Aussie non-banks face run after government guarantees banks deposits

Standing left to right – Mr. Dinesh Jebamani (Chief Manager Liability Product Management and New Age Media – Seylan Bank), Mr.Sudesh Peiris (Senior Manager – Digital Banking Channels – Seylan Bank), Ms. S.Senevirathne (Representative of the Revenue Department – Western Province), Mr. Tilan Wijeyesekera (Deputy General Manager – Retail Banking – Seylan Bank) and Mr. Malik Wickremanayaka (Deputy General Manager – Operations – Seylan Bank)

SYDNEY, October 21, 2008 (AFP) – Australia’s largest mortgage fund, Challenger Howard, is set to freeze investor redemptions following a rush of withdrawals sparked by the government’s guarantee of bank deposits, a report said Tuesday.

The Australian Financial Review reported that the 2.9-billion-dollar (two billion US) fund would act imminently to prevent a flight of funds towards big banks, which have benefited from the guarantee unveiled nine days ago.

The fund could announce the block as early as Tuesday after Prime Minister Kevin Rudd guaranteed deposits for three years and also underwrote all wholesale term funding by Australian banks operating in international markets.

The move has had unexpected side effects, according to the newspaper, with major investors fleeing financial institutions not covered by the guarantees for the safety of major banks as the global credit crunch threatens the economy.

“Rational behaviour is rational behaviour — people would always want a safe-as-possible product at the best possible interest rates,” Richard Gilbert, head of the Investment and Financial Services Association told the paper.

Challenger Howard Mortgage Fund did not immediately return calls for comment.