Equitable euthanised
Equitable Mortgages became the first non-bank deposit taking company to collapse in to receivership during the extended guarantee period despite the company making efforts to restructure to meet increased regulations.
Monday, November 29th 2010, 7:56AM
by Sophia Rodrigues
The company said the decision to invite its trustee to appoint a receiver was deemed as a prudent step by its board because it didn't consider the company could continue for long as a going concern.
It seems the main trigger for the receivership was the company's inability to cope under the new regulatory regime. "While the company preferred an orderly scaling down of its activities, this cannot be readily achieved under the current regulatory regime," Equitable said.
Earlier this month Equitable Mortgages completed a restructuring that was mainly aimed at meeting the related party exposure norm.
Equitable Mortgages terminated the Equitable Property Mortgage Fund (EFMF) which was a group investment fund that invested in registered first mortgages. EPMF obtained its funding from Equitable Mortgages which raised money from the public through the issue of debentures.
Equitable also pulled out of the life insurance sector where it had exposure through Equitable Life Insurance Company and ceased offering bonds to investors.
EPMF was not a member of the borrowing group and thus was not liable to holders of Equitable's debenture holders. But being a group fund it would have been regarded as a "related company" of Equitable and subject to the new norms on related company exposure.
Equitable was working with its Trustee to agree amendments to the Trust Deed to comply with the requirements of the regulators coming in to effect on December 1. And while the company said it was complying with minimum capital and related party requirements, it isn't known if the two parties managed to strike an agreement to amendments in the Trust Deed.
On the other hand, Equitable was facing a faster rate of deterioration in its asset quality. The ratio of past due assets to total loans increased to 57% in September from 53% at the end of June. At the end of March this ratio was at 47%.
But more significantly the ratio of core past due assets to total loans worsened to 44% in September from 37% in June, and 27% in March. Core past due assets are defined as assets where the interest is in arrears for more than 60 days and where the principal is unpaid when due.
Equitable had projected new investments of $3.5 million per month and reinvestment rate of 48% over the six months from October. And while the company managed to get attract new investments, they were all confined to the duration of the guarantee period.
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