Penny stock fiasco cost AmFraser ‘up to $47m’
AMMB clears air on its brokerage here but traders say figure may rise
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AMMB clears air on its brokerage here but traders say figure may rise
Goh Eng Yeow, Straits Times
14 November 2013
Singapore brokerage AmFraser Securities has ended weeks of market speculation by revealing that it faces potential losses of up to almost $47 million over the recent penny stock fiasco.
The firm’s parent, AMMB Holdings, cleared the air on Tuesday, ahead of its results briefing today, although some market watchers feel there is still more red ink to be seen.
AMMB noted in a statement to Bursa Malaysia that “AmFraser’s clients had a gross exposure of circa RM120 million ($46.7 million) to these three stocks - Blumont Group, LionGold Corp and Asiasons Capital”.
The Malaysian bank also revealed that it had “proactively provided RM40 million” in provisions, which were well in advance of regulatory requirements.
Its clarification followed a report by Malaysian newspaper The Star, which suggested that the firm had a far bigger exposure to the three counters.
AMMB said “recovery efforts are progressing to expectations” but failed to offer any details as to whether the exposure was due to trading by AmFraser’s clients or positions taken by the securities house itself.
Traders expect the bank to shed more light on its wholly-owned Singapore brokerage’s position when it releases its second-quarter results today.
Mr Cheah King Yoong, analyst with KL-based Alliance Research, said in a note: “Even though the gross financial exposure of RM120 million remains high, it is significantly lower than the speculated amount of RM384.6 million. This should help to ease investors’ concern.”
But one remisier, who declined to be named, said: “I expect AmFraser to progressively increase the provision it has to make on its exposure to the three counters as it finds that clients and remisiers are unable to make good on their losses.”
But Tuesday’s statement did serve to remove a load from the shoulders of remisiers who have been fielding anxious calls from clients after market talk intensified about AmFraser’s exposure to Blumont, LionGold and Asiasons.
About six weeks ago, the three counters suddenly crashed just after opening bell, forcing the Singapore Exchange (SGX) to suspend trading.
When they were allowed to resume trading, the SGX banned contra trading and short-selling on them for two weeks in order to remove the speculative froth.
However, all three counters continued to plunge in price, leaving them up to 95 per cent below their pre-crash levels.
Plenty of investors were caught in the fallout, including Mr Wira Dani Abdul Daim, the son of former Malaysian finance minister Daim Zainuddin. Mr Wira Dani’s LionGold shares were force-sold by banks.
There is also the question of the size of the losses that may be sitting on the balance sheet of banks which provided margin-financing to clients pledging shares of the three counters as collateral.
Remisier Thomas Lee said: “Traders who used margin-financing to trade Blumont, Asiasons and LionGold were badly hit when they sank to prices which were far below the usual stop-loss levels after they resumed trading. The total losses must have been staggering.”
One hard-hit player is US discount broker Interactive Brokers Group, which has disclosed that it had suffered a deficit of about US$68 million (S$85 million) due to clients’ exposure to the three counters.
“That might just be the tip of the iceberg. Private banks might be even worse hit,” said Mr Lee.
AmFraser managing director Ho Chee Kin and executive director Lee Wing How could not be reached for comment yesterday.