Opes collapse fallout brutal for clients

If you're not an Opes client, is there anything to worry about?

 

An extract from the Eureka Report 31-3-08 below. In the interests of ER subscribers, I won't give the whole article.


Opes: Leveraged investors be warned
By Alan Kohler

PORTFOLIO POINT: Instead of margin loans, Opes clients borrowed under an agreement that ceded title of the shares to Opes. Any investors with similar agreements should bail now.

All Eureka Report subscribers who have borrowed money to buy shares should look at their contract. If it is an Australian Master Securities Lending Agreement, or AMSLA, rather than a standard margin loan agreement, you should get out of it immediately, even if it means selling the shares.


But then there's this from
Australian Securities Lending - The ASLA Code

Legal Title of Securities Owned

Legal title of securities lent passes from the lender to the borrower and back to the lender when the securities are returned.

The lender still retains risk and exposure to the market place for the lent securities as well as all the benefits including corporate actions or dividends. The lender does lose the voting rights to the securities over the loan period.


Here's the list of members of ASLA:
(I suggest you all check your agreements!!!)
ABN Amro
Anvil Software
Australia & NZ Banking Group Limited
AXA AUSTRALIA LIMITED
BBY Limited
BNP ParibasSecurities Services Pty Ltd
Burdett Buckeridge Young Ltd
Citibank Pty Limited
Citigroup Global Markets Australia Pty Ltd
Commonwealth Securities Limited
CSFB
Deutsche Securities Australia Limited
Freehills
Goldman Sachs JBWere Pty Ltd
Herschel Principal Finance Limited
J.P. Morgan Securities Australia Limited
JPMorgan Chase Bank, N.A.
KPMG Peat Marwick
Macquarie Bank
MallesonsÂtd>Mallesons
Merrill Lynch Equities Australia Limited
Minter Ellison
Morgan Stanley
National Australia Bank
Northern Trust
OPES Prime Stockbroking Limited
Paloma Securities Australia Limited
RBC Dexia Investor Services
State Street Bank & Trust
Suncorp
SunGard Securities Finance
Tricom Equitites Limited
Twenty First Australia Inc
UBS Securities Australia Ltd
Westpac Custodian Nominees Ltd
4sight Financial Software

 

This is what I still don't understand ... but I have not read any of these contracts.

With margin loans, I thought that normally legal title passes to the institution AS TRUSTEE to hold as security for the loan.

That means that "borrowers" are still the beneficial owners and any creditors of the lending institution do not have access to these assets. If they are misappropriated then the "beneficiaries" have remedies including tracing through 3rd parties.

If, on the other hand, shareholders have "lent" their shares to the institution to use "at risk" then they are mere creditors themselves. BUT if they have been misled into thinking this is a normal margin loan then the shares may be held under a constructive trust.

I guess it all boils down to Contract Law, and how devious the institution has been versus how careless the shareholder has been.

From past experience, I would not place much reliance on ASIC helping small investors.

Cheers,

Rob

 

The word "nominee" sounds like they are acting as your "agent".

This still limits their powers, as they are bound by fiduciary duties - but not as robust as an express trust.

Again it all boils down to the contract.

We are repeatedly told that Australia is far better off than the US. Unfortunately we have to wait and see ...

Cheers,

Rob

 

I'm with commsec, so does this mean if they go bust, I just become a creditor?

Why should margin lending be any different to a house loan.. if the bank goes bust, you don't become a creditor to the bank.

 

Does this mean that the custodian of the NavraInvest funds could be margin lending against shares held by it and end up with the same outcome?
I don't understand all of this but l hope that all NI investment money is secure.
Regards

Denis

 

I read somewhere that will mainly effect small to medium size companies. Maybe that's where they invested/gambled most of their money.

 

Hi Sim,

The only margin lender I don't see on the list is St George Margin Lending.
It's a bit of a worry that the top 4 banks are all on the list.
Are there any others who aren't on that list?

Cheers,

Dan

PS Before making an investment decision speak to your FPA registered Financial Planner.

 

Commsec had this to say when I logged in and viewed my margin loan:

You're safe with CommSec
31 Mar 2008

Neither the Commonwealth Bank of Australia (nor its subsidiary CommSec) participates in any securities lending of our margin lending clients’ stock.

The suspension of some brokers from providing stockbroking services on the ASX due to claimed internal stock and cash movement irregularities has left some investors nervous about their margin loan positions. Our margin lending clients can be confident that their holdings are not exposed to any such irregularities.

The Commonwealth Bank of Australia is the actual lender of CommSec Margin Loans. CommSec administers the CommSec Margin Loan on behalf of the Commonwealth Bank of Australia. Unlike a number of margin lenders, the Commonwealth Bank of Australia is an approved deposit taking institution regulated by the Australian Prudential Regulation Authority (APRA). It applies extremely rigorous risk and compliance standards in relation to CommSec Margin Loans. Further, the Commonwealth Bank of Australia conforms to the Code of Banking Practice, and therefore the code applies to its margin loans.

Your CommSec CHESS-sponsored holdings, including those that are security for your margin loan, are in your name, and cannot and will not be on-lent by the Commonwealth Bank of Australia, or on its behalf by CommSec.

The Commonwealth Bank of Australia has a stringent market risk policy framework around its margin lending practices.

 

This is a very sad story – but history like this repeats itself from time to time.

I remember a HIH story.
Years back HIH was in a strong down slide and stockbrokers’ the only recommendation at that time was ‘buy’ (not sell).
Today HIH is a history and Opes is another example of how incompetent “gurus/experts” really are.

 

St George also has a similar statement on their website. Your safe with St George for those who are wondering.

I was curious about ABN Amro where all the NI investers switching to warrants are ending up? Does anyone have any info?

MJK