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st george gives reassurance on centro exposure

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    St George Bank gives reassurances on Centro exposure
    Natalie Craig
    February 22, 2008

    THE subprime scourge has shaken St George Bank, which fell to a three-year low on the Australian Stock Exchange after reporting it had lent more than half a billion dollars to three Australian companies at risk of default — Centro, MFS and Allco.

    But the reaction was severe, according to analysts, who said most of the bank's $458 million loans to Centro entities were secured by lucrative shopping centre assets.

    "It is slightly bizarre; their exposure is secured," said BBY analyst Peter Rice. "There is no question about the underlying value of Centro's assets."

    Centro, the troubled listed Australian fund and shopping centre manager, was last week given an extension on its loans to Australia's five biggest banks, among other lenders.

    Shares in St George, Australia's fifth-largest bank, fell as much as 5.6% yesterday before recovering to close just 2¢ down at $24.60.

    The unsecured and secured exposure of the five big Australian banks to Centro is so far estimated at about $3.9 billion.

    Centro must refinance $4.6 billion owing to Australian financiers by the end of April.

    Mr Rice said reports of further exposure would therefore "only be very small".

    "When you look at the total amount owed by Centro, and what the banks are expecting — there's not a huge amount for error," he said.

    A St George spokesman said the bank's fully secured exposure to Centro had been in the public domain for two months following its annual general meeting and the loans were secured by direct first mortgages over some of Centro's Australian and New Zealand shopping centres.

    "These are actually shopping centres that you can get in your car and drive out to — most have full tenancy and are fully secured," he said.

    "All we've done is restated debt. What is most important is that there is nothing new that we have said today. Centro for us is secured lending." A Centro spokesman declined to comment on asset values.

    By contrast to St George, ANZ has large unsecured loans to Centro — estimated by UBS at about $500 million. Its shares remained at $22.

    St George has a $60 million stake in an $850 million unsecured syndicated loan to the troubled Allco Finance Group and two lines of debt to the MFS Group, including a margin loan of $25 million secured against the company's shares, which are now suspended.

    That loan is the one most at risk and its repayment is dependent on asset sales and a rescue plan being drawn up by MFS to reduce its large debts. St George has made no write-downs or specific provisions to cover itself if its $580 million in borrowing to Allco, MFS and Centro go bad.

    The bank restated its borrowings as part of a share purchase plan for retail shareholders worth $110 million. Investors can subscribe for the shares at a price to be calculated over the next five trading days.

    St George reported it was on target to meet earning per share growth of 10% but cautioned investors about volatility.


    Cheers, Pie :-)
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