THE Maitland-Newcastle Catholic diocese will lose $12million because of the 2008 global financial crisis, the diocese has acknowledged after five years of counting the cost of investments with Lehman Brothers.
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.
‘‘One of the CDOs was sold, five matured and a portion defaulted, either fully or partially, over the subsequent five years,’’ Mr Scanlon said.
‘‘The diocese only has one active CDO still on its books and that investment continues to pay coupons.’’
The diocese changed its investment policies and management after the global financial crisis, and the Catholic Development Fund was now in a strong financial position, he said.
Mr Scanlon said the decision in 2010 to sell the diocese’s aged-care business – a sale believed to have been worth $100million – was not linked to the global financial crisis, but was a ‘‘strategic decision’’ to ensure the financial sustainability of the diocese, and because of increasing aged-care costs.
Since the sale, the diocese had significantly expanded CatholicCare Social Services, he said.
The diocese’s $12-million global financial crisis loss pales against the $160million lost by the Anglican Archdiocese of Sydney.
Outstanding claims against Lehman Brothers are expected to be finalised early next year.
More than 300 councils, churches and charities have taken action.
Some Australian claimants, including councils, will continue to pursue ratings agencies for damages in separate actions.