Hey Guys interesting article in the AGE re: Opes Prime Stockbroking Limited in short Monitor component sold at a % ? discount could explain some of the SP discounting of late. Monitor sure looks to be on a lot of Radars ATM but sure is starved of positive directional news from Head office. But I do feel when we get a Ann on all the projects in play ATM alot of radars will PING and we should rally back to a realistic SP for what we own.
Even in this tough enviro I have been averaging down of late i can still smell a big earn in this one just given the right wind sure seems cheap of late thanks Opes Prime
http://www.theaustralian.news.com.au/story/0,25197,23458996-5013408,00.html
Opes system failed
John Durie | March 31, 2008
OPES Prime collapsed because the firm's risk management system failed.
This is what ASIC is investigating while the firm’s secured lenders, ANZ and Merrill Lynch, are in the process of recovering their money, which was used in Opes’ margin lending business.
Attempts to somehow paint this as yet more evidence of the pernicious nature of stock lending and short-selling are frankly ludicrous.
ASIC and the ASX are looking at just how excessive client loans have broken the firm and, more to the point, just how the firm was able to continue trading when it was meant to be under supervision and said to have sufficient capital to trade.
ASIC may also care to ask how and why Tricom clients were apparently selling stocks like Hedley, EBI and Just Group late on Thursday, with the trades reported on Friday morning before the Opes collapse was reported.
Maybe these clients got wind of the Opes problems.
While this investigation continues, it is worth noting that the saga points more to the pitfalls of excessive risk rather than systemic risk.
Those calling for creation of a super regulator to somehow solve the situation should be aware the problem is not with the system, but with the regulators not using the powers they already have.
US Treasury Secretary Hank Paulson this morning released his plans for US financial services regulation, which are remarkably similar to those in operation in Australia, with the creation of a national prudential authority (like APRA), business regulator (ASIC) and market oversight (the RBA).
The problem with stock-lending and short-selling is not the practice but the lack of disclosure, and this issue is being addressed.
Indeed, as Merrill Lynch and ANZ recover their money, those who have sold stocks short will have to cover those sales, which means actually buy the shares which, other things being equal, will put a floor under the share price, not cause a massive slump.
Investors who have borrowed too much to buy shares are now learning that stock prices fall as well as rise, and indeed the fact that short-selling has occurred has helped these folk by actually putting a lid on the price on the way up.
But the shrill call for more regulation just because some folk have taken excessive risks and lost their bets is of course a nonsense.
There is room for adjustments at the margin and Financial Services Minister Nick Sherry is right to push for some changes, as outlined on ABC radio this morning.
Merrill Lynch has sold around $325 million worth of the $500 million exposure it had to Opes, and ANZ has hired Goldman Sachs to sell stocks to recover the $750 million it is still owed from its $850 million exposure.
The Goldman mandate is to take its time to maximise the return.
Last Friday, ANZ sold around $100 million worth of stock at an average discount of 1.5 per cent, hardly fire-sale prices.
The bigger discounts were on the likes of Admiralty Resources, Monitor Energy and Sundance Resources, where, in small trades, the discount was over 10 per cent, and some ABC Learning was sold at a 4 per cent discount.
The ANZ action was prompted more by the emergence of so called operational irregularities, which caused it to withdraw support.
The bottom line is that while super returns will not be great for the last quarter, your money is still safe in the stock market and your superannuation funds will be just fine, albeit earning less than the extraordinary returns of the last couple of years