Plc, Britain’s most popular online real-estate site, started providing figures in 2002. — Bloomberg

True leadership may have finally emerged to resolve the subprime crisis, although it was difficult to spot during a tumultuous week at the Federal Reserve (Fed) … The immediate interpretation was that the Fed was now so data dependent that a 300 point drop in the Dow would cause it to intervene; announcing such a move after the market closed on a day when the market closed on its lows, seemed targeted at punishing those who short the markets. Given that this was about the fourth time in as many months that Fed action whacked short sellers, criticism that the Fed intervenes in free markets, rightfully so, flared up. — Financial Sense

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Peter Fray
Peter Fray
Editor-in-chief of Crikey
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