VICTIMS of Storm Financial with margin loans through Macquarie Bank were forced into deeper losses as a result of a procedural failure by the bank, which was later covered up.
A document seen by BusinessDay reveals how Macquarie had an omission in its internal procedures that led to greater losses for its Storm customers as sharemarkets were crashing in late 2008.
The operational failure has never been made public by the bank despite its executives giving evidence before a federal parliamentary inquiry into the collapse of Storm Financial.
Investors lost an estimated $3 billion when Storm collapsed in late 2008. Storm's dangerously leveraged business model encouraged clients to borrow against their homes and use the borrowings for margin loans to buy into the sharemarket.
The document, witnessed by BusinessDay last month, states Macquarie failed to "accelerate" calls on its margin loans, contrary to a secret alliance the bank had forged with Storm.
The document also states Storm customers were exposed to greater potential losses because of the omission in procedures.
Details of an operational failure within Macquarie were met with disbelief by Lyn Murray, a Nowra pensioner left with a mortgage of more than $460,000 when her Storm investments collapsed. "I want them to say, 'We made a mistake. We made a hell of a mistake'," she said. "They owe us some respect."
The bank did not raise the omission in procedures in two submissions to a parliamentary inquiry into Storm, nor was it mentioned when bank executives were questioned under oath by parliamentarians about why customers' losses were not capped more quickly.
"The point here is that margin call notifications were made promptly and they were made on time," an executive from the bank told the inquiry in October last year.
A spokeswoman for Macquarie said the bank stood by its evidence to the parliamentary inquiry and clients had an obligation to monitor their loans.
Macquarie has not answered BusinessDay questions about how many of the bank's 1050 Storm customers were affected or how much money they lost as a result of Macquarie's omission. It also did not answer questions about whether Macquarie had engaged in a cover-up.
More than 20 former Storm Financial customers with Macquarie margin loans contacted by BusinessDay said they had received no offers of compensation from the bank.
Previously the bank had refused to offer widespread compensation, stating its margin call processes generally worked as they should have.
The bank's concessions have been limited to admissions of "administrative errors" not associated with margin calls.
The omission in procedures occurred when Macquarie failed to "accelerate" the margin call satisfaction process from 10 days to 24 hours when customers' loan-to-valuation ratios went past 90 per cent.
The document states that because the acceleration did not occur, it potentially increased customers' losses. The problem was fixed by mid-November 2008.
A Townsville resident, Jose Isnard, said: "We could have been $60,000 better off had they sold us off at the 90 per cent on the margin call, but we got sold at 97 per cent like many others."
In a statement, the Macquarie spokeswoman said the bank's margin loan conditions did not bind it to accelerate the margin call process.
"There was a mechanism whereby if the loan-to-value ratio exceeded 90 per cent, then we could reduce the satisfaction period to 24 hours from that point . . .
"This was not an obligation of Macquarie under the terms of the lending documents, but was action that Macquarie could take at its discretion."
Frequently Asked Questions about this Article…
What went wrong with Macquarie Bank’s handling of Storm Financial margin loans in the 2008 crash?
According to a document seen by BusinessDay, Macquarie had an omission in its internal procedures during the late‑2008 market crash: it failed to “accelerate” the margin‑call satisfaction process (from 10 days to 24 hours) when customers’ loan‑to‑valuation ratios (LVRs) exceeded 90%. That omission was not publicly disclosed by the bank at the time and, the document says, likely increased losses for Storm Financial customers. The procedural problem was fixed by mid‑November 2008.
How did Macquarie’s procedural failure affect Storm Financial customers’ losses?
Because Macquarie did not shorten the margin‑call satisfaction period when LVRs passed 90%, some customers were sold out later and at worse prices, increasing their losses. The article gives examples: one customer said they might have been about $60,000 better off if they’d been sold at the 90% threshold rather than at 97%, and a Nowra pensioner was left with a mortgage of more than $460,000 after the collapse.
Did Macquarie tell the parliamentary inquiry about this operational omission?
No. The article states Macquarie did not raise the omission in two submissions to the federal parliamentary inquiry into Storm Financial, nor was it mentioned when bank executives gave evidence under oath. The bank has continued to stand by its evidence to the inquiry.
How many Macquarie Storm Financial customers were affected and did they get compensation?
BusinessDay reported that Macquarie did not answer questions about how many of its roughly 1,050 Storm customers were affected or how much they lost due to the omission. More than 20 former Storm customers contacted by BusinessDay said they had received no offers of compensation. Macquarie has previously refused widespread compensation, limiting concessions to admissions of certain administrative errors not related to margin calls.
What does “accelerating a margin call” mean and why is it important for margin loans?
In this case, “accelerating a margin call” meant reducing the period customers had to satisfy a margin call — from 10 days down to 24 hours once the loan‑to‑valuation ratio exceeded 90%. Accelerating a call forces quicker action (such as selling holdings) and can limit further losses in a falling market. The article says Macquarie’s failure to trigger that acceleration potentially increased customer losses during the market crash.
When was the procedural issue corrected by Macquarie?
The article states the problem was fixed by mid‑November 2008.
Has Macquarie admitted wrongdoing or been accused of a cover‑up over the Storm margin calls?
Macquarie has not publicly admitted wrongdoing over the margin‑call omission. The bank’s spokeswoman said it stands by its evidence to the parliamentary inquiry and noted clients have an obligation to monitor their loans. Macquarie did not answer BusinessDay questions about whether it had engaged in a cover‑up.
What practical lessons for everyday investors does the Macquarie–Storm episode highlight?
The article underlines a few plain‑English takeaways: leveraged strategies (Storm encouraged borrowing against homes to fund margin loans) are risky, especially in a market crash; investors should understand margin‑loan terms like loan‑to‑valuation ratio (LVR) and margin‑call timelines; and clients have responsibility to monitor their loans — but they should also ask lenders about margin‑call procedures and any discretionary steps the bank may take.
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