After shutting down its equity finance business in the wake of the Opes Prime collapse, ANZ Custodian Services has put in action plans to rebuild its securities lending operation by appointing a new head to the division.
The custodian appointed Kate Coumans as head of securities lending in late February. She joined from State Street Global Markets’ Tokyo office and, prior to this, set up JPMorgan Chase’s Australian securities lending operation.
Her predecessor at ANZ was among the six employees who exited the bank after findings from the review of its securities lending business, prompted by the its involvement with Opes Prime, were released in August last year.
The review found that the equity finance business, which peaked at $2 billion in 2007 and was part of the securities lending division, was overseen by a weak management team that did not properly assess or combat the risks arising from the business.
Consequently, the business was wound down. But while “equity finance is no more,” securities lending was considered “a core product going forward,” David McWilliams, head of business development with ANZ Custodian Services, said.
The equity finance business provided the collateral that was used by Opes Prime to issue margin loans to its clients. But, unbeknownst to many of these clients, ANZ would own the collateral in the event of the stockbroker’s demise. Legal action was soon mounted against ANZ and another Opes financier, Merrill Lynch.
As the episode unfolded, the bank scaled down its securities lending business, cutting counterparty relationships to a “handful” and losing some clients, McWilliams said.
It contracted a former employee, John Reedyk, to manage the securities lending operation until a permanent replacement was found.
With Coumans on board, the custodian is now conducting due diligence on its securities lending operations before entering the market to compete for business.
On March 6, ANZ and Merrill Lynch committed to an in-principle $253 million settlement with the stockbroker’s liquidators. The funding pool was supplied by the two financiers and by cash and other assets obtained by the receivers of Opes.
On the same day, the custodian entered into an enforceable undertaking with the Australian Securities and Investments Commission regarding its dealings with Opes Prime.
The agreement would focus on the bank’s completion of the remediation program it implemented to reform its custody business following the securities lending review, according to a statement from ANZ.