The Fail of Banksia Securities Ltd

Topics: Investment, Debt, Finance Pages: 4 (1003 words) Published: March 31, 2013
Question 4:

Discuss the fail of banksia Securities Ltd and the action being taking by ASIC.

Banksia Securities is a debenture issue that offered a mortgage financing service in regional Victoria. Farmers and community groups in the regional Victoria are their key investors. Banksia Securities rise approximate 660 million dollars from their investors by issue debenture that with a higher rate than normal bank and lent to borrowers purchase or develop property. As a company does not own a banking license, the debentures they issued to investors are not protected by a deposit guarantee. Both banksias and its investors have risks such as market risk and credit risk. Banksia security group may take the risk if the borrowers cannot repay their mortgages nor will the propriety price fall when they have to be sold by auction since some borrower cannot repay their debt. In addition, the investors get higher rate than big four banks, but they are taking more risks, once the Banksia's finances are in trouble, they may not get their money back.

Last year, Banksia Securities went bankrupt, with owing investor around 660 million dollars. They closed all of its ten branches. About 47 people lost their jobs due to the branch closure. Until now, Investors still do not know how much money they will get back.

There are some problems that cause Banksia Securities went to bankrupt. The most important one is that there is no enough money aside for bad debts. According to Banksia's most recent audit in June last year, Banksia Securities only had the provision bad or doubtful debts of less than 7 million dollars. Two months later, loans in default totally about 170 million dollars. This terrible financial situation made the company face a big trouble of liquidity.

The company was holding on to tens of millions of dollars of repossessed. Properties and had large overdue loans but had failed to properly adjusted the values of those assets to market rates, which means they...
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