Aussie mortgage fund 'set to freeze redemptions'

Australia's largest mortgage fund, Challenger Howard, is set to freeze investor redemptions following a rush of withdrawals sparked by the government's guarantee of bank deposits.

Australia's largest mortgage fund, Challenger Howard, is set to freeze investor redemptions following a rush of withdrawals sparked by the government's guarantee of bank deposits, a report said Tuesday.

The Australian Financial Review reported that the $2.9-billion fund would act imminently to prevent a flight of funds towards big banks, which have benefited from the guarantee unveiled nine days ago.

The fund could announce the block as early as Tuesday after Prime Minister Kevin Rudd guaranteed deposits for three years and also underwrote all wholesale term funding by Australian banks operating in international markets.

The move has had unexpected side effects, according to the newspaper, with major investors fleeing financial institutions not covered by the guarantees for the safety of major banks as the global credit crunch threatens the economy.

"Rational behaviour is rational behaviour -- people would always want a safe-as-possible product at the best possible interest rates," Richard Gilbert, head of the Investment and Financial Services Association told the paper.

Challenger Howard Mortgage Fund did not immediately return calls for comment.

But the report came as the rival Australian newspaper claimed that the country's central banker was concerned that the government had ignored his advice when announcing unlimited bank deposit guarantees on October 12.

The scheme, aimed at all deposit-taking institutions, was "creating serious dislocation in the financial system and must be changed," The Australian reported Reserve Bank of Australia Glenn Stevens as saying.

The newspaper said that the government was belatedly considering the introduction of a new deposit cap of five million dollars (3.5 million US).

Stevens informed Treasury Secretary Ken Henry on Friday that a cap should be set and the lower, the better, the paper said.

Several investment bank heads also wrote to the government late last week warning their exclusion from the scheme was damaging their ability to lend to the corporate and mortgage market in Australia, according to the paper.
Source AFP

Stay up to date with SBS NEWS

  • App
  • Subscribe
  • Follow
  • Listen
  • Watch