Loans On Too-low A Rung To Warrant Attention
Sydney Morning Herald
Thursday May 1, 2008
THE inability of ANZ's internal risk managers to detect problems in loans of about $1.5 billion to Tricom, Opes Prime and Chimaera Capital has been met with varying degrees of disbelief by senior bankers and fund managers.
ANZ's chief executive, Mike Smith, said last week the bank's exposure to Opes "was so far below the radar of the board" and "this particular business was well down the line ... had it been in the sights, I think we would have picked it up sooner". Asked by the Herald how such exposures could go unnoticed, he said the bank regarded the stock-lending business as secured by collateral, and therefore regarded the loans as a relatively small contributor to profits. The stock-lending business sits within ANZ's financial institutions products business, which is headed by Antony Cahill. Mr Smith said ANZ had made about a $10 million profit from the stock-lending business, which is subject to review. The review team is headed by Mr Smith and includes a BHP Billiton board director, David Crawford.This suggests the bank was making a net profit of 1 per cent on its exposure, a profit margin roughly equivalent to net profits gained by banks on their lending during last year's private equity boom. A fund manager with Leyland Private Asset Management, David Manchee, said the net profit was reasonable in the context of last year's lower interest rates. "Is that prudent banking? Not a chance," he said. "But don't forget it's easy in hindsight, because all the banks were lending to mortgage providers and only making half a per cent." A senior lender at a rival bank, who did not wish to be named, said the rapid growth of the stock-lending business had the potential to sidestep bank risk-management policies. "It probably wasn't set up in their systems that way," he said. "How do these things happen? You look at the commodity hedging in the 1980s, where a lot of banks lost a lot of money. "What starts off as a little business suddenly chugs along to double or triple their revenue, and double or triple their asset position. Does it get reported high enough to get that level of scrutiny? Only when something goes wrong." A senior lender at another bank, who also spoke on condition of anonymity, said risk-management systems in banks were good at calculations, but not at detecting issues of reputation. "It seems to me nobody stepped back and said, 'How's this going to look in the newspapers when we mix all the securities up and get out of it, and leave all the mums and dads as unsecured creditors?"'
© 2008 Sydney Morning Herald
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