Banks Ask Clients To Take On Nsw Pub Debt

The Age

Monday January 19, 2009

VANDA CARSON, SYDNEY

THREE of the nation's top banks are approaching their wealthiest individual clients in an attempt to offload part of their $5 billion exposure to the ailing NSW pubs sector, which is struggling to repay loans amid one of the worst downturns in decades.

The move is unprecedented, with pub industry sources saying the banks have never before resorted to these measures.

By asking their private banking clients to take over the pub debts, ANZ, National Australia Bank and Westpac are trying to stem losses without revealing to the market the hit they are taking.

If forced into selling them on-market, the lower sale prices would set a worrying industry benchmark.

But the banks are willing to sell the assets cheaply if it means they can reduce their exposure quietly and without the hassle of receivership.

Pub valuations have fallen 17per cent in the past year, but if they went to market today they would be down 30 per cent, property industry sources say. Credit has dried up and banks are asking investors to contribute half the purchase price on hotels.

The list of pubs offered to the bank's wealthy clients includes some of the estimated 200 of 1984 hotels statewide already in breach of their banking covenants. This list is set to grow as conditions are expected to worsen next month following the end of the summer holiday season.

The move to approach high net wealth clients indicates the banks are losing patience with the pub industry and is considered the best solution at a time when many of the pubs that have been put up for sale either by struggling owners or receivers, particularly in Sydney's city centre, are failing to sell.

The industry is facing some of the lowest auction clearance rates in years.

Some of the wealthy business people who have been sounded out to buy the properties are already in the property industry, while others have made their personal fortunes elsewhere.

They have been approached by their "relationship managers", who closely follow their financial affairs as part of their routine weekly calls, offering pubs with debts of $50million to $100 million.

The Commonwealth Bank had not approached its clients, spokesman Bryan Fitzgerald said. None of the other banks was willing to comment.

Overall, the big four banks risk losing more than $2 billion from their $7 billion exposure to the NSW pub industry, a figure not yet included in the banks' disclosures of bad debts to the market.

National Australia Bank has the highest exposure, with a $600 million potential exposure to falling values, followed by ANZ ($525 million), Westpac-St George ($420 million) and Commonwealth Bank-BankWest ($420million).

Pub groups with the biggest debts include the 100-hotel Hedley Leisure and Gaming Property Fund, which owes $754 million to a syndicate of banks headed by ANZ.

© 2009 The Age

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