Sunday, 11 March 2018

UNREPORTED IN NZ: Deposit guarantee company Deposit Power is now under external administration

"Deposit guarantee company Deposit Power is now under external administration following the placement of Auckland-based CBL Insurance into interim liquidation" 

I was alerted to this by Zero Hedge which quoted from the Australian Financial Review.

As far as I can see this is totally UN-reported in New Zealand

Collapse Of New Zealand "Guarantor" Puts 10,000 Homes At Risk

9 March, 2018

Authored by Mike Shedlock via MishTalk,

Guaranteeing things is an excellent business until it fails suddenly and completely.

In the Great Financial Crisis guarantors were wiped out. It's happening now down under where 10,000 Property Buyers are Caught in the Collapse of Deposit Power.
A leading national property finance company has collapsed potentially leaving an estimated 10,000 residential, commercial and property investors in the lurch about the fate of nearly $300 million worth of deposits.
Deposit Power, which provided interim finance to property buyers, has closed its doors after the collapse of New Zealand's CBL's insurance, which was an issuer and guarantor of deposit bonds.
Sale Complications
Worried mortgage brokers, who recommended the products to clients, are seeking advice on whether clients need to buy other cover, or secure additional or replacement financial risk bonds. It could mean unspecified risks, uncertainty and deal delays for tens of thousands of counter parties, financiers and their representatives, including lawyers and other brokers.
Mortgage brokers, who act as an intermediary between borrowers and lenders, are being warned the status of existing loan guarantees is unknown, pending applications will not be processed and no payments have been taken.
Investors calling the Sydney-based office are being answered by a recorded message the company is facing "external issues" and that it is unable to process any deals.
Deposit Power's bonds were sold to individuals, first time buyers, retirees, self-employed borrowers, trusts, corporate entities, or self managed super funds purchasing commercial or residential property. It was established in 2012 and regulated by the Australian Securities and Investments Commission.
They were also heavily marketed to first time and off the plan property investors. A deposit guarantee is an alternative method of placing a deposit on a property.
CBL in Interim Liquidation
The New Zealand High Court last month ordered CBL Insurance be placed in interim liquidation on an application by the Reserve Bank of New Zealand as the insurer's prudential supervisor.
In New Zealand, liquidators are warning those insured by CBL, or any beneficiaries of its policies, to seek advice on whether they need to buy other cover or secure additional, or replacement financial risk bonds.

Information Lacking

According to the article, CBL has yet to inform Australian liquidators about whether Sydney-based Deposit Power will fully, or partially, back the bonds.
Here's a hint: When authorities shut down guarantors, it's because they have gone bust. The question is not whether anyone will be fully paid back, it's whether anyone will be paid back anything.

Guarantee Scams

Guarantors make money in good times but because of leverage they go bust in bad times. In the case of CBL, we see the true nature of its guarantee: It was worthless.

If I go to the CBL website this is what I get:

The only news on this seems to come out of Australia

Deposit guarantee company Deposit Power is now under external administration following the placement of Auckland-based CBL Insurance into interim liquidation.

External administrators from Chifley Advisory were appointed to the company last week.

Deposit Power acted as an authorised manager and agent of CBL Insurance – which provided all the deposit guarantee bond products sold by Deposit Power in Australia.

The deposit guarantee company had offered products assisting Australian borrowers and investors to buy residential and commercial properties without the need to provide a cash deposit. In a report by the Australian Financial Review, an estimated 10,000 residential, commercial, and property investors could be affected by the company’s collapse.

A call to the company’s Sydney office was only answered by a recorded message saying the company is experiencing external issues and as a result, is not able to process applications on behalf of CBL Insurance.

A notice from the external administrators says CBL Insurance is “liable to pay any valid claims payable to any beneficiary of any guarantee issue by them”, and that all claims should be directed to CBL Insurance.

New Zealand’s High Court ordered CBL Insurance last month to be placed into interim liquidation following the Reserve Bank of New Zealand’s application.

Auckland-based insurance broker and building warranty provider Stamford Insurance said in a statement yesterday that it has stepped in to protect CBL Insurance clients. Stamford said it has secured Lloyd's of London’s help to protect buyers and homeowners.

It is not clear from the company's statement if its scheme to protect CBL Insurance clients will cover those in Australia as well.

The underwriters in London responded immediately to our request and are committed to providing New Zealand homebuyers with the finest building warranties," said Stamford director Duncan Colebrook in the statement.

Stamford said its scheme will do the following:

1. For buyers who have signed a contract and paid a deposit where work has yet to start, Stamford will cover the risk that they may lose their deposit if their builder becomes insolvent.

2. If construction has already started, Stamford will guard against builder insolvency and provide 10 years’ defects cover on completion.

3. For homeowners who have taken possession of their homes within the past 12 months and who may have lost their protection against major defects arising with their home, Stamford will offer them a new 10 year policy.

Deposit Power’s external administrators said in the notice that an interested party may buy the company’s business, but that “the sale has its complications as the company was only an agent/authorised manager of CBL Insurance”.

Given the nature of the company’s operation, any sale transaction will need to happen quickly, or it will not happen at all.”

They said they are currently maintaining all employees of the company to assist with enquiries from stakeholders and in an effort to sell the business.

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