Margin loans over shareholdings are now such a dirty word that we’re seeing CEOs selling shares just to be able to declare they are completely debt free.

United Group CEO Richard Leupen announced he had done precisely that this morning, offloading 2.5 million shares for about $30 million, while retaining 2.4 million shares plus options over a further 1.35 million.

While not strictly a “margin call”, Leupen has been added to this rapidly growing list of players who are flogging shares to satisfy debts during the credit crisis.

I lauded Leupen as one of richest professional CEOs in this piece for Crikey last September and when shares in the booming engineering and mining services company pushed through $21 in October, his overall equity position was worth more than $100 million, supported by an unknown amount of debt.

The decision to borrow $3 million to participate in last year’s placement at $17 wasn’t looking too flash with the stock closing yesterday at $11.09 and after yesterday’s fire sale he’s left with a debt free stake worth about $30 million and can sleep at night.

All of this is probably a relief for investors who also liked yesterday’s news that United’s non-executive director David Young spent $188,400 last Friday topping his holding. United shares rocketed 4% today and its fundamentals remain strong.

City Pacific is another company which has been aggressively shorted on the belief that CEO and largest shareholder Phil Sullivan is overloaded with debt. Trading has just recommenced after this statement and Sullivan now claims that he has signed over three properties, not including his home, to clear a $4.5 million margin loan with Leveraged Equities, the old Adelaide Bank margin lending business which is part of Bendigo Bank.

Ironically, the Herald Sun has today led its business section with a report claiming that “several” Bendigo Bank executives, including some old Adelaide Bank types, have been forced to pay off margin loans.

It is interesting that Bendigo Bank has been one of the most shorted companies on the market.

Boardrooms across Australia are now wrestling with the challenges of disclosing margin loans and policy decisions on whether to close them out.

The big two in this regard are Macquarie Bank and Babcock & Brown where the top 50 rainmakers would collectively owe more than $1 billion on their combined exposures.

At some levels, this doesn’t matter. New Macquarie CEO Nicholas Moore has almost $100 million invested across the group, but best practice now dictates that he comes clean about his debt position.

Listen to yesterday’s doomsday rave with Lindy Burns on 774 ABC Melbourne.

Peter Fray

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