opes

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    4th ANZ employee put on gardening leave.
    Looks bad for ANZ:
    From The Australian.


    ANZ must clean up its Opes actFont Size: Decrease Increase Print Page: Print MARTIN COLLINS: John Durie | April 12, 2008
    THE share market is an extraordinarily efficient way of both rewarding the strong and destroying the weak, and now, at its most devastating, exposing business judgment failures.

    The collapse of financial services firm Lift Capital yesterday has, naturally enough, raised concerns that something's fundamentally wrong with the world.

    That would be the wrong conclusion. However, as highlighted here for several years, Australia's key corporate regulators have sometimes failed to use their powers and have certainly failed to ensure a transparent and orderly market.

    That, it should be emphasised, doesn't mean ASIC or the ASX are to blame for the Lift collapse - put this one down to a company losing the support of its clients in a bear stock market.

    Separately, ANZ, the financial backer of failed broker Opes and struggling broker Tricom (which used the same business models), has shut its equity finance division, which housed their loans.

    ANZ boss Mike Smith, it seems, figures there is not much mileage left in the game after being forced to suspend a fourth employee yesterday and seeing Opes collapse in a swirl of underworld charm.

    Many wonder just why anyone would have used Opes as either a stockbroker or a margin lender. The answer, in both cases, is that it was cheap.

    Just why ANZ backed Opes is not so easily answered. As events unfold, Smith may be forced to take more drastic action to show he has stopped the rot.

    Amid the publicity around Opes, it seems Lift's margin lending clients smelt a rat and ran for the doors, leaving financial backer Merrill Lynch with $600 million in debt and $750 million worth of shares as security.

    In a bear market, hysteria can take control.

    It feeds on itself, becoming a self-fulfilling prophecy, when the underlying business is not strong.

    This happened with Tricom, MFS, Centro and Allco et al, who are trying to work through their problems.

    There is no evidence of anyone rushing to the door at the CBA, but Lift has been caught in a more spectacular and damaging spiral, just like Bear Stearns.

    The impact should be minimal if sense prevails.

    ASIC is no doubt in touch with the administrator Tony McGrath, but at this stage, the market, rather than so-called irregularities, seems to be at fault.

    Somewhat laughably, the ASX was quick to pass the buck, on the grounds that Lift is not a stockbroker and hence outside its control.

    That the ASX felt the need to release a press statement to that effect says just about everything that needs to be said about its present siege mentality.

    In the absence of evidence to the contrary, Lift collapsed because it placed bets that didn't win, and its main financial backer, Merrill Lynch, tightened the screws in the wake of a run on the bank, to shut it down.

    Of more concern is the growing evidence that some of the lending practices within ANZ were rotten to the core.

    A fourth employee in its financial institutions product division was stood down yesterday.

    We are not talking about a stockbroker and margin lending outfit that few had heard of before, but one of the big bank oligopolies at work here, helping to finance on dodgy terms. And then there are allegations that key staff are profiting on the side.

    This is a classic case of the excesses of the bull market being revealed in glorious detail in a bear market - and the outcome looks decidedly unpretty.

    The suggestion is that the latest to be suspended from ANZ worked on the Opes account, had a personal account with Opes, a stake in the planned listed Opes company, closed its account down and sold stock just before the bank called in the corporate doctors, and told an Opes client not to worry - because the bank would support them.

    If true, this is nothing short of scandalous. It seems ANZ has the same collection of rotten apples that bedevil banks the world over from time to time.

    Worse still is ANZ's central role in the Opes collapse, from the day its executives approved a deal with Laurie Emini, a former staffer, to extend to retail clients credit deals normally extended only to other banks.

    Emini at Tricom, then at Opes, borrowed money from ANZ on generous terms, equivalent to 90c in the dollar debt, with stocks as security.

    He then pedalled margin loans to retail clients on terms equivalent to, say, 50c in the dollar.

    But, as reported elsewhere earlier in the month, some favoured clients like Chris Murphy got better deals.

    Murphy, like Emini, was getting mates' rates - but while the difference between the cost of money and the rate at which it was lent acted as a buffer, this was always someone else's money and the margin for error increasingly small in a falling share market.

    Around eight months ago, ANZ moved Anthony Cahill from its mortgages division to the financial products group, and he, not surprisingly, wondered just how the bank would sanction the deals offered to Emini - not to mention the implied risk for the bank.

    When Tricom first hit trouble last August, Cahill was on high alert, but the share market continued to rally until November.

    Earlier this year, when Tricom again hit the wall, the bank effectively pulled the pin and worked with its boss, Lance Rosenberg, in selling down its margin loan book.

    At the same time the loan terms to Emini were tightened, with the loan to value ratio reduced from 70 to 50 to 30 per cent, and all of a sudden the business case wasn't so compelling for Opes.

    There is a reason why ANZ was the biggest lender to Opes and Tricom, and apart from a smaller involvement from Merrill Lynch and Dresdner, few other banks wanted to go near the game.

    The other banks thought the loan terms were trouble waiting to happen, but ANZ stuck by its former employee.

    So when Emini did the rounds to NAB and others last year, looking for an alternative source of funds, they sent him packing, which explains why he wanted to float the company.

    Once again ANZ doesn't look too flash and should be damned for past sins, backing a dodgy business model on extraordinarily generous terms and clear evidence of a governance problem with its institutional financial products group.

    A big concern for the wider market is that the punters panic and the politicians overreact and regulate, when only modifications are required.

    In the four years to November last year, $960 billion in wealth was created, and having fallen 21 per cent since then, $260 billion of this has gone.

    The punters are well ahead.

    The $1.3 billion Opes collapse is in a
 
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