Coun­cil ig­nored by bank

Townsville Bulletin - - Investor -

LIQ­UI­DA­TION: The closed of­fice of Lehman Brothers

Aus­tralia A SE­NIOR NSW coun­cil o f f i c e r s a y s Lehman Brothers Aus­tralia ig­nored his in­struc­tions, prior to the global fi­nan­cial cri­sis ( GFC) in 2007, not to in­vest coun­cil funds in high risk prod­ucts, a court has heard.

Lawyers for the col­lapsed in­vest­ment bank yes­ter­day ar­gued that Winge­car­ribee Shire, in the NSW South­ern High­lands, was aware of the risk in­volved in its inv e s t m e n t s w i t h t h e bank, but went ahead due to the po­ten­tial for high re­turns.

In a land­mark $ 250 mil­lion Fed­eral Court case stem­ming from the GFC, lo­cal coun­cils last week ar­gued they were duped by Lehman Brothers A u s t r a l i a , f o r m e r l y Grange Se­cu­ri­ties, into think­ing they were buy­ing safe in­vest­ments. A t otal of 72 char­i­ties, churches, lo­cal coun­cils and pri­vate in­vestors a r e s u i n g t h e n o w - d e f u n c t i n v e s t m e n t bank for losses in­curred in the col­lapse of the sub­prime mort­gage mar­ket.

T h e l i q u i d a t o r f o r Lehman Brothers is try­ing to show that in­di­vid­ual mem­bers of the class ac­tion were re­spon­si­ble for their own losses. Winge­car­ribee Shire, about 1 4 0 kil ome­tres south­west of Syd­ney, is su­ing to re­cover $ 21.4 mil­lion in losses.

The shire’s fi­nan­cial ser­vices man­ager, Dou­glas Neville, the trial’s first wit­ness, yes­ter­day told the Syd­ney court that Lehman Brothers ig­nored his in­struc­tions not to in­vest shire funds i n h i g h - r i s k col­lat­er­alised debt obli­ga­tions ( CDOs), which were com­prised partly of bonds backed by sub­prime mort­gages.

He said he made it clear to Grange Se­cu­ri­ties ad­vis­ers in a face-to­face meet­ing that the coun­cil only wanted to in­vest in ‘‘ float­ing-rate notes with Aus­tralian banks, reg­u­lated by the Aus­tralian Pru­den­tial Reg­u­la­tion Au­thor­ity’’.

But Bar­ris­ter John Shea­han SC, acting for t h e l i q u i d a t o r o f Lehman Brothers Aus­tralia, ar­gued Mr Neville did not specif­i­cally ex­clude CDOs as an in­vest­ment prod­uct in meet­ings with Grange.

Mr Shea­han put to Mr Neville that he was pri­mar­ily con­cerned with in­creas­ing the shire’s level of in­vest­ment re­turn, and that he must have un­der­stood that to gain a higher re­turn would mean in­vest­ing in higher risk prod­ucts.

Mr Neville de­nied the sug­ges­tion, say­ing the c o unci l was t o l d b y Grange Se­cu­ri­ties that its money would only be in­vested in float­ing-rate notes ( FRNs) – low-risk bonds that pay vari­able in­ter­est on a quar­terly ba­sis.

Mr Neville said he first be­came sus­pi­cious that Grange had i nvested coun­cil funds in CDOs in Fe­bru­ary 2007, af­ter the name was men­tioned in a con­tract note.

But he did not be­come fully aware of the in­vest­ments un­til July 2007.

The case is set down for four to five weeks.

Newspapers in English

Newspapers from Australia

© PressReader. All rights reserved.