asic invited trouble

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    ASIC invited trouble

    John Durie | April 07, 2008

    ANZ is now certain to report its first fall in half-year profits in a decade.
    The bank this morning unveiled a $350 million increase in provisions for bad debts due to the continued impact of the credit crunch.

    Separately, ANZ underlined the complete failure of ASIC to regulate the Australian stock market, by releasing a list of some 90 companies in which it has a substantial shareholding interest, as lender to failed broker Opes and Tricom, as well as its own funds management joint venture with ING.

    Most of the companies on the list are small stocks, which seemed to have been the favourite for Opes clients.

    In some, like Austin Group, the bank controls a stunning 42.3 per cent. In Admiralty Resources it has 22.6 per cent, and in Citadel Resources, 21.4 per cent. The list goes on.

    These are just the stocks in which ANZ owns more than 5 per cent - one can only imagine how many more stocks are just below this disclosure threshold.

    More to the point, what was ASIC thinking when it granted ANZ a waiver to avoid the disclosure provisions? And imagine if this disclosure was available - just maybe all these minors whose directors had not declared their margin loans may have avoided the present nightmares.

    When regulators get into the game of letting companies avoid disclosure, they are inviting trouble.

    That, sadly, is what ASIC has done.

    ANZ’s Mike Smith confided in this morning’s conference call that “if it was not for the trading irregularities, ANZ would still be supporting the (Opes) business model”.

    Then again, so might everyone else.

    Smith has inherited a ship that is starting to look accident prone, thanks to decisions made by his predecessors.

    But this morning’s increased provisions looked to be more pre-emptive than any new cause for concern.
    As Smith noted, the reality is, the credit cycle has turned.

    He said it was too early to call the market bottom, and noted he would not do so until there were consecutive quarters of good US bank results.

    The market was looking for ANZ to report a first-half profit of $1.9 billion, in line with last year’s return, but that estimate will be downgraded by at least $350 million as a result of this morning’s downgrade.
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