ANZ denies misleading Primebroker on investment. Photo: Jessica Shapiro
ANZ has told the Victorian Supreme Court that if it had gone ahead with a proposal to invest $55 million in the troubled Primebroker Securities in 2008, it would not have been able to justify its actions to shareholders.
The bank also told the court yesterday that its dealings with Primebroker in early 2008 were akin to a corporate ''standstill'' or work-out arrangement as the bank tried to carry the share-lending firm through what might have been a temporary liquidity problem.
But not all work-outs succeed, counsel for ANZ, Alan Archibald, QC, told Justice Jennifer Davies.
Mr Archibald said a review of Primebroker's business by KordaMentha on behalf of the bank had revealed certain elements that led the bank to believe that ''any investment by ANZ would be inappropriate - actually stronger than that, unjustifiable''.
Mr Archibald noted that Primebroker, for example, did not have a risk management system or a manager in charge of risk.
He said while Primebroker in earlier years might have demonstrated a good track record in terms of profits, the dramatic falls in the sharemarket in 2008 exposed some of the firm's shortfalls and aggravated its problems.
Mr Archibald was opening the defence case on the third day of a lengthy trial in which six cases are being heard simultaneously.
Primebroker is suing ANZ for misleading and deceptive conduct, saying the bank in 2008 led its principals, Sal Catalano and Ian Pattison, to believe that it was committed to the securities lending industry when it was secretly planning to exit it.
They say that although the company failed to meet $66 million of margin calls from late January 2008, they relied on the bank's assurances of support. But when ANZ in June 2008 walked away from investing $55 million in Primebroker and appointed receivers, they lost control of what they say was a valuable business.
At the same time, Primebroker's liquidator, Laurie Fitzgerald of BDO, wants ANZ to repay tens of millions of dollars that Primebroker paid the bank in January, February and March of 2008. Mr Fitzgerald contends the firm was insolvent from late January 2008. Those two cases are being run by the same legal team, but Mr Archibald said there was a conflict between the two cases on the issue of insolvency.
He said Mr Fitzgerald believed Primebroker was insolvent from late January but evidence from the Primebroker principals is expected to agree with the bank's position, namely Primebroker had liquidity problems in January, February and March, and from April solvency became more of an issue.
Mr Archibald said Mr Catalano and Mr Pattison were ''two plainly alert, astute businessmen who knew the business and the industry intimately, and … it is impossible they could have got it [the question of insolvency] wrong - and so wrong for so long. This is not just a momentary failure to appreciate the circumstances of the business,'' he said. ''This was a case where the circumstances of Primebroker were being considered over five months.''
Counsel for the Primebroker principals, James Elliott, SC, told the court the pair believed ANZ had entrapped them while it looked after its own position.
Mr Elliott said when Mr Catalano learnt ANZ was not going ahead with the $55 million capital injection he told the bank it was ''insane'' and promptly wrote to ANZ's chief executive, Mike Smith, expressing bewilderment.
The hearing continues.
