Sunday, November 24, 2013

Newcastle diocese expects to lose $12m due to GFC

The Maitland-Newcastle Catholic diocese will lose $12million because of the 2008 global financial crisis, the diocese has revealed, reports The Newcastle Herald.

 The figure was the expected ultimate loss after redemptions, defaults and anticipated legal settlements in 2014, diocese vice-chancellor of administration Sean Scanlon said. 

‘The diocese joined a class action against Lehman Brothers Australia some years ago,’ Mr Scanlon said. ‘As a result ... the diocese expects to recover a substantial portion of the failed investments.’

Mr Scanlon revealed the steps taken in late 2008 to protect Catholic schools, parishes, religious congregations and individuals from losing their investments after the diocese’s Catholic Development Fund was exposed with $31million in Lehman investments. 

The Lehman collateralised debt obligations, or CDOs, represented 23per cent of the Catholic Development Fund’s total $134million holding at that time.

CDOs are complex investments that repackage a bundle of individual loans into a product that can be sold. In exchange for interest payments, the buyer of a CDO takes on the risk that the initial loans will not be repaid.

Australian churches, charities and local councils have been successful in recovering up to 49¢ in the dollar of some of their initial investments after court action showing many of the Lehman CDOs were AAA rated in 2008, and promoted as safe investments.

The Catholic Development Fund, which operates to support the charitable, religious, pastoral and educational works in the diocese, held 11 CDOs in 2008. 

When the global financial crisis occurred in September 2008, the diocese purchased the 11 CDOs from the Catholic Development Fund, at a cost of $31million, to protect the fund and its depositors. 

The fund lends money to schools and parishes.

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