Bank Slams Bail-out Claim Over $500m Deal

The Age

Saturday September 13, 2008

Marc Moncrief, State Economics Editor

RATINGS agency Standard & Poor's kept a ratings warning on Members Equity Bank for months after a $500 million deal with Victoria's public sector fund manager.

The transaction, which shadow treasurer Kim Wells this week called a "bail-out" for a "trade union bank", would have accounted for about half the "off-balance-sheet" money the bank had obtained between April and July.

However, it was not sufficient to convince the ratings agency to remove a warning that the bank's credit rating could fall. The "credit-watch negative" warning, which gave the bank about a 30% chance of losing its credit rating, remained in place until August. The bank collected an additional $2.3 billion before the warning was lifted.

The bank was initially placed on credit watch in March as its business model came under pressure from the credit crisis in the US. Chief financial officer Nick Vamvakas said the bank had already been negotiating with VFMC for months on a deal to sell $500 million in securities backed by Australian home mortgages.

The deal was closed in March. On April 24, VFMC began receiving the bonds in $100 million tranches. It received the last tranche on May 30. In June, S&P decided to keep the bank on credit-watch negative as the bank sought $2.5 billion to shore up its position.

Members Equity chief executive Anthony Wamsteker said the securitisation deal in question was not with VFMC.

On August 18, the credit watch negative was removed.

Mr Wamsteker wrote to Mr Wells yesterday expressing "profound concern" over the shadow treasurer's comments.

"These comments casting aspersions at the viability of Members Equity Bank are without foundation and have caused unnecessary distress to our customers and staff," Mr Wamsteker wrote.

"The investment by the Victorian Funds Management Corporation in Members Equity Bank is not a bail-out as you allege, and the Australian Prudential Regulation Authority have at no stage expressed any concern with this investment."

The Opposition declined to comment.