The Secret Broker: No, this is how you catch a ‘Big Wave’ – Packer-style
The Secret Broker
The Secret Broker
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After 35 years of stockbroking for some of the biggest houses and investors in Australia and the UK, the Secret Broker is regaling Stockhead readers with his colourful war stories — from the trading floor to the dealer’s desk.
Is James really having a Barry Croker?
I was reading about the passing of David Leckie in the SMH this week and it wasn’t the antics that he got up to, whilst running the odd couple of TV stations, that interested me but the image which they had attached to the article.
It was of Leckie and a young James Packer and it was in black and white, which sort of gave it a more dramatic feel. You’ll have to click here to see it.
I don’t know what they were saying to each other and I know there was no love lost between the two of them but it was more about a young James looking like he was just about to make a point and push a finger into Leckie’s chest.
‘Big Wave’ (as in ‘Dave’) was the nickname Leckie acquired whilst working for Kerry Packer’s Channel 9, and the image brought back a flood of broker memories for me.
I had only just been reading about all of the famous people who had just settled on their apartments in the James Packer-inspired landmark, One Bangaroo.
James has taken the biggest and best apartment, which spans over two levels as it incorporates the amalgamation of six apartments into one and at a cost of A$60m.
Even though the locals have nicknamed it ‘Packer’s Pecker’, other sale prices have ranged from A$30m to A$12m. It was the A$12m figure that had triggered off a particular memory for me.
Time machine – to 1992!
You see, one September morning in 1992, I arrived at my office to find a whole fax roll of messages about Westpac’s overnight trading range.
Someone had managed to perform a certain sequence of trades in Westpac and ASX Index future contracts and had made a cool A$12m in one day.
Only one person I know of could have achieved this.
It was at the time that the Big Four Australian banks were in trouble because of their overlending into a property market which had just collapsed.
Westpac is Australia’s oldest bank and it was in so much financial strife, it had to have a rights issue and desperately raise A$1.2bn to get itself out of this self-made pickle before it went bust.
Suffering shareholders had been offered three new shares for every 10 shares they held at a price of A$3.00 each and they had until 5.00pm on the 23rd September 1992 to take up their allocation.
The issue was fully underwritten by Credit Suisse First Boston and the allocation was fully renounceable.
A renounceable rights issue allows you to sell your allocation to others if you didn’t want to take up your entitlement, and the ASX had a special market code set up to allow you to do this.
If the shares were trading at A$3.10, you could sell your allocation at 8c and the buyer could take up your allocation at A$3.00, instead of you.
However, what happens if Westpac falls below A$3.00 and in fact falls to A$2.80 before the 23rd September?
Well, this did happen. And the market in the rights issue shares fell to 0 bid 0.005c offered and there were 100m plus on offer, as being 20c underwater, half a cent for your allocation is better than nothing.
But then Packer made his move.
He went long of 5000 SPI futures contracts, which geared him to A$25 per point movement per contract or in this case A$125,000 for every 1 point movement in the ASX 200 index. Having got set in them, he then went and bought all the rights on offer at half a cent each.
Well, the market went ballistic on rumours that AMP were going to take 100% of Westpac, having just picked up 100m rights. Westpac shares took off, the rights went to 6c as Westpac shares shot past A$3.00 and all the other bank shares rallied strongly, as it appeared that Westpac was now in play.
More importantly for Packer, the SPI 200 index shot up by over 100 points, making him A$12.5m in one day, as he quietly exited his position in the futures via another broker and sold the 100m rights back into the market down to 3c and walked away.
The next day it went very quiet and everything started to slip back down and eventually the rights issue closed with only 25% of shareholders taking up their allocation, leaving the underwriters long of 300m shares at A$3.00 each.
This overhang of shares kept the Westpac price depressed until 27th November 1992, when Packer raided the Westpac market again, but this time he bought 8.2% of the underlying shares, which again sent the stock up through the A$3.00 level again.
He had managed to buy 8.2% of not only Australia’s oldest bank at A$2.50 a share but also a bank that was famous for being involved in Ned Kelly’s very first bank robbery, which occurred at their Jerilderie branch in 1879, for which Kelly bagged the grand sum of £2,000.
Back in the UK, we had only heard of Ned Kelly because Mick Jagger was flown to Australia to play him in a film, which by all accounts was so bad that neither he nor the director bothered to attend the opening night.
If you don’t remember Sir Mick in the Outback, here is the official photo that he likes to be used, whenever this part of his career is ever mentioned. It’s all in the eyes!
The only good thing to come out of it for Jagger was, whilst in the Outback, he wrote the words to Brown Sugar.
Packer later sold his stake to Lendlease after getting bored of the board rejecting most of his suggestions, plus the fact that he owned Channel 9 and they owned Channel 10, so there were cross-ownership issues.
Ah, those were the days. A bank owning a TV station. Please bring back a Skase or a Bondie and make my COVID lockdown days interesting.
Ironically, if Packer had just held on to his shares and died with them, he would have been buried A$10bn richer and James could have just built and funded the whole of One Barangaroo himself.
So it would just be him whizzing up and down in the lift to all 75 floors by himself and without all of those other pesky ‘Lambo Bitcoin owners’ getting in and asking him which level he would like to go to.
They say that if Kerry had just invested his inheritance from Sir Frank into the stock market that he would have in fact been buried wealthier, far wealthier than any of his wheelings and dealings ever brought him.
You have to admire James because even with his mental health and legacy issues, at least he will leave something behind to be reminded by, rather than a few old certificates and a very squashed polo saddle.
Now, if Crown Resorts were to have a renounceable rights issue…
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