Sydney-based stockbroker Lift Capital has appointed administrators, joining Opes Prime and Tricom among brokers to be crunched in the recent sharemarket turmoil.
Lift Capital has about 1600 clients, making them larger than Opes with its 1200. Lift, though, is unlikely to match the irregularities that have turned the $1 billion collapse of Opes into a fiasco.
In Lift's case, the funds at stake are likely to be slightly smaller. One source said lender Merrill Lynch's exposure to Lift was around $650 million of loans on $800 million worth of stock.
As reported on BusinessDay yesterday, Lift operated like Opes, lending money to clients to buy speculative stocks outside the ASX Top 300. It also encouraged clients to borrow against their property to buy shares.
While there's no suggestion of irregularities at Lift at this stage, the model is clearly on the nose. Lift might have to sell its loan book.
As the attached statement says, Tony McGrath and Joseph Hayes of corporate recovery and advisory firm McGrathNicol have been called in as voluntary administrators of Lift Capital Partners Pty Limited and Lift Capital Nominees No. 1 Pty Limited.
Unlike Opes, where investors are being told they may get only 30 cents in the dollar back on their dough, the administrators of Lift are a lot more optimistic:
''It is too early to speculate on the ultimate return to creditors and investors. However, it appears that the underlying value in the shares is good and it is expected that a reasonable return will be achieved,'' Tony McGrath says in the statement.
Indeed, the administrators expect ''a significant surplus of funds'' will be available once the unnamed (read, Merrill Lynch) secured creditor has been repaid.
In case you are wondering, Merrill Lynch spokesperson Danielle Mapes said the company had no comment on the report of Lift's demise.
So, to recap Lift's Opes-like activities: according to the documentation, Lift's clients appear to pledge their securities to Lift and Lift has the right to repledge them to other parties - in this case, Merrill.
Although Merrill was able to exit most of its position in Opes shortly after ANZ called in the receivers late last month, blame ANZ, and salvage most of its $400 million loan in the process by thumping Opes' securities into the market quickly, observers are asking what was it doing in the first place?
Some of the bank's funding to the margin lending community is believed to have been struck at just 42 basis points over the swap rate (ANZ later pushed it up to 75 basis points - still peculiarly low).
They must have taken the view that this was relatively low-risk lending - despite the high-risk nature of the underlying stocks - because they could simply flog the stuff into the market at any time under the securities lending agreement they had struck with Opes.
As note above, the word is Merrill's exposure to Lift was around $650 million of loans on $800 million worth of stock. There was a margin call from Merrill Lynch on Lift or an associate, one source said, and an intermediary was looking to raise $50 million to fund the call.
Of particular note in the Lift case is the company's efforts to encourage clients to gear up their superannuation.
"Encompassing a suite of products and services, the SuperLIFT facility is a flexible, comprehensive platform designed specifically to provide leverage for superannuation entities including DIY or self-managed super funds and small APRA funds," according to Lift's own marketing.
It is believed the regulators are now investigating any margin lender that uses this high-risk model.
As noted yesterday, Melbourne-based Chimaera Capital is another broker operating in the Opes-Lift area of the market.
Chimaera lends on just about any stock in the All Ordinaries Index and lends stock out for shorting as well.
Although there is nothing inherently wrong with the Merrill and ANZ jumbo loan model used by Opes and others, the relevant issue comes down to disclosure as usual.
That is, whether investors were sufficiently made aware of the risks, particularly unsophisticated investors who had been switched into one of these companies by their stockbroker without being told that they could lose the lot and that they did not hold title over their securities.
In the case of Chimaera, it is not known whether this pledging occurred.
Chimaera principals had been uncontactable for two days, so it will be interesting to see if Lift's moves encourage a more public profile.
The company today said executives were not immediately available for comment.
For Lift's creditors, the admininistrators will convene a gathering on 22 April.
Clients, no doubt unnerved by the arrival of administrators, are advised to visit Lift Capital's website over coming days to be informed about ''the status of their investments.''
Last time we checked, though, that website only contained the administrators' statement, and a link to a guide of the company's financial services, dated November 14, 2007, or about two weeks after the sharemarket peaked.
With Chris Zappone, BusinessDay
mwest@fairfax.com.au
