An Opes anomoly
Thursday, May 8, 2008/
The other three banks may be at least temporarily happy that the regulators are being kept busy… but that may change. MR BANKER
By Mr Banker
Your correspondent was nearing a state as close to Nirvana as he is likely to achieve, drifting into a carefree slumber, when the last vestiges of his consciousness noticed something unusual on the pages of the great organ by which senior management of the bank communicate with those who work for them – The Australian Financial Review.
At once your correspondent was alert; every fibre of his being quivering in anticipation of a quest to decipher the meaning of the mystery before him.
Just what was it that triggered such an onslaught of purple prose and excessive use of the third person?
Well, I was intrigued by newspaper reports that the liquidator of Opes Prime was evaluating whether or not security granted to the ANZ bank shortly before the appointment of receivers and managers, and – if we are to believe newspaper reports – only registered with ASIC on the day before the receivers were appointed, might be capable of challenge.
[Before continuing I will once again note that I have no inside information whatsoever. What follows is my view of what has been disclosed in the media, such view being informed by a general knowledge of banking processes and procedures. Readers who once again find themselves observing that if all such disclaimers are to be believed then I know nothing about anything and will be referred to my long suffering spouse who will confirm the veracity of such an observation].
The liquidator has identified that it may be possible to use the arcane and obtusely worded provisions of the Corporations Act to set aside the security that was so recently taken by the bank. If so, this will significantly increase the returns available to unsecured creditors.
Working backwards: If this is true then it means that the ANZ bank was not fully secured immediately before the security was taken, and herein lies the mystery.
The ANZ apparently provided funds by way of a “wholesale” (if you like) margin lending facility – it gave Opes loans up to 70% of the value of shares that were held with the ANZ nominee company. If that is true, then there should have been a security buffer of roughly 30% over and above the total amount owed to ANZ by Opes.
The statement by the liquidator suggests that instead of a buffer there was actually a shortfall.
This is so curious that notwithstanding the announcement that the CEO of the ANZ Mike Smith will personally conduct a review into this anomaly, your correspondent has decided to conduct his own far-reaching investigation.
Which investigation now being concluded, your correspondent reports as follows:
1. Either the ANZ had a system to check that the debt did not exceed 70% of the value of scrip held by its nominee company, or it did not.
Action point 1: Terminate the employment of anyone who knew that the system was not capable of producing an accurate calculation and did nothing about it. Action point 2: Terminate their boss.
2. If the system was effective, then it would have raised reports highlighting that the level of debt was miles over the value of the scrip held as security.
Action point 3: Terminate the employment of any person who knew that there was a shortfall of security and did nothing about it. Action point 4: Also terminate their boss.
3. Knowing that the 70% requirement mirrored the requirement that Opes imposed upon its borrowers, a shortfall surely means that either Opes had bent the rules or had utterly inadequate management – either of which is a very unhappy piece of information.
Action item 5: Terminate the employment of any decision maker aware of the shortfall who didn’t immediately demand an investigation. Action item 6: (See a pattern?) terminate their boss.
Some readers will observe the stream of terminated employment initiated by your correspondent, and perhaps be downcast.
To them I say; chins up, there is a silver lining, as proof of which I shall highlight those who are overjoyed by the current situation, which include:
- Anyone who works at APRA or ASIC is extremely happy. It’s now much harder or anyone to ask why APRA and ASIC were focusing on the low risk big four banks rather than paying some attention to Opes, or Lift, or Tricom, or – widest of the wide boys – Chartwell.
- The other three of the big four banks (and perhaps most notably NAB) must be absolutely overjoyed that ANZ is keeping the APRA chaps fully occupied and thinking of them.
- All of the salespeople at the big four banks who until recently were surely nagging their credit departments to approve similar facilities will now be able to pretend that they were cleverly avoiding the risks posed by these problematic borrowers.
And so we may observe that things are not as bad as they sometimes seem, it’s all a matter of perspective.
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