opes how merrils will make more money

The strange decision by judge Finklestein to declare that Opes client positions were still open throws up a number of unfair scenarios for Opes clients. One of which may see Merril Lynch make even more money than they already have.

With Opes in liquidation the preferential security against ANZ and Merril can be challenged and are likely to be overturned. The return from ANZ is estimated to be between $205 and $270 mill....let's say $250mill. The return from Merrils is estimated to be $500mill with the difference being they would then stand in line with others as an unsecured creditor.

The problem here is that at March 27th Opes clients had $585mil of equity (ie values of shares minus value of loans). As of October 9th that was reduced to $268mil according to the document that Ferrier Hodgers put out listing all the client positions. On October the 16th the market had fallen another 8% from October the 9th, so applying this affect to all portfolio's the equity reduces to $232 mill (note that all positions are still leveraged so a 8% fall in prices effects equity positions by a larger amount).

So while Merrils potential claim has been locked in, the Opes clients' positions were left floating against one of the biggest market falls in the last 70 years. And to add insult to injury Ferriers have decided to keep calculating interest on loans up to the 16th October!!

So how does Merrils make money after having to pay back $500mil (assuming they have it)

Total Funds available = $250mil + $500mil = $750 mill

At March 27
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Total claims = $500mil (Merrils) + $585mill (Opes) = $1085mil
Return to Merrils = 500/1085 * 750 = $346mill
Return to Opes = $404mil

At Oct 9
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Total claims (as of Oct 9) = $500mil (Merrils) + $268mill (Opes) = $768mil
Return to Merrils = 500/768 * 750 = $488mill
Return to Opes = 268/768 * 750 = $262mil

At Oct 16
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Total claims (as of Oct 16) = $500mil (Merrils) + $232mill (Opes) = $732mil
Return to Merrils = 500/732 * 750 = $512mil
Return to Opes = 232/732 * 750 = $237mil

So Merrils make can potentially make another $12mil by returning their perferred security and getting in line as an unsecured creditor. Meanwhile, the bizaare judgment to say that Opes client accounts were still exposed to the market has eroded their position in the queue relative in other unsecured creditors. A 100c in the dollar return as of Oct 16 is still 50% less that what we had on March 27th.

Mot to mention those accounts that have gone from credit to debit who will get nothing.