Opes Shortfall Doubled In A Week

Sydney Morning Herald

Monday April 14, 2008

Danny John

THE financial "black hole" that consumed Opes Prime was closer to $200 million - more than twice the original estimate - when its main lender, ANZ Bank, decided to pull its support for the ailing stockbroking company.

Opes's failure to make margin calls on certain of its 1200 clients whose stock had fallen sharply in value left a shortfall in its trading accounts "substantially higher" than was thought when the broker first asked the bank for a cash lifeline of $95 million.

But within a week of ANZ agreeing to advance the money to underpin repayment of a similar amount to one key customer - Norman Seckold, the chairman of a small ASX-listed coal company - the bank was told that the amount needed by Opes to meet its financing needs was double that sum.

The estimated shortfall of as much as $200 million was on top of the "numerous accounting irregularities" that had been discovered within Opes and two linked companies, Leveraged Capital and Hawkswood Investments, by March 26 and which plunged all three firms into administration.

In an affidavit lodged with the NSW Supreme Court to support its right to sell shares seized from Opes to recover at least $700 million of loans made to the company, a senior bank executive said the size of the shortfall left the bank in little doubt about the firm's survival prospects.

"ANZ was not confident that Opes could fill the gap by margin calls [on its clients] or had the resources or potential income stream to repay further funds required to save the business," the head of financial institution products at the bank, Antony Cahill, in a copy of the document obtained by the Herald.

"Further, [we] believed that the business could not survive the loss in client confidence which would result from the disclosure to the appropriate authorities of the alleged irregularities."

ANZ subsequently appointed receivers to help recover its loans and also took possession of $919 million of shares which Opes's clients - including the Sydney lawyer Chris Murphy - thought they owned but which had been pledged by the firm to the bank as collateral.

Since then, ANZ has been using the broking arm of Goldman Sachs to sell the shares in dozens of companies.

Mr Cahill disclosed in his affidavit that as of last Monday, ANZ still owned stock worth $185 million from the pool of securities it seized from Opes that was valued at $643 million on March 27. A further $54 million of shares from the $156 million of securities handed over by Leveraged Capital were still under its control. However, both of the figures are now thought to be significantly lower.