Collapse of NZ “Guarantor” Puts $300M Deposits for 10K Homes at Risk

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.

Mike “Mish” Shedlock

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KidHorn
KidHorn
6 years ago

You forgot to add ‘force all the banks to borrow $25b/each so no one knows which banks are in trouble.’

TheLege
TheLege
6 years ago

Don’t joke. This is exactly what will happen. Let’s get this over with. Now.

Robin Banks
Robin Banks
6 years ago

Looking at the share price of the UK’s largest estate agent then NZ isn’t the only one with a deflating housing market. link to google.co.uk

Runner Dan
Runner Dan
6 years ago

NZ simply needs a government/central bank to purchase $1.8 Trillion in mortgage back securities from their insolvent lending institutions, revise accounting rules from mark-to-market to mark-to-whatever you want it to be, restrict inventory through various “let’s keep people in ‘their homes’” programs, and have the government backstop most of the loans going forward. Any potential “housing crisis” will be thwarted!

Rayner-Hilles
Rayner-Hilles
6 years ago

Oh quite the contrary, I read on another article that New Zealand was discussing the possibility of banning further foreign purchases. And I know first hand that London is majority owned by Arabs, Russians and the rest of the damn world (I just think it comes down to the fact that key cities in these famous English speaking countries have a renowned brand within the greater international community).

I see price appreciation in property as a ratio between willingness to purchase on easy credit and the scarcity of land. With regards to geography, what counts is suitably flat terrain and an appropriate climate to build in, and the US has it where the english speaking commonwealth doesn’t. As for the credit side of things, well I could speculate a lot here about the cultural differences between the US and the commonwealth that loosely follow right wing/left wing battle lines, but I’ll just say that NZ, Aus, UK & Can has the bigger appetite for credit, and the greater unquestioning faith in banking, and confidence in the sovereign oversight it’s embedded in.

@AWC Indeed, those graphs makes the US seem positively moderate in its property speculation. The US has the larger population though, spread out over a greater area, and multiplicity of cities. In terms of bubble-market-cap, I imagine the US is still top-dog. If Auckland were 5 or 10 times greater than it actually it is, it might very well have been the world’s most expensive city, topping Singapore, Hong Kong, London etc. As it is, I’m not really sure what to make of a property collapse in Auckland. What’s the scale here? What does that mean for contagion?

@Mish Glad to be of service. Hope you read the S&P report on New Zealand banking & property linked in the first comment.

Mish
Mish
6 years ago

Excellent notes – Thanks

Rayner-Hilles
Rayner-Hilles
6 years ago

So if we then just multiplied the number of listings up by three and assume that’s the total amount of property on the Auckland property market, that makes 13,944 listings. If that should over the next month increase by more than a third to 18,944?

Did anyone else hear the subtle sound of a bubble popping?

link to s3-us-west-2.amazonaws.com

Rayner-Hilles
Rayner-Hilles
6 years ago

From the above News Article:
“The number of Barfoot listings is up. Inventory jumped from 4320 available listings at the end of January to 4648 listings at the end of February. New listings rose from 1200 in January to 1747 last month.”

Barfoot’s description of themselves on their website:
“New Zealand’s largest privately owned real estate company, run by the Barfoot & Thompson families for over 90 years. We sell 1 in 3 Auckland properties.”

Rayner-Hilles
Rayner-Hilles
6 years ago

Perspective on Auckland’s place in New Zealand:
link to en.wikipedia.org

Rayner-Hilles
Rayner-Hilles
6 years ago
Rayner-Hilles
Rayner-Hilles
6 years ago
Rayner-Hilles
Rayner-Hilles
6 years ago

Assuming half of those property buyers are invested Auckland, that’s likely ~5,000 people about to dump property simultaneously into an already saturated and slipping market, read:
link to nzherald.co.nz

Mish
Mish
6 years ago

I cannot figure out where the biggest percentage is

abend237-04
abend237-04
6 years ago

Stamford Insurance of Auckland is standing for it, don’t know if they mean to cover the Aussies, too. The joys of borrowing; no cash down, margin debt, etc. Fortunately, we don’t have a problem, with margin debt standing north of $460 Billion…

Rayner-Hilles
Rayner-Hilles
6 years ago

Well. There goes New Zealand.

“The risks that the banking sector in New Zealand faces from five years of strong growth in both house price inflation, and more recently, household credit growth, have likely peaked, in our view, and we believe the basis for a partial unwinding is building.” – S&P Global Market Intelligence Report, Feb 19, 2018

link to nzherald.co.nz
link to capitaliq.com

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