PRESSURE on the Federal Government over its bank deposit guarantee has escalated after three big financial institutions hit with a spate of withdrawals by customers last night froze their accounts.
Tens of thousands of Australians, many of them retirees, are now unable to get immediate access to their capital after AXA Asia Pacific, Perpetual Investment Management and Australian Unity suspended withdrawals from some funds.
Treasurer Wayne Swan responded last night by advising people adversely affected to go to Centrelink to see if they were eligible for income support.
But the Government did not appear to have an immediate answer to the cascading problem, and Mr Swan’s comments were seized on by the Coalition, which accused him of insensitivity and incompetence.
As the row erupted, Mr Swan and Prime Minister Kevin Rudd last night met the chief executives of the nation’s four biggest banks – Commonwealth, NAB, ANZ and Westpac – to discuss the financial crisis.
The meeting in Canberra came after another day of carnage on world markets, with Australia’s ASX-200 index plunging more than 4.4%.
The freezing of funds by AXA, Perpetual and Australian Unity came in response to a flood of people trying to withdraw money – mainly from mortgage funds – and transfer it into banks to take advantage of the Government’s decision to guarantee deposits.
By last night, four of the nation’s five biggest mortgage fund managers had either suspended or put restrictions on withdrawals from funds worth billions of dollars. Industry sources said up to 180,000 individuals were affected, with an average investment of about $40,000 each.
The funds are favoured by older, retired people because they provide a steady income stream. While there is no apparent threat to people’s savings, the freeze means those wanting access to more than the regular income payments might be unable to do so for some time.
Senior Perpetual executive Richard Brandweiner said that from last night, the company would allow only quarterly redemptions, and these would be dependent on the level of funds available at the time.
He blamed the situation on “a sudden spike in redemptions” after the Government flagged its bank deposit guarantee and “subsequent actions by other parties”.
A spokeswoman for AXA said the company had to act after withdrawals by investors yesterday soared to about 20 times the daily average.
The latest developments will increase pressure on the Government to get its planned fee on big bank deposits – aimed at curbing the massive flight of money to the safety of government guaranteed banks – in place quickly.
Last night Mr Swan remained adamant that the guarantee would not be extended to mortgage funds and other managed investments. “These are not deposits in a bank, we are dealing with market-linked investments,” he said.
“I say to the people who are adversely affected by some of these decisions that have been taken in these managed investment funds, do fully investigate your eligibility for income support through Centrelink.”
He also said Perpetual managing director David Deverall had told him the bank deposit guarantee was not solely to blame for the problems. “He was very supportive of the bank guarantee,” Mr Swan said.
Shadow treasurer Julie Bishop said: “This is just not good enough. The Government’s actions are affecting people’s livelihoods. It has caused such confusion.”
Opposition Leader Malcolm Turnbull said Mr Swan’s “incompetence” was matched by his “cold” indifference. “Confronted with the human consequences of his mismanagement and incompetence, the best he can do is tell people whose savings have been frozen to show up at Centrelink,” Mr Turnbull said.
Earlier yesterday, in an apparent change of heart, Mr Swan said he was considering allowing big depositors to opt out of the proposed fee on bank deposits over $1 million.
On Tuesday Mr Swan had insisted the fee would “be paid by all depositors in the deposit-taking institutions”.
Ruth Williams and Peter Martin
October 24, 2008
Source: The Age