opes:circular irony, page-88

ALAN KOHLER, PRESENTER: Well you've probably never heard of Opes Prime, but before the week is out, everyone will have heard of it.

Opes is now an ex-stockbroker, having gone bust on Friday. Small earthquake in Peru, you might think, not many dead. Well, think again.

On Friday, its main banker ANZ, which is owed $650 million, started dumping shares in various companies, that it holds as collateral, and it will do that again on Monday. The whole market was affected on Friday, and will be again on Monday, but for Opes clients the effect is shockingly brutal.

To understand why, imagine you have a $200,000 mortgage on a $500,000 house. In other words, your equity is $300,000.

You keep up your repayments, but the bank you borrowed from goes broke. Next day, a For Sale board appears outside your house.

You phone the real estate agent and say there's been some mistake, it must have been meant for next door. "No," comes the answer, "It's your house on the market alright. The bank is the seller."

You ring the bank, or rather its receiver. "Oh," they say, "Didn't you read the fine print? We own your house, you just live in it, and now that the bank is broke we're selling its assets. There might be some money left in the pot for you at the end but we're not sure."

And that's what's happened to the 1000 clients of Opes.

When borrowing some of the money to buy shares they gave full title to the entire holdings to Opes, often, and possibly usually, without knowing that. Opes then gave the title to its lenders. It is not like a normal mortgage where you lose the house if you can't meet the repayments. With this mortgage you lose the house if the bank goes broke.

This is an extraordinary scandal, that's only just begun. How was it allowed to happen? What did ANZ think it was doing, taking ownership of peoples' assets in return for loans? Should ASIC and the ASX have taken more notice of Opes' contracts? And are there any more accidents like this waiting to happen?

http://www.abc.net.au/insidebusiness/content/2007/s2202791.htm