Anz Finds Itself On Both Sides Of Troubled Tricom's Liquidity Crisis

The Age

Friday February 1, 2008

Marc Moncrief, Financial Services Reporter

CHINESE walls, reckless share swapping and lax regulation are all being blamed for this week's settlement debacle at share broker Tricom, but it was probably down to a clerical error.

The bank was drawn into the fray yesterday as it emerged that ANZ may have been both counter-party to Tricom and its lender. This put the bank on both sides of Tuesday's failed settlement of Tricom's trades.

Settlement is that moment when money changes hands for trades that have been booked. When settlement was scheduled at 12.30 Tuesday, Tricom was left with about $84 million to cover, but could not find the stock in its account with ANZ Custodians.

Independently, the lending arm of the bank decided not to extend Tricom's overdraft, leaving the broker without means.

It is believed Tricom could have recalled its stock had it specified in which account it was held. It had been moved from the default account with ANZ Custodians and placed in a different account but, by the time this was discovered, the hour of settlement had passed.

Tricom released a statement yesterday calling for "business to continue as normal". However, banks and brokers sought to distance themselves.

ANZ had been pursuing Tricom for more than a week to satisfy margin calls across Tricom's portfolio, which included shares in a number vehicles related to investment bank Babcock & Brown and fund manager Allco, all of which have fallen sharply in the past two weeks.

ANZ demanded Tricom reduce its margin loan book, and the broker said it currently held $950 million in debt secured by $1.3 billion in equity. Last July, the book was worth $2.6 billion.

Babcock & Brown chief executive Phil Green issued a statement expressing confidence Tricom "will work through its current issues successfully", but assured his own shareholders his bank's exposure to the broker was minimal.

"Babcock & Brown advises it is not a material creditor of Tricom and our business is in no way impacted by the difficulties facing Tricom," Mr Green said.

Mr Green said Babcock & Brown holds one stock loan with Tricom worth $50 million and had borrowed about $10 million. Tricom also holds about $10 million of "convertible notes" - bonds that can be transferred to shares - on B&B's behalf.

A Morgan Stanley spokesman also insisted the investment bank held no exposure to Tricom.

Richard Gilbert, chief executive of the Investment and Financial Services Association said the liquidity incident such as this demanded reform of the licensing requirements in the industry.

"It's been an unfortunate incident for our capital market," Mr Gilbert said.

"If there is a capital (liquidity) issue at stake, then perhaps the licensing processes we have to do this sort of business need to be reviewed."

ASIC, which administers the licensing of financial services professionals, declined to comment on the controversy.

The Australian Securities Exchange has already announced measures to increase oversight at Tricom, including daily updates on the broker's liquidity.