Twelve years ago, heavily leveraged investors were caught with their pants down when banks and brokers demanded they top up margin loan accounts trapped in the death spiral of the global financial crisis.

This time fewer have been exposed, as RBA and bank data show the volume of margin loans have dropped significantly and margin call levels are down.

On Monday and Tuesday last week Commsec’s margin calls were about one quarter to a third of those made at the peak of the turmoil in 2008, according to the latest data available to the broker on Friday.

RBA data shows there were on average just under nine margin calls a day during December 2008, the worse period of the global financial crisis. Normally the monthly average is less than one a day.

ANZ’s PRs say the bank only has a tiny margin loan book now and couldn’t place a figure on the number of calls.

Westpac and NABtrade did not respond before publication.

AMP chief economist Shane Oliver says buying shares on margin, or with debt, is “nowhere near the levels prior to 2007”.

He said there’s no doubt margin calls accentuate sell offs but the number of calls is “nowhere near” the scale of 2008.

Margin loans are debt to buy shares. They are called in when the price of the shares fall below a certain level. At that point the loanee must “cover” or make a cash payment to fill the gap between the actual value of the portfolio and the level required by the entity that made the loan.

If a person doesn’t have enough cash to cover the gap, they’re forced to sell shares. In a market crisis, as is happening now, that usually means they’re forced to sell at a significantly lower value than when they bought.

RBA figures suggest the last crisis is still fixed in investors’ memories, but also indicates how much banks have pulled back from riskier types of lending.

There were 109,000 margin lending clients by the end of 2019, according to RBA data released on Thursday last week. The number of accounts actually peaked in December 2009 at 260,000, once stimulus efforts from the year began having an effect.

Margin lending in Australia in December 2019, which is the latest data available, was $17.9bn and the combined credit limit was $30.8bn. The total value of leveraged portfolios was $71.7bn.

A change in the way the data is collected to the previous quarter means the last two sets of numbers available aren’t comparable to those earlier. However, the total value of margin loans had been trending lower since peaking in December 2007.

However, the data available shows total lending topped out in December 2007 at $41.6bn, more than doubled rates today. The combined credit limit was $88.9bn and total portfolio value was $93.2bn.


This time it’s different

Dale Gillham, chief analyst of financial services company Wealth Within, says the 1987 crash and the 2008 global financial crisis were caused by “rampant speculation and excessive leveraging”, but that is not the case this time.

Instead investors are being spooked by the ongoing spread of coronavirus, officially named COVID-19, which has moved from abruptly closing the world’s manufacturer China, to shutting down global borders and sending panicked individuals to supermarkets in search of ‘doomsday’ canned foods and products.

They are also being harried by ill-conceived announcements by US President Donald Trump, who last week announced sweeping bans on travel from 26 European countries, a move which could see the demise of struggling airlines and travel companies.

And there is also the rapid decline of oil prices as Saudi Arabia and Russia battle for oil market share, after the latter said it wouldn’t commit to further production cuts at the last OPEC meeting and the former retaliated by trying to muscle it into submission.

Some brokers spoken to by Stockhead blamed the swift fall and then the surprise late Friday surge on algorithmic trading bots.

One suspected investors were also scrambling to buy shares in companies they’d short-sold in anticipation of a Wall Street bounce following the $US1.5 trillion Federal Reserve stimulus issued late in overnight trading on Thursday.

AMP’s Shane Oliver says there is a theory that the severity of the market falls is due to algorithmic trading, as algorithms’ programming forces them to pile on buying or selling spikes, but it’s impossible to measure by how much.

He did say the severity of the fall from market highs in February by 32 per cent is “unprecedented”.