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.

RECOMMENDED ARTICLES

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.

Mike "Mish" Shedlock

Sucker Traps and the Arithmetic of Risk

John Hussman has another excellent article out this week, but it will be ignored. Mathematically, it must be ignored.

French and Italian Bank Deposits vs. Guarantees: How Safe is Your Money?

Inquiring minds might be interested in stats on French and Italian bank deposits and deposit guarantees.

The Case for Ending Deposit Insurance

The Fed proposes looser lending standards. I propose ending deposit insurance.

Construction Spending Unexpectedly Weak: Home Repairs Collapse

Economists expected a jump of 0.5% in construction spending. Instead, spending came in at 0.1%.

Danish and Swiss Banks to Charge Customers 0.75% Interest on Large Deposits

Last week, Denmark’s central bank cut its deposit rate to -0.75%. Banks will pass this on to large customers.

Amazon Will Put UPS Out of Business

Amazon's new robot packs 600+ boxes per hour vs humans at under 200. With that announcement comes a $10K offer to quit.

Putting the Cart Before the Horse: Gold Hype

The commercial short positions in metal futures are decreasing. But what's really going on?

Pondering the Collapse of the Entire Shadow Banking System

What's behind the ever-increasing need for emergency repos? A couple of correspondents have an eye on shadow banking.

Retail Apocalypse? Deflationary Collapse?

Through the third quarter, 6,752 locations were scheduled to shutter in the US according to the International Council of Shopping Centers. That's more than double the 2016 total and is close to surpassing the all-time high of 6,900 in 2008, during the depths of the financial crisis.