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Covering the Goulburn and Murray valleys

Residents hear of Banksia Securities' demise

Receiver Tony McGrath told Banksia debenture holders his views on the business' collapse in October. Many investors at Kyabram on Friday were keen to know what happened to their money.

TRENT HORNEMAN AND MONIQUE PRESTON December 17, 2012 4:30am

More than 600 debenture holders packed Kyabram P-12 College on Friday.


Receiver Tony McGrath highlighted key reasons behind Banksia Securities’ demise.

Mr McGrath said Banksia’s problems could be traced to the Global Financial Crisis in 2007.

‘‘Serious long-term over-valuing’’ of assets was at the heart of the collapse, with Banksia Securities not having enough cash to cover its loans.

He said the GFC had impacted on property values and ultimately Banksia Securities’ financial strength.

‘‘This is difficult because of the nature of the people who are exposed to the company are hard working country people who effectively dealt with Banksia as if it were their local bank,’’ he said.

‘‘This is a complex situation, the issues with Banksia is that it is a finance company, but it is at the high risk end of the banking or the lending community.

‘‘We are now in the fifth year of the GFC and the type of lending that Banksia did was to lend funds to borrowers who were investing in property. Property is a sector badly hit by the GFC, especially in areas like country Victoria.’’

Mr McGrath said directors and auditors did not account for the drop in asset value.

‘‘The focus goes back to the GFC, three to five years ago, the reality is their lending practices have not kept pace with changing market conditions for the assets they were lending on,’’ he said.

Mr Mcgrath said Banksia’s acquisition of Statewide Secured Investments in 2009 could also have led to the demise.

‘‘The Statewide transaction was the outcome of two poor balance sheets coming together. My experience of that is that when you put two weak endings together you get a worse outcome than if it were separate,’’ he said.

‘‘Does that mean directors have breached their responsibilities in acquiring Statewide? I’m not sure.’’

 

Mr McGrath said he was still investigating how Banksia Securities reported a profit of $24million in September but finished with a loss of up to $300million.

 

The meeting

More than 600 Banksia Securities debenture holders crowded into the Kyabram P-12 College hall on Friday morning.

Fans whirred to keep the temperature down, but discussions, at times, still became heated.

The investors were there for the same reasons — to find answers.

They wanted to know how much of their money invested in Banksia Securities would find its way back to their wallets.

They wanted to know who was responsible.

The hall was packed as Tony McGrath, a partner of receivers McGrathNicol, addressed to the crowd, before opening up the floor for questions.

The directors of Banksia Securities and auditors who gave the company a clean bill of health mid year came under fire.

McGrathNicol also faced criticism from some, who believed the receivers had been ‘‘money wasting’’.

 

There was an audible gasp, followed by a collective murmur, when the audience was told $1.3million (excluding GST) had already been spent by the receivers and a further $4million to $5million was still to come.

The receivers were also criticised for instances of late letters and over a glossy report sent to debenture holders.

One person asked: ‘‘would it be better not to spend our money on glossy magazines?’’

The audience clapped in appreciation.

Outside the meeting views were mixed.

Most said they were happy to hear the auditors could face legal action, while there were divided opinions outside about whether the directors should be held accountable legally.

One person said the fact a new person with a banking background had stepped into the chief executive role mid year, had probably been a ‘‘lucky’’ move for debenture holders.

‘‘Because (otherwise) we could have lost the lot. We’d be here with shotguns,’’ he said.

Another said the directors had much to answer for.

‘‘I have been a director of a company and the first thing I was told was that to make sure we did not trade while insolvent,’’ he said.

‘‘I can’t see how the directors could go from a $24million profit to a $300million loss.’’

Another man said many people who had money with Banksia Securities were not chasing big dollars, but investing in a local company that had been around for close to four decades.

One man said he was pleased to hear receivers would not be having a ‘‘fire sale’’ to get rid of loans, but instead hold out for good prices.

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