It just goes to show how poor Opes's business model was:
"But it's almost like the business was designed to fail. Opes borrows from big banks based on the value of equity collateral from retail clients. But it then lends that collateral to short sellers, the very people who believe the collateral should be worth less, and sell it short to make it so.
Opes must have been hoping its business model was immune to fluctuations in the value of the equity collateral itself. It made money as a lender both ways, lending cash to retail clients and securities to institutional clients. ANZ and Merrill Lynch apparently didn't see the value in the model.
The flaw in the model is glaringly basic: too much leverage. Or, if you prefer to put it in common sense terms, the flaw is that you can get something for nothing. Opes thought it would take lazy equity-shares that were sitting around doing no work-and lend them out.
Like so much financial engineering of the past ten years, this kind of activity created no real economic value. All it did was encourage people to rack up big liabilities. You take on leverage because you think you can boost your return with borrowed money and use the gains to repay the loan. It stops working when asset prices fall. The trouble, after the whole affair goes kaboom!, is that the liability remains."
CQT Price at posting:
0.0¢ Sentiment: Buy Disclosure: Held
