KEY POINTS:
The country's second largest property trust, forced to freeze over a quarter of a billion dollars of investors' funds, today said it expects investors to eventually be paid out.
Canterbury Mortgage Trust (CMT) said that apart from cash on hand, all its money had been lent on first mortgages with conservative lending margins - 75 per cent on residential property, 66 per cent on commercial and 50 per cent on farms and bare land.
"We have every reason to expect that, on the basis of those securities, people will get their money back," chairman Donald McBeath told NZPA.
The freeze on repayments until next March was the "responsible step" to deal with withdrawals in an orderly way.
Although a property trust, rather than a straight finance company, CMT is the 23rd finance-type company months to collapse or be forced to freeze payouts over a period of 28 months, involving over $2.5 billion in investor funds.
Formed just nine years ago using from funds previously in solicitor nominee accountants, CMT raised its funds without advertising and on the recommendation of financial planners. It has over 5000 investors.
One of those advisers is Paul McEwan, a former Canterbury and New Zealand cricket player, who is principal of financial adviser Paul McEwan & Associates.
He is a director of CMT and its management company, Fund Managers Canterbury. Other directors are McBeath, Andrew Young, Alan Prescott and Geoff Thomas.
McEwan said he disclosed his conflict of interest to his clients when advising them to invest in CMT, but he refused to say what proportion of his clients he got to invest.
CMT's statement today said the directors had acted to secure and protect the fund from a high level of withdrawal requests.
"Recently, the trust has begun receiving an unprecedented number of withdrawal requests, although from a relatively small number of our 5000 investors," the trust said in its letter to investors.
McBeath said problems began for the trust last year when Tauranga financial planning firm Ellerie Cornwall advised clients to pull their investments.
At the time, CMT paid out about $6m in a fortnight as a result of the publicity and in recent times withdrawals have been outpacing loan repayments even though the trust had stopped lending.
"The directors believe this is largely the result of the failure of a number of high-profile finance companies causing a general lack of confidence by ordinary investors in the finance sector."
CMT is now calling in the 300 loans outstanding as they fall due.
It said it will continue making interest payments to investors but at a lower rate than previously, depending on how many impaired loans it has.
Investors today were forwarded to a call centre that said it had been inundated with calls from worried investors.
At the trust's peak last year, it had $317m invested.
McBeath said a number of its investors had money invested in some of the other 22 finance companies that had got into strife.
"It's just a general building lack of confidence in the financial market," he said.
He said cash reserves, which were between 5 and 10 per cent of the value of the fund, couldn't meet all withdrawal requests.
The trust deed required it to repay investors within 90 days of a request and until recently, that had been met.
McBeath said the fund was not closing and would attempt to resume once the crisis in the industry had passed.
He would not say what would happen if it received a flood of withdrawal requests in March, which it could not pay.
McBeath said the trust differed from a finance company in that a trustee held all investors' funds, which were then invested in mortgages. The trustee is Trustees Executives.
There is no plan to call a meeting of investors.
- NZPA
