Financial mess 'unintended', says Nedbank

Cape Town – Moral hazard, financial weapons of mass destruction, a huge mess – these were the words used on Friday by a founder member to sum up the collapse of the Pinnacle Point Group [JSE:PNG] (PPG).

In the final couple of minutes of a week-long interrogation into the affairs of the liquidated PPG, David Mostert pointed a finger at Nedbank Group [JSE:NED].

The PPG collapse was a catastrophe, he told a opulent boardroom at legal firm Edward Nathan Sonnenbergs (ENS).

“In the past few days huge allegations have been made here … but no-one has said what caused the whole thing,” he said.

He referred to the sensational single-stock futures debacle in which two of South Africa's major banks, Absa Group [JSE:ASA] and Nedbank, are facing each other in court.

The debacle led to the total collapse of PPG’s share price and to Absa, which had stood surety for the contracts, having to buy a big stake in PPG.

Referring to such derivative instruments, Mostert quoted Warren Buffett’s well-known remarks:

“In my view, derivatives are financial weapons of mass destruction, carrying dangers that, while now latent, are potentially lethal.”

On Friday the warning by US investment guru Warren Buffett regarding derivatives resounded in the sumptuous ENS boardroom when a finger was pointed at Nedbank regarding the Pinnacle Point Group (PPG) collapse. In the last couple of minutes of a week-long interrogation into the affairs of the liquidated company, David Mostert, a shareholder in PPG and one of the founder members of the company, stated whom he believed should be blamed. He said the collapse had been a catastrophe.

He said huge allegations had been made here over the past few days…but no-one had pointed to the cause. He referred to the much publicised single-stock futures debacle in which two of South Africa’s four biggest banks, Absa and Nedbank, were squaring up in court. Mostert referred to Warren Buffett’s famous statement on derivative instruments:

“The derivatives genie is now well out of the bottle, and these instruments will almost certainly multiply in variety and number until some event makes their toxicity clear. Central banks and governments have so far found no effective way to control, or even monitor, the risks posed by these contracts. In my view, derivatives are financial weapons of mass destruction, carrying dangers that, while now latent, are potentially lethal." 

In his view the debacle had caused a huge mess.

Before the October 2008 listing, he said, there had been great plans for the group. But shortly after listing the group was exposed to single-stock futures.

By February 1 the story of the debacle had become widely known.

When he returned from holiday, “the brakes” had been applied to the plans because money that should have come in – R200m from a party involved with the share contracts – had not been received.

From that point on everything fell apart.

Mostert said that the mess, which Nedbank claimed was “unintended”, had to be sorted out.

He claimed that it had not been so, and referred to recordings he had of conversations in which Nedbank’s management had allegedly explained to him in “clear English” how the scheme had been “analysed” to the point where a “mechanism” had been found in terms of which they could not have been held responsible at any stage.

At one point in the discussions there was allegedly a reference to how “Big Red” (Absa) would have to pick up the tab if the contracts could not be concluded.

He related how he had spent virtually every day over the past three years on the Nedbank and Absa lawsuits. 

He said that his intention had been to sell his interest after listing, but had been unable to do so because of what had happened.

He went from thinking he would never need to work again to discovering himself saddled with R200m worth of security he had signed.

He also said that people like PPG chief executive Hennie Pretorius and financial director Steven Kruger had to sort out a gigantic mess with a “totally unwilling participant” in the form of Absa. At that stage Absa had appointed new management who wondered whether it should become involved at all.

 - Sake24

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