Lender Seiza In Strife

The Age

Thursday September 25, 2008

Vanessa O'Shaughnessy, investment reporter

ANOTHER Australian mortgage provider has fallen victim to the high cost of credit caused by problems in the US subprime mortgage market.

Seiza Management has been placed in voluntary administration, while its parent company, Seiza Capital, has about $1.25 billion under management.

The company offered commercial and residential mortgages, without mortgage insurance, which were backed by its listed Seiza Augustus Series 2007-1 Notes and its unlisted Seiza Series 2006-1 Notes.

The notes have an estimated value of about $400 million and $850 million respectively.

Said Jahani, of administrator Grant Thornton, said the notes should retain their value. It was the "back office" that had gone into administration and a third-party manager was being sought to ensure payments were collected from mortgages, and noteholders' interests were protected.

"From our perspective, it's business as usual," Mr Jahani said.

But Seiza Capital's annual report for 2006-07 shows the company that employed 86 people had been running at a loss.

Directors Simon Robinson, John Rogers and Terrence Leighton reported a loss of almost $6.4 million in 2006-07 and $7.5 million in 2005-06.

And auditors at KPMG said: "The future viability of the group is dependent on its mortgage business becoming profitable".

Since that time, defaults in the low-end US mortgage sector have prompted a repricing of credit, making it harder for mortgage originators to attract wholesale funding.

That situation has already forced the sale of non-bank lender RAMS Home Loans to Westpac, and while Challenger Financial and Bluestone Group have reduced the number of loans they write, Macquarie Group has ceased writing mortgages in Australia.

According to Seiza's website, part of which has been taken down, the company offered "jumbo" mortgages of up to $5million and low-documentation loans valued at under $750,000.

Mortgage insurance, which is usually required by lenders to protect them against defaults, was not payable. But the company charged a risk fee based on the size of the client's deposit on a property.

Seiza's commercial loan products included self-managed super fund property loans and full-documentation and low-documentation loans of $250,000 to $5 million.

Perth-based former employee Margot Sutherland said she was made redundant several months ago, along with the rest of the sales team.

But until then the company attracted clients through brokers, offering "unusual type loans". Most clients were investors, Ms Sutherland said.

It appears Seiza Management offered loans directly to customers as well as providing a "white label" product that allowed mortgage managers to sell loans under their own brand names.

An answering machine took calls to Seiza Capital's Sydney headquarters yesterday.

Brisbane-based Bruce Jones, who appeared as a contact on the company's website, said he no longer worked for Seiza Capital. "I don't want to go into it," he told BusinessDay.

In a letter to the ASX, Grant Thornton's Mr Jahani said the Seiza notes were issued by Australian Executor Trustees.

"We expect that the trustee will be in contact with noteholders in due course to seek instructions by way of noteholder resolution as to the course of action the trustee should take as a consequence of the appointment of the administrators," he said.

KEY POINTS

? Mortgage company has showed losses for the past two financial years.

? Seiza offered "jumbo" mortgages and low-documentation loans.

LINK

? www.seizacapital.com

© 2008 The Age

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