ANZ Banking Group is feeling the heat over the Opes Prime debacle and its involvement with stuttering margin lending, Tricom.
The bank late yesterday revealed that it will conduct an internal review of its securities lending practices, led by chief executive Mike Smith.
Whether an internal review is enough for the bank’s critics remains to be seen. But Mr Smith has only been there around six or seven months, so he will be able to bring a mostly independent eye to the bank’s activities in this area.
The reputation of former CEO, John McFarlane might take a battering from the inquiry, and that of long time chairman, Charles Goode.
But it’s a start in what should be a number of probes into the margin lending and stock lending businesses in this country which now seem like a snake pit of conflicted roles, mates deals and poor transparency and perhaps worse.
ANZ shares fell 49c yesterday to $20.45 as worries about the bank’s bad debt problems and exposure to reputational damage from Opes Prime continued to dominate investor thinking.
ANZ said yesterday the review will also examine the bank’s relationship to troubled broker Opes Prime Group.
Mr Smith will be assisted by two senior ANZ executives to conduct the review.
An inquiry has already started internally into the margin lending business of the bank in its institutional division. This new inquiry will obviously supersede that probe.
The new inquiry will examine the oversight and control of ANZ’s involvement in securities lending and the development and management of client relationships.
At least four executives in this area have been sent on leave pending further examination of their roles in the problems the bank has encountered with Tricom and Opes prime.
The bank said the inquiry will also assess whether any ANZ employee has breached ANZ’s internal policies, procedures and ethical standards in securities lending and dealings associated with the clients of Opes Prime.
"We will review our involvement in the securities lending business and the events surrounding the Opes Prime issue to ensure that all our processes and practices meet the highest ethical, risk management, and regulatory compliance standards which our shareholders and the community expect of ANZ," Mr Smith said.
"The review will examine what has transpired, the accountability that ANZ and individual staff members might have for what has occurred, and a remedial program to swiftly address all the issues we identify."
Mr Smith said ANZ would continue to work with regulators on the issue and publicly release the results of its internal review.
Opes Prime collapsed last month and was placed into receivership and administration after cash and stock movement irregularities were uncovered in a small number of accounts.
The secured creditors of Opes, which included ANZ and Merrill Lynch, subsequently began selling the shares that Opes clients had placed with the failed stockbroker, in a bid to recoup more than $1 billion in loans to Opes.
The move has sparked a number of legal actions by Opes Prime clients who claim that the shares still belong to them and want them returned.
Meanwhile ASIC declined to comment yesterday on media claims that it and the ASX missed warning signs that Opes Prime was in serious trouble.
Opes Prime, which specialised in stock lending and borrowing, was placed in receivership and administration on March 27, after cash and stock movement irregularities were uncovered in six client accounts.
Opes Prime owed secured debtors – the ANZ Bank, Merrill Lynch and Dresdner Kleinwort – more than $1 billion.
Around 1200 Opes clients have had accounts frozen as the secured creditors moved to recover their money by selling shares that Opes clients had placed with the stockbroker.
The ANZ has been forced to reveal that it is a substantial shareholder in dozens of companies, and at least two takeovers have been abandoned because of the Opes’ failure. As well, there could be millions of dollars of shares missing from several client accounts that were not subject to margin loans or deals.
The Australian Financial Review reported yesterday that the two regulators – the Australian Securities Exchange (ASX) and the Australian Securities and Investments Commission (ASIC) – took no action when Opes Prime breached its capital liquidity threshold – a requirement that total assets remain above 120% of total liabilities last year.
The newspaper said it had internal Opes Prime documents revealing that the broker felt ‘encouraged’ by senior ASX market supervision staff to exploit a loophole in the rules by hiving off its bank debts into a company that did not need an Australian Financial Services licence.
ASIC would not comment on the media report and an ASX spokesman was not available to comment.
