Babcock & Brown profit drops 40%

Monday 11th August 2008

Babcock & Brown, Australia's number two manager of publicly traded funds, said first-half profit fell as much as 40% on the slumping value of property and investments.

Net income declined from A$250 million a year earlier, the Sydney-based company said in a statement. The amount of the decline ranged from 25% to 40% and the company is still concluding its results for the period, it said.

The reduced profit reflects non-cash impairment charges for investments in real estate and structured finance assets. Excluding the provisions, earnings rose from the same period last year, it said.

"The volatile global capital market conditions have made and continue to make business conditions uncertain and forecasting in the short-term difficult," said chief executive Phil Green.

Banks and securities firms globally have reported some $468 billion in losses and writedowns since the sub-prime meltdown began last year, according to Bloomberg. The credit squeeze has hurt investment companies such as Babcock & Brown by driving up borrowing costs.

Shares of the company dropped 8.7% to A$6.21 and have handed investors a 73% loss in the past 12 months.

The charges will reduce full-year earnings, which will lag behind last year's A$643 million, it said today.

This month, the investment company's energy and transport fund said it would seek partners to buy as much as 50% of WestNet Rail and New Zealand electricity distributor Powerco. Proceeds will help reduce debt, it said.

By Jonathan Underhill

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