Investment Banking MC
Stockbroker BBY placed in administration
Andrew Main, Leo Shanahan with Chis Kohler
The clients of failed stockbroker BBY will get their money back, but it might not be any time soon.
The mid-tier broking firm has been placed in administration after the board could not secure enough capital, the firm said in a statement.
KPMG has been appointed voluntary administrator and BBY suspended by the ASX as a market participant.
Financier St George Bank has sent in PPB as receivers to protect the bank’s interests.
“I regret to inform staff that despite exhaustive efforts by the BBY board to secure investors to inject additional capital into BBY we have been unsuccessful,” said BBY executive chairman Glenn Rosewall, in a note to staff.
“Consequently, we had no option last night but to appoint administrators from KPMG to manage the firm, effective immediately.”
Glenn Rosewall is the son of tennis great Ken Rosewall, who is also a director of the firm.
Any client who suffers a loss because of the broker defaulting may be able to make a claim on the broking industry’s National Guarantee Fund, which is administered by the Securities Exchange Guarantee Corporation, SEGC.
The National Guarantee Fund, which was specifically set up to compensate the clients of brokers forced to default, reportedly holds around $80 million and growing, because it has never formally been called upon.
It was set up in 1987 when the various city-based stock exchanges merged to form ASX Ltd, since when it has been quietly collecting levies and earning interest.
Australia hasn’t seen a broker collapse for decades because Opes Prime, which failed in March 2008, was not what’s called a market participant. The last conventional broker to look like failing, a retail outfit called StoneBridge, was actually rescued in June 2011 by BBY.
The Australian understands that the most exposed clients are the ones who have open or un-settled options trades, and on whose behalf St George Bank is understood to have stumped up $6 million a week ago, now held by ASX Ltd.
The line was advanced by the bank against a personal guarantee from Glenn Rosewall, who decided to call in the administrators in order to protect his financial position.
That money should allow BBY’s outstanding trades to be closed out and settled, although in some cases traders are expected to incur losses, because of how the market has moved since those traders sold the relevant options contracts.
BBY was established in 1987 and services institutional investors, private clients and high growth companies from Australia and around the world.
It employs about 200 staff, with its head office in Sydney and other operations in Melbourne, Brisbane, the Gold Coast, Adelaide, Perth, London, New York, Wellington and Auckland.
Ian Hall and Stephen Vaughan from KPMG have been appointed as voluntary administrators of BBY and a number of its subsidiaries.
The appointment of administrators is unlikely to upset the equity market as therehave been rumours swirling round the organisation for weeks, and a week ago ASX Clear compelled the broker to shut down its options trading activities.
Glenn Rosewall had been seeking financial support and in recent days had been talking to George Wang, whose AIMS financial group is a major provider of mortgage financing to Chinese investors in Australian property.
No deal eventuated, possibly because of the reputation damage the firm had suffered in recent months.
BBY was already under pressure from ASX Ltd over a lack of collateral in its options exposure.
The ASX today announced BBY’s suspension as a market participant on the basis of risk and compliance, saying the firm would be suspended for at least 30 days and that would be extended “if necessary or desirable”.
However the ASX has allowed BBY to carry on settling its trades.
The Australian understands that all BBY client’s positions could be liquidated in the next 48 hours.
PPB, in a statement, said it was understood the directors of BBY had been negotiating with a number of different parties to raise additional capital, but so far this had not been successful.
PPB’s Stephen Parbery said he was working in close consultation with the voluntary administrators and other stakeholders to “explore all options”.
“Our immediate priority on behalf of BBY’s transaction banker is to ensure that the BBY’s operations are managed efficiently and professionally in the coming days. We understand the concerns of all stakeholders in this matter and we will be actively communicating with them throughout the process.”
“We are working closely with the voluntary administrators and other stakeholders to explore all options for the business.”
BBY staff were told today: “The administrator will advise you of the new procedures for running the firm.
“In addition our bank St George has appointed receivers PPB over BBY and certain subsidiaries.
“KPMG and PPB are working through the practicalities of what this means for our staff and clients.”