A $3.8 billion sea of red ink washed across the Australian stockmarket this morning with news of the combined losses of Centro and Allco, but investors were oblivious as they hopped onto the latest false upturn from the US after better than expected growth figures saw US markets finish strongly.

The market was up 40 points (half the 80 point gain expected from the futures market) and Centro shares were up one cent at 19.5 cents. Allco shares were down a cent at 38.5 cents.

The reality is that both companies exist by virtue of the support of their financiers, who, if they pulled the plug, would trigger crippling losses for the likes of Commonwealth Bank, NAB, St George and the ANZ.

But with the auditors of ABC Learning Centres forcing management and the board to rework its 2008 figures and reportedly those of previous years, where are the signs of Centro and Allco managements being forced to own up to the falsity of their 2007 figures, and managements being forced to pay back any bonuses earned as a result?

It’s quite clear that the asset values in the 2007 accounts were wrong and the accounts were neither true nor fair.

Centro lost $2.055 billion and the CEO had the hide to say that underlying earnings were good. For all intents and purposes the company, with $6.56 billion of debt in total, is insolvent and can’t continue trading without the support of some very nervous banks.

“The headline loss of $2,055 million does not reflect the operating performance of the Group for the past financial year. After adding back the above items to the headline result the underlying earnings are $242 million,” Centro boss Glenn Rufrano said in a statement to the ASX.

The “above item” were:

  • Property revaluations $1,195 million;
  • Asset impairment $772 million;
  • Unrealised derivative losses $181 million;
  • Restructure costs $130 million;
  • Other non-cash AIFRS items $19 million.

They actually read like material costs to me. Those property revaluations are actually “devaluations”.

And then financial engineer, Allco Finance Group, another Macquarie Bank wannabe and would be acquirer of Qantas, with Macquarie and other much diminished sharks, revealed its loss of $1.731 billion was over $200 million worse than forecast earlier in the year.

“Allco has announced a Net Loss After Tax of $1,731.6 million for the 12 months to 30 June 2008. This is consistent with an ASX announcement made on 1 May 2008, where Allco advised an anticipated loss of in excess on $1.5 billion. The result follows a critical review of asset values across the business and primarily reflects non-cash changes.”

It wasn’t until the second paragraph of the second page of the Allco statement to the ASX that we learned of Allco’s loss. There was much talk of a new business model, but in reality it’s a shot duck and unable to do anything without the banks saying “yes or no”.

At least Centro put the bad news upfront in its statement. The loss of $2.053 million in the first paragraph.

No sense of denial here, except about the underlying earnings. With debts and questionable asset values, underlying earnings aren’t the company’s, they are the banks. It’s what is obviously keeping the loans, “performing” to quote St George.

Centro is in a stand off with its banks on its future. That was the message the company delivered on Monday when it warned it was unlikely to secure any equity investment by a December deadline, and instead was likely to ask its lenders to convert some debt into equity.

At Allco the list of factors which caused the damage was similar to Centro, including the fiction of underlying earnings.