No Deal: Anz Takes Bailout Off Table

Sydney Morning Herald

Tuesday July 1, 2008

Danny John

THE future of the specialised financial services provider Chimaera Capital was again called into question last night after the ANZ Bank walked away from a deal to invest $55 million in the company.

ANZ abandoned its plans after spending nine weeks carrying out due diligence into the broker's operations and finances following an announcement in late April that it would come to Chimaera's rescue as part of a $65 million capital raising.

The bank completed its detailed investigation last week, with the final decision not to go ahead with its investment taken yesterday morning. It is understood that the process went all the way up to the bank's chief executive, Michael Smith.

Chimaera is one of several broking houses that specialises in the once highly profitable but equally high-risk margin lending sector and which had been brought low by the huge falls in value on the stockmarket.

As a result, ANZ found itself exposed to the likes of Opes Prime, Lift Capital and Chimaera through its financial lending and stock loan agreements.

That prompted a wide-ranging review by Mr Smith of the bank's securities lending business, which helped finance more than $1.8 billion of largely speculative sharemarket investments.

In the case of Opes Prime, ANZ found itself owed hundreds of millions of dollars over which it had security in the shape of shares pledged to it by the broker but which Opes's 1200 clients believed they owned.

The bank is now immersed in court action and a battle with Opes's administrators over how much money the clients might expect to recover. ANZ has insisted it has acted within its rights.

Chimaera's problems emerged less than a month after Opes Prime collapsed and prompted ANZ to help bail out the Melbourne-based margin lender with a combination of new loans and a cash injection. That would have given the bank a majority stake in the business and directors on its board. Chimaera committed itself to finding the additional $10 million.

However, the ANZ deal was subject to the company being given a clean bill of health under the bank's due diligence process. In a statement to the ASX yesterday, ANZ refused to disclose the reasons why it would not proceed with the arrangement.

There was no mention of the bank's financial exposure to the group, which led market watchers to suggest it was not material in financial terms. The bank is said to have $500 million charge secured over the company's assets.

Chimaera did not respond to the Herald's request for a comment yesterday. Its co-founder, Sal Catalano, said at the time of the ANZ deal in April that the company had been the subject of "unfounded media speculation" about its securities lending business.

Mr Catalano said additional funding from the bank and other sources would enhance the company's liquidity during then volatile equity market conditions.