ALMOST a decade after the collapse of Townsville-based wealth adviser Storm Financial thousands of investors who lost their life savings in the sharemarket meltdown are getting on with life as best they can.
Many have been left with nothing, many have had to sell their homes or live in bank-applied lifetime tenancy arrangements, some have lost partners where marriages have broken down, some have been left with lasting emotional, health and mental scars and for some the struggle for compensation from financiers continues.
Most remain angry at an outcome where the banks escaped largely unscathed but were responsible for the lending that made the failed Storm investment scheme possible.
Many investors are reluctant to speak about their circumstances, having signed confidentiality agreements with financiers on settlements, out of mistrust for the media or simply out of embarrassment for their roles.
A retired Townsville dentist who lost $5 million and is now living on a pension said he “really did not want to be interviewed”.
“I’m not very happy about what’s happened. I’ve had a lot of problems,” the investor said.
“When it first happened I was very upset about it and still am.”
Another investor, a retired teacher, said her confidentiality agreement meant she couldn’t talk about her settlement with the bank.
She said a lot of people had been destroyed “emotionally and health-wise” and it was “better to admit you are an idiot and get on with life”. “It’s made me very, very cautious. I wouldn’t trust a financial adviser,” she said.
Another Townsville investor would not co-operate for an interview because the media, including the Bulletin, “concentrated on Storm Financial and the clients” and let the banks off the hook.
While the Commonwealth Bank’s lending cell at Aitkenvale, which dealt with hundreds of millions of dollars in transactions, and the Bank of Queensland franchise at North Ward, writing $20 million a month at its peak, have been closed down, the lenders, like many of the financial advisers, have slunk away without financial penalty or sanction. Storm founders Emmanuel and Julie Cassimatis relocated to Brisbane. Their strategy appears to have been to defend and delay as long as possible.
Last year, in an action brought by the Australian Securities and Investments Commission, the Cassimatises were found to have provided “inappropriate advice” to people nearing or in retirement and await a ruling on financial penalties for breaching their duties as directors. A decision is not expected for some months.
Around 3000 investors in towns and cities from Cairns to Melbourne including about a third in North Queensland lost sharemarket portfolios worth a total $3 billion when the sharemarket tanked in 2008.
They were “double geared” where they had mortgaged their homes with investment loans with the funds used to buy shares which were then further leveraged with margin loans to buy more shares.
It is a relatively well known investment strategy still in use today although there have been law reforms to oblige financiers to assess the suitability of people taking out margin loans and to try to ensure margin calls are provided to clients – something that did not occur for the Storm clients.
Judging by the comments of investors, there are still misunderstandings. While some blame double gearing for their losses, it was not so much the strategy but the extent to which they were geared or leveraged.
Many were geared to 50 per cent and more of borrowings again 50 per cent and less of equity, much of it their own borrowed funds secured against their homes.
The sharemarket index, to which their funds were pegged, crashed 50 per cent and more and they were wiped out. Sunshine Coast retiree and Storm Investors Consumer Action Group co-chairman Mark Weir is one of around 30 investors partly financed through Westpac who are still awaiting a settlement.
He is part of a class action led by Sydney law firm Levitt Robinson which is seeking compensation and he hopes to be able to save the family home.
They are among a smaller client group overlooked by other law firms.
Mr Weir said their action had been filed in 2013 and a directions hearing had been held last December where it was stated that a trial could go ahead in November this year.
“One (investor) broke down in tears when they heard that. It’s been a long drawn-out effort to get to this stage,” he said.
Mr Weir said the action group continued albeit with a much reduced group of active members.
Most investors have long settled with resolution schemes and settlements with financiers including the Commonwealth Bank, Bank of Queensland and Macquarie Bank.
Generally, they settled for 10 per cent of their equity and as if they had been sold out on a margin call at 90 per cent loan to valuation ratio – a paltry amount with their homes still mortgaged into the hundreds of thousands of dollars.
Mr Weir said the general feeling among investors was that settlements had not met expectations. Also, there were anomalies and disparities in how investors were treated.
Some investors with National Australia Bank and ANZ had home loans returned in full, while many with the Commonwealth Bank, the key Storm lender, were granted lifetime tenancy in their homes.
Mr Weir said Westpac pushed their clients into hardship schemes where, if the loan to valuation ratios on mortgages reached 95 per cent, they were required to sell their homes.
He said most former Storm investors had moved on but that they would carry the scars of the events from late 2008 and 2009 for the rest of their lives.
It was fair to say most now avoided anything that might have risk associated with it, he said.
“People are living in marginalised circumstances,” Mr Weir said.
“For the most part people have tried to put the despair behind them and make the best with what they have got. Most people are putting up a brave front.”
He said the elderly and people nearing or in retirement had been the worst hit and were the ones who the banks should never have agreed to place into double-geared investments.This article was first published in www.townsvillebulletin.com.au Author: TONY RAGGATT, Townsville Bulletin