Pembroke Offers Loans Against Value Of Shares
Sydney Morning Herald
Wednesday November 25, 1987
Pembroke Securities, the stockbroking arm of Mr Larry Adler's FAI Insurances, has signalled an aggressive post-crash stance by offering margin lending services to prospective clients through national newspapers - albeit on considerably more stringent terms.
In advertisements appearing this week and next, the firm is offering to lend between $100,000 and $10 million to clients against the value of shares.
Mr John Hammond, of Pembroke's corporate finance division, had run a margin lending book of "substantially less than $10 million" before the crash, but has written no business since.
While before October 20 Pembroke would lend up to 75 per cent of the value of shares, it was "now more likely to be only up to 50 per cent", said Mr Hammond. Also, Pembroke would be unlikely to lend against any shares other than the top 100 companies, he said.
Similarly, McIntosh Securities, having ceased margin lending since the crash, was prepared to start again "as of a week ago", according to Mr Tom Klinger. The firm would, however, be "more loath to lend against second line stocks", he said, and would not lend against stock representing more than 10 per cent of a single company.
The risk on such operations is now reduced after the market's recent big falls: the value of shares borrowed against would have to fall another 50 per cent before the security on a 50 per cent margin was wiped out.
But a rush from borrowers on the margin lending facility is not expected. Mr Max Powditch of BT Australia said: "I don't think the risks are there, but who would want to borrow money to buy shares in this market?"
The funds are not cheap, with rates charged usually a couple of percentage points above the prime rate.
The margin lending facility offers funds for share purchases, with shares acting as security. Borrowers are required to make payments on the loan when the value of the shares falls so that the value of the loan never exceeds a specified percentage of the market value of the shares.
© 1987 Sydney Morning Herald
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