retirees at risk after 1bn crash

When will the Australian government wake up and make our SUPER's more bulletproof by securing it as say Government Bonds Or Australian Treasury Bonds ????

Lower interest but guaranteed retirement............. It's disgusting to know that this ear a great number of great oldies will be out of pocket for thier retirements.....

They worled hard all their lives for some Super Funds gambler to lose half ??? Why are we on COMPULSORY contributions by the government when these same money cannot be protected ?

I'm sure the SURPLUS is protected........

We need a reform on our SUPER and also on our financials in Australia....

CFD's Margins and shorters are destroying our economy.


Retirees at risk after $1bn crash

Adele Ferguson and Michael Sainsbury

March 29, 2008

THE controversial share market practice of "stock lending" has spectacularly imploded, with the $1billion-plus collapse of a stockbroking firm, threatening millions of dollars worth of Australian retirees' superannuation savings.

Melbourne-based Opes Prime - a significant provider of margin loans for investors to buy shares - has been put into administration amid accusations of financial irregularities.

ANZ and investment bank Merrill Lynch, which lent $1billion to Opes, yesterday began dumping shares held by Opes on customers' behalf as they sought to recoup their loans. It is thought that customers could lose between $200million and $300million from the fire sale, with some shares being sold at half of current market prices.

The two banks - the ultimate owners of the shares, which are effectively collateral for the margin loans - will rank ahead of other Opes creditors. These include the super funds who loaned shares to the firm to support its "stock lending" business.

This raises the prospect of super funds and the custodian companies who hold shares on their behalf facing significant losses if they are unable to recover the shares loaned to the failed stockbroking firm.

Opes's business model involved lending money for people to take out margin loans to buy shares. Those shares were then transferred to Opes, which lent them to traders such as hedge funds to play the stock market.

Such deals do not have to be disclosed, helping traders engage in practices such as short-selling, a technique that has been used to drive shares in companies such as ABC Learning Centres and Allco Finance Group sharply lower.

To boost its $1.5billion securities lending business, Opes borrowed shares from custodian companies.

Accounting firm Deloittes, which was called in to help the firm last week, could not confirm the amount of stock that Opes had borrowed from custodians to lend to hedge funds, but said that the custodians would now be creditors.

Deloitte said yesterday the directors of Opes had appointed John Lindholm of accounting firm Ferrier Hodgson as voluntary administrator on Thursday night "when they became aware of a number of cash and stock movement irregularities in relation to a small number of accounts", which are believed to involve big sums of money.

"The shortfalls in these accounts led the directors to believe the trading operations could not continue," Deloitte said.

The Australian Securities and Investments Commission is investigating possible breaches of the Corporations Act, with the Australian Securities Exchange also reviewing the share trading prompted by the firm's collapse.

ANZ and Merrill appeared determined to retrieve some of their money, regardless of the potential cost to super investors and the market value of the companies whose shares are being dumped.

The banks have taken control of Opes's $1.5billion securities lending book and began selling stock at wholesale prices. These included a parcel of 10.79 million shares in Hedley Group sold at half price less than two hours before the pubs business was placed in a trading halt at 11.27am yesterday. It is not known if the two matters are related.

Other stocks that were dumped at a discount include retailer Just Group, which was sold at $1-a-share less than its market value.

Opes is understood to have about 800 private clients who stand to lose a collective total of between $200million and $300million. "We expect a substantial surplus to be returned to the broking house," Ferrier Hodgson said.

The problems at Opes began to emerge last week.

After consultations with ANZ, Deloitte was brought in as forensic accountants.

On Thursday night, Ferrier Hodgson was appointed to administer four companies in the group: Opes Prime Group, Opes Prime Stockbroking, Leveraged Capital and also Hawkswood Investments.

"This week, we found the holes within the group were significantly larger and the directors came to the view yesterday it was unlikely a restructure was going to occur," Deloitte partner Chris Campbell said. He told The Weekend Australian that part of Opes's business was stock lending and that it borrowed stock from custodians and institutions, as well as lent out stock from its own retail client base.

The model sits outside the ASX's Securities Exchange Guarantee Corp, which has about $100million in funding to protect clients against brokers that are unable to settle shares. That is because this ASX fund does not apply to margin lending.

ASIC was advised of the situation on Thursday evening by the ASX and has formed a special unit to investigate.

Two weeks ago, Opes revealed it was planning a back-door stock market listing that would value the company at $100 million.

The principal shareholders of Opes are Mr Emini, Julian Smith and Anthony Blumberg. Opes Prime Stockbroking's website promotes securities lending - loaning your shares for use by another party for a payment - as an "alternative to short selling, with similar benefits but fewer restrictions".

Barely five week ago, Opes sent a note to clients assuring them it was not the next market victim after the failure of Tricom, which had a similar business model.

"As a result of the Tricom fiasco, Opes Prime has been wrongly labelled by market commentators as being in similar strife, but this is purely because we offer a similar offering under a similar legal structure," Opes business development manager Michael Sirianni wrote.

The practice of share lending, which critics claim has contributed to the volatility in the stock market this year, is the subject of reviews by financial regulators.