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Deposit Power

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  • Deposit Power

    There are two groups which are potentially impacted by Deposit Power:

    1) buyers of Deposit Power bonds issued by CBL - depending upon the terms of the Deposit Power bonds, an investor may become an unsecured creditor of CBL.
    2) those that used Deposit Power guarantees to purchase a property - may have trouble settling the property purchase transaction as the loan guarantee is no longer assured.

    Not sure if there are any other groups affected out there, or the extent impacting property purchasers in NZ.

    The collapse of property finance company Deposit Power has left 10,000 investors in the lurch over $300m worth of deposits.

    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.
    CBL has yet to inform Australian liquidators about whether Sydney-based Deposit Power will fully, or partially, back the bonds.
    Deposit Power had links with most of the major property broker networks, including Mortgage Choice and Connective, and major banks through their broker networks.
    There are fears that the status of existing deals – which used the deposit bonds as a form of bridging finance for up to 48 months – could be jeopardised by the collapse of the insurance company.

    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.
    Deposit Power is on the product panel of most of the leading mortgage brokerages and aggregators, which is typically considering a guarantee of quality and service.
    Administrator's Chifley Advisory is warning there are potential buyers but that the deal will need to "happen quickly, or it will not happen".

    It also warns the "sale has its complications".
    CBL has not been in contact with Chifley Advisory since February 28, or provided explanations about the delay, which is frustrating attempts to sell the local company. .
    "It is unclear as to what it is doing because there has been very little official communication," said Henry Kwok, a Chifley administrator said.
    "We have been involved in general discussions but the question for the market is what will happen to the bonds."

    Quick access to funding

    ​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.
    It is touted as an option for buyers that don't, or can't, use cash for a deposit, often because they are waiting for a settlement, have invested in a fixed term deposit, or a waiting for investments to mature.
    The product is a form of insurance that 'guarantees' the deposit will be paid.

    The property buyer provides a guarantee certificate to the sellers' representative until settlement, which can typically range from six to 48 months.
    They have been particularly popular in Sydney and Melbourne's bull property markets were buyers needed to move quickly and juggle their cash reserves.
    Mortgage brokers use them as an alternative to potentially more expensive lender bridging finance, particularly for first time home buyers eligible for a state government grant after settlement.
    Investors of residential and commercial property borrowing 80 to 100 per cent of the purchase price needing quick access to funding also use them, particularly where they need time to access equity, or sell other investments to raise funds for a deposit.
    CBL in interim liquidation

    Mr Kwok and Gavin Moss of Chifley Advisory have been appointed as joint administrators.
    Deposit Power was an authorised manager for CBL Insurance and provider of its deposit bonds.
    "All deposit guarantee bonds were issued by CBL Insurance and CBL Insurance is liable to pay any valid claims payable to any beneficiary of any guarantee issued by them," according to a statement from Chifley Advisory.

    "The company (Deposit Power) was not the issuer of any deposit guarantees," it adds.
    "There is an interested party that may purchase the business of the company, but the sale has its complications as it 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," it warns.
    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.
    Representatives for CBL were not available for comment.
    Aggregators, who act as intermediaries between lenders and brokers, had Deposit Power as 'panel partners".
    Aggregators enter into contractual relationships with multiple lenders, and those lenders form the aggretator's "panel.
    Commissions on successful loans are paid by lenders and suppliers to aggregators who take a fee before passing on the remainder to brokers.

    Many aggregators are owned by lenders, particularly CBA and National Australia Bank.