As you know, the Catholic Development Fund operates to support the charitable, religious, pastoral and educational works of the Catholic Church in the Diocese of Maitland-Newcastle. The CDF is not a bank, it holds an APRA exemption from the Banking Act. The Development Fund holds investments from the diocese, parishes, schools, religious congregations and the lay community. Many recent school developments have been assisted by the Development Fund, with around two thirds of the Fund’s loans going to schools and a third to parish projects.
In late 2008, at the height of the Global Financial Crisis, the diocese, through the Catholic Development Fund, held $31 million worth of CDOs, being investments in 11 different CDOs, which had been purchased through Grange Securities and later Lehman Brothers. The CDOs were highly rated by the ratings agencies and were promoted on that basis as a safe investment by Grange and Lehman Brothers. Of these investments one was sold, five matured and a portion defaulted, either fully or partially over the subsequent five years.
The diocese purchased all the CDOs from the Development Fund in 2008 to protect the fund and its investors. Currently, the diocese only has one active CDO still on its books and that investment continues to pay coupons. Following redemptions, defaults and anticipated settlements with the liquidators of Lehman Brothers Australia, the diocese anticipates that losses from CDOs will have been in the order of $12 million.
The diocese joined a class action against Lehman Brothers Australia some years ago. This has been on the public record for some time now. As a result of the diocese’s participation in the class action and through a proof of debt in the liquidation of Lehman, the diocese expects to recover a substantial portion of the failed investments.
Since the CDO investments were made there have been changes to the Development Fund’s investment policies and management which has strengthened the Fund and its operations. As the Fund’s published balance sheet shows, it is now in a strong position. As at September 2013 The Fund has retained earnings in excess of $18 million. The capital adequacy ratio of the Fund is in excess of 12% and it holds more than 30% of High Quality Liquid Assets (HQLA). The Fund only invests in church related projects or APRA regulated institutions and it is audited annually by the audit firm PricewaterhouseCoopers*.
There has been much speculation regarding why the diocese transferred its aged care business to Little Company of Mary Health Care. For the record, this was a strategic decision made primarily because of the ever increasing compliance burden of managing aged care operations, to ensure the financial sustainability of the diocese and to focus on the pastoral work of CatholicCare Social Services. The diocese wanted to ensure the best level of care to residents, so entrusted this ministry to Calvary Aged Care. Since the sale of aged care, the diocese has significantly expanded CatholicCare Social Services, with four new centres opening in the past year and it continues to offer support and assistance to families, couples, children and individuals in the Hunter and Manning.
Finally, I thank you for your ongoing support of the Catholic Development Fund. With your contribution, the Catholic Development Fund has been able to assist in the delivery of new school facilities, expanded social services, pastoral work and ministry across the diocese.
VICE CHANCELLOR ADMINISTRATION DIOCESE OF MAITLAND-NEWCASTLE
* PricewaterhouseCoopers provide audit services only they do not provide any investment advice.