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 Babcock & Brown Earnings Rise 55% on Acquisitions
Aug. 24 2006 -- Babcock & Brown Ltd., Australia's second-largest investment bank, said first-half profit rose 55 percent after acquisitions of aircraft, property and power plants lifted revenue and boosted management fees.

Net income increased to A$121 million ($92 million), or 47 cents a share, from A$78 million, or 33 cents, a year earlier, Sydney-based Babcock said in a statement today.

Managing Director Phil Green, 51, is buying assets in Europe, Asia and North America, and pooling them into investment funds the company sells and manages for a fee. Funds and assets under management rose 84 percent to A$31.2 billion from a year earlier.

``The income results were strong, in line with a favorable operating environment for them,'' said Atul Lele, who helps manage $268 million at White Funds Management in Sydney, including Babcock stock.

Revenue rose 47 percent to A$751 million from a year earlier, helped by a four-fold increase in sales from the infrastructure division, which includes financial advisory work and power assets, to A$283 million. Management fee revenue from funds and assets under management more than doubled to A$57.7 million.

Funds managed by the bank, including Babcock & Brown Wind Partners, announced about A$15.9 billion of acquisitions in the half, John Heagerty, an analyst at ABN Amro Holding NV in Sydney, said in a report this week.

Aircraft Assets

Aircraft assets at the firm's transport leasing unit almost tripled to A$1.2 billion after it increased the number of planes under management. Rail car assets rose 28 percent to A$193 million.

Babcock & Brown's strategy is similar to that of Macquarie Bank Ltd., Australia's largest investment bank, which has posted 14 straight years of record full-year profit and oversees more than A$112 billion of assets.

Babcock's shares closed 48 cents, or 2.4 percent, lower to A$19.77 in Sydney. The firm's profit fell slightly short of the A$124 million average estimate of three analysts surveyed by Bloomberg News. Babcock's stock is up 15 percent this year, beating a 6.2 percent rise in the S&P/ASX 200 Finance Index.

The stock was dragged down today by a 2.2 percent decline in the 52-member finance index after the release of figures showing Australian house prices rose 3.1 percent in the second quarter, the biggest rise in almost three years.

Earnings Forecast

White Funds Management's Lele said the release of the housing data today by the Australian Bureau of Statistics fuelled expectations the Reserve Bank of Australia will raise its key lending rate a third time this year, hurting financial stocks.

Green lifted his full-year earnings-per-share growth forecast to 45 percent from at least 35 percent previously.

Babcock did not require new deals to meet its earnings guidance and would ``exceed'' the forecast if the firm started all of its planned investment funds in the second-half, he said.

The bank is planning new funds over coming months, including a one to house power assets and two in Europe focusing on property and public and private partnerships, Green said.

Babcock said it will pay a first-half dividend of 15 cents a share, up from 8.75 cents a year earlier.

`Recycle Capital'

Babcock & Brown's return on equity of 31.9 percent last year was higher than the 17.2 percent at New York-based Morgan Stanley, the world's largest securities firm by market value, according to data compiled by Bloomberg. Macquarie returned 25.2 percent.

In July, Babcock & Brown said it would reap a A$30.8 million performance fee over several years from Babcock & Brown Japan Property Trust after the publicly traded Australian fund the bank manages beat the benchmark S&P/ASX 200 Property Index. The firm will get about A$8 million of the fee this year.

``The key to Babcock & Brown's success will be the rate at which the company can continue to recycle capital,'' ABN Amro's Heagerty noted this week. He rates the stock a ``buy.''

As well as fees from managing assets, the bank also earns advisory and underwriting income from arranging transactions for the funds its manages.

Babcock & Brown Capital Ltd., an investment fund managed and 7 percent owned by the bank, last month won approval from Ireland's competition regulator to buy Eircom Group Plc, the nation's largest phone company. Babcock & Brown Capital and Eircom's Employee Share Ownership Trust's bid valued the phone company at 2.42 billion euros ($3.1 billion).

Primelife Corp.

Babcock & Brown may bid for Primelife Corp., an unprofitable operator of retirement communities, three people with knowledge of the matter said this week.

The all-share purchase of Melbourne-based Primelife is part of Babcock's strategy to buy retirement communities and bundle them into a fund, said the people, who declined to be identified. Green declined to elaborate today on talks with Primelife.

Babcock & Brown Group, which includes Babcock & Brown Ltd. and Babcock & Brown International, a 75 percent owned subsidiary, reported a 48 percent rise in first-half net income to A$163 million. Babcock & Brown Group is not publicly traded.