Michael West reveals the inside story of the Opes Prime collapse, and lifts the lid on the secret deal under which ANZ looked after itself at the expense of Opes creditors.
DAYS before it froze the assets of 1200 Opes Prime clients and began to sell them, ANZ Bank was warned by a director of the imploding company not to lend Opes any more money, claiming a fraud had been committed.
"They knew from the start - I told them," the director, Anthony Blumberg, told the Herald.
Mr Blumberg's revelation exposes ANZ's knowledge of the trouble Opes was in before the bank seized shares from Opes clients. These clients thought the shares belonged to them but Opes had already handed title to the stock to ANZ and its other bankers. When Opes collapsed, the clients were left with nothing.
Despite Mr Blumberg's warnings at a meeting with ANZ in Melbourne on March 19, the bank pressed ahead with its $95 million capital injection into Opes. In return for this supposed bail-out money, ANZ was able to take a secured charge over $650 million of Opes's assets the next day. Using that security, ANZ appointed its own receivers from Deloitte only one week later, on March 27, to preside over the sale of $900 million in shares.
"Before that, ANZ had no charge, no lien; all they had was a standard [securities lending contract]," Mr Blumberg said. "They had no security, no personal guarantees from directors, no fixed and floating charges over the group."
Mr Blumberg and another Opes director, Julian Smith, have confirmed that they became aware of irregularities at Opes on March 9 and 10. Mr Blumberg said he did not want to believe it. "We were a couple of weeks away from listing [on the stockmarket]. To find you are $116 million adrift on a client account, then the next day to find another $95 million hole - it was mind-blowing," he said.
The $95 million "hole" arose after a big Opes client, the Sydney mining entrepreneur Norm Seckold, paid back a $4 million loan and asked for the release of his $100 million in shares.
But there appeared to be "double-counting" of client stock positions, Mr Blumberg said, and another "$116 million hole" had materialised in accounts belonging to the high-profile Sydney lawyer Chris Murphy.
Stock had been transferred from accounts with sufficient "buffer" or "free margin" - meaning the accounts were in the black - to cover Mr Murphy's position.
Some had come out of Hawkswood, a company controlled by Opes directors, and been shuffled through a British Virgin Islands company, a former hedge fund called Riquesa, which traded out of Singapore, said Mr Blumberg, who did not suggest that Mr Murphy was aware of the transactions.
Mr Murphy told the Herald on April 16 that, based on correspondence with Opes the week before it collapsed, he still had funds in three accounts totalling $590,000. "On those figures, I'm a creditor of this story," he said. "They owe me money."
Mr Murphy lost his family's superannuation in the Opes collapse. He says his last correspondence with the firm was to say that he still had money to trade.
He said the huge losses run up on the "problem" account were not his problem, as Opes implicitly took responsibility once the company decided not to call in the account.
Although the bank appears to have got wind of problems at Opes earlier in March, it was at the meeting at Rialto Towers on March 19 that all hell broke loose. "We went in there to discuss amendments to the [stock-lending contract] and hit them between the eyes with a $200 million hole," Mr Blumberg said.
He told the Herald that he had pleaded with the bank and then sought to block the $95 million deal in the courts. Not only had he raised the irregularities at Opes, he said, but the bank was not injecting enough cash to keep Opes alive. "There was a $200 million hole, and $95 million was not enough to cover it," he said.
More significantly for Opes clients, ANZ had also insisted on amending the contracts it had with Opes as a condition of the $95 million deal. Had this amendment not been made, "ANZ would have had to have cut a cheque to Opes for $300 million and stand in line with the other creditors", Mr Blumberg said.
These amendments are at the heart of the Opes collapse. They are central to the negotiations laying out behind the scenes between the insolvency specialists and lawyers, and they will become vital to the expected flood of legal claims against the bank.
Before the $95 million deal was struck on March 20, ANZ was not even a creditor of Opes. It was a counterparty - along with Opes's other banks, Merrill Lynch and Dresdner - which had lent $1.1 billion under contracts known as Australian Master Securities Lending Agreements, or AMSLAs.
The one critical change to the agreements that the bank insisted on as a condition of its $95 million loan was to amend the provisions for closing out the contracts. Previously, these default provisions were calculated on a "mark-to-market" basis, that is, the sharemarket value the day Opes went under. That was amended to a "net realisable value" basis, Mr Blumberg told the Herald. Put simply, that means the price ANZ could get for the shares.
Both Mr Blumberg and Mr Smith have told the Herald that the amendment cost Opes's clients $250 million to $300 million. Under the "mark-to-market" method, the difference between the loan ($650 million) and the shares (worth $900 million) would have been "netted off", or subtracted, in favour of Opes clients the day the group went into default.
That was March 27, the day Opes's directors appointed John Lindholm from Ferrier Hodgson as voluntary administrator - shortly before ANZ appointed its own receivers, from Deloitte, whose authority superseded that of Mr Lindholm.
Instead, the secured charge and the net realisable value calculation allowed ANZ to value the shares on what it could realise for them. This suggests there will be nothing left for Opes's hapless clients once ANZ has finished its selling because whatever it gets would be its net realisable value.
Unless a deal is struck between the bank and Mr Lindholm, that is. As revealed in the Herald, settlement talks have begun between the two parties, and ANZ has sounded out the administrators with a settlement figure of 62 cents in the dollar for Opes clients, subject to terms and conditions expected to be thrashed out next week.
The bank told the Herald last week that it had sold about 90 per cent of its loan exposure of $710 million (up from initial estimates of $600 million, then $650 million). In total, including the stock covered by loans from Opes's other bankers, Opes clients' stock was worth roughly $1.6 billion when Opes collapsed.
The latest figures from Deloitte estimate the asset deficit in Opes companies at $721.6 million, of which $579.2 million is owed to unsecured creditors.
Besides the amendments to the AMSLAs arising from the $95 million deal on March 20, Opes directors gave other undertakings and personal guarantees that further tightened ANZ's grip on the Opes companies.
Mr Blumberg, however, had a change of heart over the deal. He pleaded with the bank to overturn the agreements and allow directors to appoint a voluntary administrator. He even threatened to injunct the deal.
"Blumberg wanted to back out or stop the agreement," another director told the Herald. "And we agreed to some changes and one was that ANZ released Anthony Blumberg and Julian Smith from personal guarantees."
ANZ provided the releases but it insisted on a written retraction of Mr Blumberg's allegations and would not overturn the $95 million deal.
The retraction was written by the bank and emailed to Mr Blumberg's lawyer, who modified some of the lines, and the deed was signed.
A spokesman for ANZ told the Herald that Mr Blumberg had wanted to stop the $95 million deal the bank had put in place. "We said we signed the contract yesterday [Thursday, March 20] and said that if [his allegations were] true that would be in breach of warranties of the deal.
"On Thursday the $95 million facility was put in place and on Friday he [Mr Blumberg] rang in a state of panic making all sorts of claims about practices at Opes Prime."
The next Thursday, at 4.24 in the afternoon, Opes directors appointed Mr Lindholm as administrator over Opes and other companies, including Leveraged Capital and Hawkswood, all of which the bank had made gained charges over on March 20.
At 5pm on the same day the bank appointed Deloitte as the receiver, invoking the $95 million charge. The next day ANZ and Merrill began the fire sale of Opes clients shares on the stockmarket.
Mr Blumberg agrees that he had provided a written retraction over the claims he made to the bank.
ANZ declined to comment on any specific claims by Mr Blumberg. "This is Mr Blumberg's version of events," the bank said. "We disagree with Mr Blumberg. We believe our actions were professional and made in good faith.
ANZ would not say if or when it told the Australian Securities and Investments Commission of Mr Blumberg's fraud allegations.
(20min delay)