Authorities probe Opes Prime collapse
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Under investigation: Opes Prime was placed in the hands of receivers after a number of trading irregularities emerged and hefty margin loans were called in (file photo). (www.opesprime.com.au)
Investigations are continuing into the collapse of Melbourne stockbroking firm Opes Prime.
The firm was placed in the hands of receivers last Thursday after a number of trading irregularities emerged and hefty margin loans were called in.
Around 1,200 retail clients now risk losing their investments, as some big banks flex their muscles as priority creditors.
Business editor Peter Ryan discusses the investigation into the firm's collapse.
ELEANOR HALL: Peter, this is the first time in a decade that a stockbroking firm's collapsed. What is the nature of this investigation into it?
PETER RYAN: Eleanor, there are two levels of investigation here. Firstly, the corporate reorganisation unit for the accountancy firm Deloitte has been appointed as Opes Primes' receiver, and this action came from Opes Primes' chief secured creditor, the ANZ Bank.
The task here is to grab whatever assets there are - in this case shares - and sell them to realise the best profit for ANZ.
Also, the insolvency firm Ferrier Hodgson has been appointed as the firm's administrator, and their job is to trawl through the computer hard drives and other paper work to quantify the liability and see what's left for other clients. And as you can imagine, that's a huge task.
On a second level, we have the corporate regulator ASIC [the Australia Securities and Investments Commission], which has set up a special team which will work with the receivers to see if there's been any breach of the Corporations Act, and that adds to another investigation by the market regulator, the Australian Securities Exchange.
So you can see this is a very extensive investigation, it's quite unusual and the involvement of those parties underlines the seriousness of what can only be described as a mess.
EH: What is the stockbroking firm alleged to have done?
PR: Well, what has happened when we talked about the irregularities, they were brought to light by directors of Opes Prime late last week. Now, Opes Prime is involved in the business of a stock lending where different levels of clients and consumers put their shares or stock up as collateral for Opes Prime to provide margin loans.
Margin loans are a great thing in the rising bull market where there is plenty of blue sky, but when you're in a bear market like the one we are in now, it's not so good and it's quite dangerous.
So what has happened in addition to the share market tumbling in recent weeks and days, the value of shares have fallen and as result the banks that have provided the loans - ANZ and Merrill Lynch - they've called the loans in. That's created a lot of pressure on Opes Prime and what can only be described as a hole has been found in Opes Prime's accounts.
And that is what Deloitte and Ferrier Hodgson are looking for. And the big question is - what happens to not just the banks, but the 1,200 unsecured retail investors?
EH: Do you have any idea at this stage of whether they have much of a chance of getting their money back?
PR: Well, these are very early days and the two banks involved - ANZ and Merrill Lynch - take priority as creditors and as such get first dibs on the spoils. To put this into context, ANZ is owed $650 million, Merrill Lynch $400 million, so as a result, those 1,200 retail shareholders are in some ways helpless and they may well watch their investments be sold off on the share market to pay back those two big banks.
So once the secured creditors are taken care of, the time for other investors will then take priority. But even then - and this is important - those investors will be exposed to the value of their shares versus the value of the loans provided and the difference there could be quite painful for some people.
EH: There were early fears that the pressure of the Opes receivers to offload shares quickly would spook the share market. Have we seen any of that on the markets?
PETER RYAN: The bigger issue here that will possibly infect the market for weeks to come is the additional fear and suspicion that we see when you have the collapse of a stockbroker such as Opes Prime. The obvious question for investors in the market in general is whether there are more shocks in store, particularly for companies that are involved in the now very dangerous world of margin lending.
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