Australia's third-largest mortgage fund today suspended redemptions of seven of its monthly income and mortgage funds, which account for around $2 billion in investors' savings, as the backlash against the Labour Prime Minister Rudd government's guarantee over bank deposits continues.
The government bank guarantee have led to large-scale redemptions across the country from funds not covered by the emergency banking measuresas such funds are vulnerable to redemptions in the present atmosphere of uncertainty over the health of financial institutions, with mortgage funds being most at risk.
This has come after Challenger Howard, the biggest Australian mortgage fund with $2.9 billion froze redemptions earlier this week.
''Challenger, as responsible entity of the Challenger Howard Mortgage Fund and Challenger Howard Wholesale Mortgage Fund, wishes to advise that effective from 20 October 2008, the withdrawal processes for the funds were amended,'' it said opn its website.
Perpetual said that effective today, it would only allow quarterly redemptions, based on funds available as securities mature in the portfolios.
Richard Brandweiner, Perpetual group executive of income and multi-sector funds said, "Regrettably, the recent introduction of the guarantee on bank deposits and subsequent actions by other parties has incited uncertainty in the market and created a sudden spike in redemptions in the past few days. In this context, we must act prudently to protect the interests of all investors in the funds."
Brandweiner added that Perpetual's action was the most fair and was an equitable approach given many investors were retirees with modest balances.
According to re[port, Perpetual had already been hit hard by the credit crisis before the guarantee and the group was planning to cut operating expenditure by about $40 million in the next financial year.
"This may result in hundreds of job losses between now and early in the New Year (approximately 15 per cent of staff),'' one source told Perpetual's funds include the wholesale monthly income fund, monthly income fund, wealthfocus super and pension funds mortgage option, wealthfocus investments mortgage fund, Perpetual's term fund and private investor mortgage fund.
Brandweiner futher added that the issue was evolving issue and Perpetual would continue to monitor the situation.
Before Perpetual announced its freeze today, around 24 funds in the mortgage and property sector with $14.4 billion in savings of nearly 93,000 investors had suspended redemptions.
Observers say the AAA- government guarantee on wholesale funding alongside a guarantee on the bank deposits are causing havoc in mortgage fund industry and the government cannot favour one sector over another unless an equitable arrangement is made to take care of the other affected sectors.
They say one sector cannot thrive at the cost of another whereby the affected sector is forced to close down as its viability is affected, aas in the case of Challenger Howard and Perpetual.