Discussion in 'Shares' started by Simon Hampel, 31st Mar, 2008.
Inside Business - 30/03/2008: Opes collapse fallout brutal for clients
Inside Business - 30-Mar-2008
If you're not an Opes client, is there anything to worry about?
Not directly - it's the indirect actions that cause everyone else problems:
1. the two lenders dumping stocks will have a negative impact on the markets in the short term
2. another financial institution goes under, and everyone gets more nervous - can have adverse effects over the short-medium term in market sentiment
3. everyone calls for tighter regulation, which invariably means less opportunity (although this is not always a bad thing), which can cause a drag on the markets over the longer term
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!!!)
Australia & NZ Banking Group Limited
AXA AUSTRALIA LIMITED
BNP ParibasSecurities Services Pty Ltd
Burdett Buckeridge Young Ltd
Citibank Pty Limited
Citigroup Global Markets Australia Pty Ltd
Commonwealth Securities Limited
Deutsche Securities Australia Limited
Goldman Sachs JBWere Pty Ltd
Herschel Principal Finance Limited
J.P. Morgan Securities Australia Limited
JPMorgan Chase Bank, N.A.
KPMG Peat Marwick
Merrill Lynch Equities Australia Limited
National Australia Bank
OPES Prime Stockbroking Limited
Paloma Securities Australia Limited
RBC Dexia Investor Services
State Street Bank & Trust
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.
I think you'll find that most margin lenders use a NOMINEE structure to give them the rights to transact on the securities on your behalf. I'm not sure what the difference is in legal terms.
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 ...
Lateline Business - 31/03/2008: Opes Prime may face legal action
Lateline Business - 31-Mar-2008
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.
You'd need to read the PDS for the Navra funds to determine what the fund is and isn't allowed to do. I'm pretty sure they can't borrow money (been a while since I read the PDS in detail).
There are geared share funds out there which do effectively buy on margin (eg CFS Geared Share fund), and they (or more specifically, their unitholders) face all the associated risks that go along with gearing - although most geared funds are relatively conservative (but not all!!).
I read somewhere that will mainly effect small to medium size companies. Maybe that's where they invested/gambled most of their money.
The reason Opes structured like they did is that they specialised in lending against small cap stocks, which traditional margin lenders don't typically offer good LVR on (if at all).
Definitely a high risk strategy.
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?
PS Before making an investment decision speak to your FPA registered Financial Planner.
Bank of Queensland Margin Lending
Bendigo Bank Margin Lending
BT Margin Lending
Colonial Margin Lending
Lift Capital Partners
St. George Margin Lending
... even if a lender is on that list, you'd want to check the contracts for each product to see exactly how they work.
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.
Lateline Business - 01/04/2008: Clients may not get back lost Opes money
Lateline Business - 01-Apr-2008
AM - Opes Prime receiver gloomy about fate of investors
Your browser doesn't support HTML5 audio. Here is a link to the audio instead.
Your browser doesn't support HTML5 audio. Here is a link to the audio instead.
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?
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