ANZ Bank and Merrill Lynch are inflicting the most appalling legalised cruelty upon the unfortunate souls who chose Opes Prime as their stockbroker.
They are, in effect, issuing a $258 million retrospective margin call on stocks that were sold more than six months ago.
The Opes receivers, Chris Campbell and Sal Algeri of Deloitte, are pursuing 223 clients for $258 million. That's more than $1 million each. The money is due and payable by this Friday, and interest is accruing at 6.25 per cent. Happy Christmas.
ANZ and its receivers are within their rights, and in fact they are supported by a Federal Court ruling from Justice Ray Finkelstein.
But, boy oh boy, what an absolute shocker it is. Never mind ASIC – this is a job for the armed robbery squad.
The share portfolios of Opes Prime Stockbroking were seized by Deloitte on behalf of ANZ and Merrill Lynch on March 27 this year, after Opes was placed first in administration and then receivership, and were dumped on the market as fast as possible.
In most cases the clients had no idea that this was even remotely possible: they thought they had a margin loan arrangement with Opes, when in fact they had securities loan agreements that gave Opes, and then its receivers, full title to their share portfolios.
Investors who had a positive net worth in March were wiped out in April, even though the market went up. They were doomed to queue up as unsecured creditors of Opes, behind ANZ, which had taken out a fixed charge over the Opes assets just a few weeks before.
That security is in some doubt because it looks like Opes was insolvent for some time before that – possibly years.
But now the situation has become far, far worse even than what happened in March. Not only have these people had their assets seized and sold from under them, they are now in debt to the tune of a $1 million each because of a retrospective margin call.
On October 15, futile settlement mediation between the administrator, John Lindholm of Ferrier Hodgson, and ANZ and Merrill Lynch, finally broke down and Opes went into liquidation. That was an event of default.
A month earlier Justice Finkelstein had ruled that the "performance date" for determining its debts would be the date of the liquidation.
That means the value of each client's portfolio would be calculated according to the market price of the relevant shares at October 15, even though they were all sold in April and May and the proceeds snaffled by ANZ and Merrill Lynch at the time.
So when the company did go into liquidation on October 15, the receivers were able to examine each client's account and come to a new calculation of how much was due to be paid back to the client, and how much was due to Opes.
Between March 27 and October 15 the Australian ASX 200 index fell 22 per cent.
So just taking the average market decline, the amount owed by those Opes clients blew out by $47 million while ANZ, Merrill Lynch and John Lindholm were wasting time pretending to seriously discuss a settlement. Lindholm might have been serious, but ANZ and Merrill never were.
But Opes clients did not invest in many ASX 200 stocks; they went for high return, high risk speccies.
Between March 27 and October 15, the Small Ordinaries index fell 33 per cent – half as much again as the ASX 200.
And many small stocks have dropped much, much more during that time. For example, Kagara Zinc and Timbercorp are down 94 per cent, FKP Property 90 per cent, Straits Resources and Mirabela Nickel 87 per cent, and so on. I don't know whether these specific stocks are part of the ex-portfolios, but it's a demonstration of what could have happened.
And remember – this is after the shares were actually sold. But thanks to Justice Finkelstein's ruling, the receivers can use the liquidation date of October 15 to determine whether each client's "assets" (that were sold six months ago) are such that a top-up is required.
Needless to say, after the six months we have just been through, top ups are needed. The theoretical accounts are now even deeper underwater – $1 million under each – and this week's letters amount to retrospective margin calls.
A tsunami of litigation will now be launched against ANZ, including an expected challenge from Ferrier Hodgson against the bank's security. Class actions will claim that ANZ knew that Opes was not informing clients of the nature of their contracts.
If successful, these actions would result in the money finding its way back to the clients – minus legal and insolvency fees of course.
But that could take years. In the meantime, Opes clients have already lost their houses, declared bankruptcy and generally had their lives ruined.
And now they are being hit with a brutal retrospective margin call – a demand for a million dollars a week before Christmas, with interest mounting up for every day the money is not paid.
ANZ Price at posting:
$14.25 Sentiment: None Disclosure: Held
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