Mortgage Fund Managers Call For Government To Lift Deposit Guarantee

Post by Sharat on May 29, 2009 · Under Australian Economy, Savings, Wealth Management, banking, investments · Comment 

Fund managers who manage mortgage income funds want the Federal Government to end the government guarantee on bank deposits as a measure aimed at reviving the $25 billion industry.

After the Federal Government implemented its guarantee on all Australian bank deposits in response to panic in financial markets last October, around $8 billion of financing to SME’s was cut as panicked investors moved funds into guaranteed products from non guaranteed investments including those of mortgage funds.

There is little doubt that the effect of the guarantee had on the Australian banking and investment landscape was one of large scale distortions. New deposits into non guaranteed products ceased resulting in the halting of new lending and fund managers freezing capital redemptions in a bid to cease the haemorrhaging.

Now that credit markets seem to have stabilized along with the global banking system, the industry is calling for the government to give the industry a boost by managing a staged lifting of the guarantee ahead of its three year expiry date.

Mortgage income funds have been instrumental in providing financing to small business, with many investors finding the high interest rates offered and the ability to withdraw without notice extremely appealing.

Chairman of the Investment and Financial Services Association David Deverall said that the larger mortgage income funds were able to offer redemptions to about 25 per cent of those who requested it, but only over the course of a quarter.

An alternative to freezing of funds being mooted is for investors to convert their funds, which were previously available at call into term deposits with defined or fixed terms.

“If we can do this, it will help existing investors and borrowers,” Balmain Funds chief executive John Thomas said.

Mr. Thomas believes that re-opening fund products to new investors would allow existing investors to exit or redeem capital that is currently frozen.

“It will allow existing investors who are content with the income stream to stay where they are, while others would have access to their capital over time.”

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