Perpetual Joins Growing Chorus To End Deposit Guarantee

Post by Sharat on June 1, 2009 · Under Australian Economy, Wealth Management, banking, investments · Comment 

Chief Executive of Australian investment manager Perpetual, Mr. David Deverall has added another voice to the growing chorus calling for the Kevin Rudd led government to commit to a date on the lifting of the bank deposit guarantee.

Mr. Deverall suggested that the guarantee causes unnecessary distortions across the Australian banking landscape as the global banking crisis abate. Mr. Deverall added that the guarantee on bank deposits of up to $1 million introduced back in September had produced a large outflows from traditional investments such as mortgage funds into bank deposits as investors reallocated their portfolio to take advantage of the guarantee.

Mr. Deverall said investors in Perpetual’s mortgage funds had redeemed over $150 million in the last two quarters.

“Our mortgage trusts started this process with around $2 billion worth of funds under management,” he said.

He said Perpetual expected funds to be back at about $1 billion within 12 to 18 months.

For the industry to rebound, the Government first had to decide on a set of metrics it could use to determine when it would be prudent to pare back its guarantee cap from $1 million.

Mr. Deverall claims the larger Australian financial institutions were near the point of ceasing to use the government guarantee on their own wholesale deposits.

Mr Deverall said it was too early to say whether the Australian equity market, which had gained 21 per cent since March 9, was ready to rise further.

Last week, the Chairman of Perpetual, Robert Savage wrote to investors and warned them that years profit would be half the previous years, unless markets rose substantially. The letter sparked a major sell off in the company stock.

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