inside business opes and lift

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    Australia's securities regulators, and ANZ and Merrill Lynch, have got a lot to answer for over the collapse of Opes Prime Stockbroking, and now Lift Capital, which went broke on Friday.

    With Opes about 1200 people are going to lose a lot of money, including some traumatic personal tragedies. Lift Capital has more clients, about 1600, but it's not clear yet how much they'll lose: maybe nothing.

    Let's not get bogged down in the legal technicalities of the contracts these firms used. The simple fact is that there were just two suppliers of money here: ANZ and Merrill Lynch for Opes and Merrill Lynch alone for Lift.

    That means the clients were borrowing money from ANZ and Merrill using their shares as collateral, and using Opes and Lift as intermediaries.

    If homes were being used as security instead shares, Opes and Lift would be called mortgage brokers and they'd get trailing commissions for selling ANZ and Merrill Lynch mortgages.

    But since the clients wanted to borrow against shares instead, Opes and Lift get to pretend to be lenders. When they default the shares put up as security are simply repossessed by the banks and sold. Opes and Lift were sailing close enough to the wind, that it didn't take much of a run on them to put them into default.

    Now, this is the issue at the heart of the Opes collapse. For the simple reason that securities and not real estate were being used as collateral, the most amazing spivs got to masquerade as bankers. We don't know enough about Lift yet to draw conclusions.

    Lending against securities is not regulated. ASIC and the Government need to fix that fast.

    And ANZ and Merrill Lynch need to transparently fix cultures that allowed one group of their clients to be repossessed because their representative in dealing with those clients, Opes, seems to have been managed by maniacs and, inevitably, blew up.

    http://www.abc.net.au/insidebusiness/content/2007/s2215335.htm

 
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