A rocky road for ANZ

ANZ is taking steps in the Opes affair to avoid the mistakes made by Westpac in the letters affair of the 1990s. Nevertheless ANZ directors must be experiencing just a little unease over the Opes affair as it becomes clear that serious court cases are likely to come forward around the same time as the official and ANZ investigations are concluding. And on the financial front a lot will depend on whether an ASIC substantial shareholding exception given in 2000 is held to apply to the Opes share lending schemes.

I first compared the ANZ's Opes connection with the Westpac letters affair in early April (Letters from the past, April 8). But ANZ CEO Mike Smith rejected the connection a few days later (KGB Interrogation: Mike Smith, April 14).

You will remember that in the Westpac letters affair the bank loaned Swiss francs to farmers, not warning them of the dangers. With court cases pending, Westpac's lawyers clamped down on all reaction from Westpac officials, but the letters and other material kept leaking, destroying confidence in the bank. Along with other big losses, it almost allowed Kerry Packer to take control of Westpac.

On the surface, and subject to the courts, ANZ has a dangerous Opes legal position. The Takeovers Panel said the bank should have disclosed its substantial share interests when it exceeded 5 per cent in any of the Opes network of companies. And Mr Justice Finkelstein has concluded that ANZ had rights over the shares which enabled the bank to sell them.

The entrepreneurs who have been sold out say that if they had been warned that ANZ claimed a substantial shareholding over their stock, they would have taken action and would not have been caught in the Opes trap. The entrepreneurs will claim damages which may be substantial because in at least one case the new shareholders (the investors who have bought the shares from ANZ) are changing the company management structures and forcing out the entrepreneurs.

But the ANZ has an exemption from ASIC which it believes freed it from the need to file substantial shareholder notices. That exemption and other matters will be tested in the courts. Around the time of the court cases, ASIC will be concluding its deliberations and the so called 'Crawford Report' will be making its conclusions.

Mike Smith brought in former Westpac director David Crawford to look closely at what the ANZ did (ANZ's inquisition begins, April 14). Almost certainly, if it is not released, those taking action against ANZ will seek to make the Crawford Report a court document.

These are the sorts of issues that tripped up Westpac. To manage reputation risk, ANZ has put a PR person on the team handling the case and ANZ counsel Bob Santamaria understands that for the ANZ this may be more a reputational risk that it is a financial risk.

ANZ officials are still stunned that the bank got caught in the mess. It was apparently netted against various market exposures and the board and CEO did not realise the nature of the deals.

In the ANZ's defence, in the Tricom and Chimaera Capital situations the bank did not pull the plug, but took equity and is trading the situations out. But in Opes, the margin calls were not made when they should have been and friends of Mick Gatto were involved. In circumstances like that, the bank pulled the plug.

The main test litigant is Paul Choiselat who has been replaced as CEO of Jumbuck and there is an extraordinary meeting to remove him from the board. He says that had ANZ lodged a substantial shareholding notice he would have then been aware of the risks being taken in the Opes pool and he would have sought other financiers.

Former Victorian premier Jeff Kennett is on the board of Jumbuck, which has software that operates an international chatroom and 'soft dating' service for mobile phone companies. About half of its revenue comes from the US.

There will be other stores similar to Paul Choiselat's so there is a lot at stake in the court cases.

But for the ANZ, managing the reputational risk is the key.

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