"A butterfly flapping its wings in South America can affect the weather in Central Park"
we should have:
"ANZ mis-management in January can cause a meltdown of the Australian financial system in April"
It all started with Tricom:
Earlier this year a group of Allco executive signed over some stock to Tricom and drew down a $60 million loan. Tricom then lent this stock to a hedge fund through ANZ Nominees which duly shorted Allco Finance Group, thereby sending the shares south and triggering the margin call.
Tricom then outraged the Allco executives by selling 21.9 million shares to Allco founder John Kinghorn without the required five days notice and then ANZ failed to deliver the stock back to Tricom in time for settlement.
Alan Kohler wrote the following on Business Spectator: "So while one part of ANZ was failing to deliver stock for settlement, another part was refusing to cough up the overdraft to cover the shortfall with cash. Separately neither action by the bank was particularly unusual or out of line; together they were utterly disastrous."
This incident then forced Tricom to unwind it's margin book, creating downward pressure on the markets which didn't help other margin lending providers. Apparently at this point Opes Prime took on some of the Tricom loan book. It's only speculation but I wouldn't think the accounts/shares taken on were at the higher end of the quality spectrum. This in itself didn't do the damage but coupled with what happened next proved fatal.
It was reported in the weekend edition of the AFR (April13-14) that Norm Seckold held a $100 million account with Opes and after reading about what happened at Tricom then tried to pull his money out of Opes. Because he had such a low LVR on his account, it being withdrawn would put pressure on Opes Primes overall LVR with the ANZ. When ANZ heard about this they went in for a closer look and the discovery of the games Emini was playing trying to save favoured clients accounts.
ANZ then put Opes to the sword which sent investors scurrying to check their agreements with other margin lenders. Meanwhile ANZ and Merrills started selling stock into a depressed market making things even worse.
The Opes situation caused customers of Lift capital to start pulling out in droves which forced it to go under. It now looks like Chimaera could be next. This inevitably leads to even more selling of shares by the banks which forces prices down even more.
Now we have investors spooked and running for the doors, the Australian regulators looking like the keystone cops, the Melbourne underworld getting more involved everyday and the entire Australian financial system the becoming a laughing stock.
So where does it end?
I wonder. If the ANZ could have returned the Allco shares back to Tricom in time to settle could some of this been averted?
