Macquarie saw itself as the apple in Storm's eye
The Age
Wednesday October 28, 2009
A MACQUARIE Bank staffer wrote a friendly personal cheerio to Emmanuel Cassimatis on a deal that was agreed between Macquarie and Storm Financial.According to a senior former Storm Financial staffer who saw the document, the words from Mickey Perrett, a senior employee in Macquarie's margin-lending business, congratulated Storm's founder on coming up with such a great deal.Many have come to rue the day this document was adopted, not least the many Storm investors who lost an estimated $3 billion when Storm Financial collapsed.Aspects of Storm's deal with Macquarie €” finally revealed publicly by Macquarie Bank €” contributed to the losses experienced by some of these investors.Macquarie's attempt to play dumb about its relationship with Storm Financial included an initial submission to a parliamentary inquiry investigating Storm's collapse that gave no details €” not one €” about the sweetheart deal the two businesses cooked up.The stonewalling earned a stern public rebuke from the chairman of the parliamentary inquiry, Bernie Ripoll, who fulminated in businessday: €śThey didn't come clean to us in their submission . . . you would have to say they have been less than honest if they have not come forward with that information.€ťIn direct response to Ripoll's comments, the bank made another submission giving further details of the deal, but it remains silent on important details of its relationship with Storm.It has never adequately explained why many of its Storm Financial clients (almost two-thirds of them, according to a businessday survey of 30 of Macquarie's margin-loan recipients) say they never received a margin call at all.The bank will not say how many Storm Financial customers it provided with margin loans, how big the loan book was at its peak, nor the average loan-to-value ratio it sold its margin-loan recipients out at in market falls last year.Best estimates on these are: about 600; about $800 million; and €” from the above-mentioned survey €” about 96.7 per cent.Despite Macquarie playing the dead bat, the deep relationship between the hard-charging investment bank and the Townsville-based financial planners was prized on both sides.The senior Storm Financial staffer remembers that Perrett actively pursued Cassimatis in negotiations to win Storm Financial as a customer.€śThere was a formal document between Macquarie and Storm setting out these terms and conditions and setting out these (margin) loan ratios,€ť the former senior Storm Financial staffer told businessday.€śThe arrangements were more generous than (rival margin lender) Colonial at that time. It was always about getting further concessions from the suppliers.€ťThose concessions had the effect of compounding what were already disastrous consequences when the market fell sharply.As revealed by Macquarie Bank, its Storm Financial margin-loan customers received a 10-day €śsatisfaction period€ť on their margin loans, instead of the industry standard of a five-day rectification period.In a falling market, this condition can give people enough rope to hang themselves €” you are better off being sold out of a margin loan on the fifth day of market falls than on the 10th.These customers also received a relatively high 85 per cent loan-to-value ratio on their index funds, although Macquarie says this was nothing out of the ordinary.Lyn Murray, 62, a pensioner from Nowra in NSW, who has been left with a $462,000 mortgage after Storm's collapse, said she never received a margin call from Macquarie Bank and was sold out of her investment portfolio at a loan-to-value ratio of 97 per cent.She said after the collapse, she fought Macquarie Bank for more than two weeks for the return of $39,000 that was hers.€śIf they had have sold me out at 80 per cent or 85 per cent that would have made a hell of a difference,€ť she said.€śIt would have made the difference of an additional $150,000 to me. That's a big difference if you now have nothing. If I'm going to be poor for the rest of my life, I want to know why.€ť
© 2009 The Age
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