for clarification purposes:Margin lending broker runs out of...

for clarification purposes:

Margin lending broker runs out of money
Email Print Normal font Large font AdvertisementAdvertisementMarc Moncrief and Ruth Williams
January 30, 2008

THE solvency of the broking house Tricom may be in question after it was unable to cover the cost of trades yesterday, halting settlement on the Australian Securities Exchange for more than four hours.

It is believed the margin loan specialist took heavy losses last Tuesday when the worst sharemarket fall in 18 years caused a record number of margin calls.

A spokesman for the Australian Securities Exchange said settlement, which is when the money changes hands for trades already agreed, is scheduled to occur at 12.30pm every day. Tricom's inability to cover its trades meant settlement yesterday was stalled until 4.42pm. "Sufficient funds were not available for this participant to settle at the required time to meet the scheduled settlement arrangements," the spokesman said.

"Settlement then was re-calculated and completed at 4.42pm and it excluded the transactions at issue."

The ASX spokesman would not confirm Tricom as the market participant at issue but Tricom's managing director Lance Rosenberg last night told BusinessDay in an email that "administrative issues" springing from "an exceptionally large volume last week" had caused its problems. He said the firm was "confident" the problem would be resolved by today.

A spokeswoman was asked to comment on rumours that about 60 per cent of Tricom's client base had received margin calls in Tuesday's falls.

A margin call is when an investor has borrowed money to invest but the value of the investment has fallen so far the lender demands more money to cover the possible losses.

BusinessDay contacted Tricom last Wednesday to query this but received no response. Mr Rosenberg also declined to answer the question last night.

It is believed Tricom owed about $110 million when settlement was scheduled. The trades ought to have been covered by a $170 million facility from ANZ but Tricom was unable to access the facility.

According to documents lodged with ASIC, Tricom's creditors include ANZ, Commonwealth Bank and Westpac along with investment banks Morgan Stanley, Merrill Lynch and Babcock & Brown, and fund managers BT Securities, Aspen Capital Partners and, as of June, Allco Principals Investments.

Many of the charges relate to margin lending facilities.

Tricom was one of two margin lenders that forced Allco Principals Investment and Allco Principals Trust to sell 22.1 million shares in Allco Finance Group on Wednesday, causing AFG shares to fall more than 26 per cent.

Tricom's most recent financial statements show total bank loans and overdrafts grew from $926 million in the year to June 30, 2006, to $2.38 billion a year later.