Deposit rates news briefs
Fidelity bond may postpone first coupon payment, Trust deeds may require rewriting, New rules will force some players out.
Tuesday, June 26th 2007, 6:31AM
Fidelity's highly popular capital guaranteed bond has run into problems with its first coupon payment.It says that the "recent unexpected and exceptional spike in interest rates in the US and Australia have impacted on the return currently being made by the fund of the Fidelity Capital Guarantee Bond."
This has raised the possibility that the bond will not pay interest on July 15 as expected. However, there is no impact on the capital guarantee.
If interest remains unpaid that coupon will itself earn interest and be paid on January 15 2008 subject to funds availability.
"This step was envisaged as a possibility at the time of launch and is a precautionary measure to protect the fund," the fund says.
The bond raised $75 million from investors earlier this year. Because of investor demand the size of the fund was increased from $50 million to $75 million. It offers capital protection and a 9.25% interest rate, paid quarterly.
Trust deeds may need rewriting
Perpetual Trust says it is pleased that trustees remain the frontline of protection for investors.
It claims to be New Zealand's largest trustees of finance companies.
"Trustee companies have more experience at front-line regulation of these institutions and they are therefore the logical choice to monitor these companies on a daily basis," Perpetual Trust head of corporate trust Matthew Lancaster says.
"We feel we are more suited to the role of being front-line regulator than the Reserve Bank, which has now opted to take the helicopter view." The Reserve Bank will now look at the sector as a whole rather than monitor the individual activities of finance institutions.
Lancaster says the idea of having two tiers of finance companies would have created unnecessary regulatory arbitrage.
"If you were a tier one company you would have been recognised as the crème de la crème, but if you were a tier two company you would have been, by implication, an also-ran. That characterisation does not adequately recognise the various characteristics of financial institutions," he says.
Lancaster says there may need to be some finance companies to enhance trust deeds under the new rules. "Some financial institutions may not be up to stipulated minimum requirements, which are yet to be articulated by Government, and may require changes to their Trust Deed."
New rules will force some players out
The New Zealand Credit and Finance Institute (NZCFI) supports Government plans to introduce a range of new regulations including a requirement that all financial service providers, including small lenders belong to a professional body.
NZCFI president David Young says the regulations will help to ensure all financial service providers adhere to professional standards and practices.
The new rules include compulsory registration on a publicly searchable data base and, will see all financial providers checked to ensure they had no dishonesty or fraud convictions within the previous five years.
"The writing is clearly on the wall for those who can't or won't meet the new regulations. The Government is sending a clear message that the days are numbered for individuals or businesses who fail to act in an accountable and transparent manner," he says.
The New Zealand Credit and Finance Institute has around 400 members.
| « New fin coy rules require education | Fin coys to join » |
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