Few Australians will have heard of Banksia Securities, and probably have little interest in learning that it went into receivership in October owing some 15,000 debenture holders $663 million. Unless of course they happen to have had money invested in the company themselves
Australians who have retirement investments however should sit up and take note when yet another financial institution fails and with it their hard-earned savings.
It may not have been a top-tiered company, but it was a solid, established company with 10 branches in regional Victoria, and in Adelaide. In 1968 Banksia Securities Limited (BSL) started operations in Kyabram, near Shepparton 200 kms north of Melbourne, as a non-bank property lender offering debenture investments to the public. It was at first known as the Kyabram Housing Investments Limited.
The Trust Company (Nominees) Limited on the 25th October 2012 appointed McGrath-Nicol as Receivers and Managers, to raise what they can from the loan assets of BSL. They submitted a comprehensive report on the 7th December 2012 detailing the reasons and circumstances leading to the company failure. Their report is well worth reading. As a result of $136 million in cash holdings, debenture holders have now received 20c in the $1 of their investment, but may get back up to 65c in the $1, a better result than was at first feared.
There is no suggestion that the problem resulted from fraudulent or grossly incompetent business practices. McGrath-Nicol consider that there were three key reasons for the company failure:
- loan defaults due to falling property values, and more difficult credit conditions
- a mismatch between lenders providing funds in a shorter term than the borrowers who needed long dated loans
- low equity levels, with inadequate provisioning of the loans.
In a sense the company is a delayed victim of the Global Financial Crisis, and in fact it carried $2.46 million in loss on six CDO’s (collateralised debt obligations) issued by Lehman Bros that now have no realiseable value.
For those investing their retirement savings, remember that:
- Even debenture investments can be risky, particularly if the standard of mortgage provisioning is inadequate
- Always spread investments across a range of sectors, and providers
- No company is too big, or too reputable to fail, in difficulty trading circumstances