Agenda - Byron Shire Council - NSW Government

BYRON SHIRE COUNCIL
ORDINARY MEETING 9 MAY 2013 (34)
Note 2. Type Description
CR Credit Principal varies based on valuation, interest
payable via a floating interest rate that varies
except for those capital protected investments that
have transferred to their capital protection
mechanism.
E Equity Principal varies based on valuation, interest
payable via a floating interest rate that varies
except for those capital protected investments that
have transferred to their capital protection
mechanism.
MFD Managed Fund Principal varies based on fund unit.
Price valuation, interest payable varies depending
upon fund performance.
TD Term Deposit Principal does not vary during investment term.
Interest payable is fixed at the rate invested for the
investment term.
CALL Call Account Principal varies due to cash flow demands from
deposits/withdrawals, interest is payable on the
daily balance at the cash rate +0.50%
5
10
Note 3.
Note 4.
Floating rate notes and Term Deposits can be traded on a day-to-day basis, and
therefore Council is not obliged to hold the investments to the maturity dates.
Managed funds operate in a similar manner to a normal bank account with amounts
deposited or withdrawn on a daily basis. There is no maturity date for this type of
investment.
The coupon on these investments is zero due to the Capital Protection mechanism
working. This occurs when the investment falls below a certain level. This coupon
may be paid again in the future as the market recovers.
Other Information – Financial Claims Scheme (FCS)
15
20
25
30
35
From 1 February 2012, the Financial Claims Scheme (FCS - or Government guarantee) coverage
for any one investor in deposits reduced to $250,000 from $1,000,000 per Approved Deposit
Institution (ADI). The Financial Claims Scheme was introduced as a result of the Global Financial
Crisis (GFC), essentially to provide investors confidence when taking out deposit's with all ADIs
and to ensure that their primary business of lending money was not significantly hindered due to
lack of funding. NSW Local Government Councils have under the Ministers Order always been
able to invest with ADIs without a dollar limit on any one institution.
Under Australian Prudential Regulatory Authority (APRA) regulation Building Societies and Credit
Unions must meet the same capital requirements as a Bank. Whilst the majority are much smaller
in terms of balance sheet size to the Banks they are still considered to be strong business' and
investing in their term deposits still low risk. Most of Councils’ term deposits have now been
amended to show a partial guarantee of this $250,000 per deposit taking institution.
Financial Implications
The reduction of the current value of Council’s portfolio is a result of the downturn in global markets
stemming from the global financial crisis. It should be noted that Council’s exposure to the
credit/equity markets is supported by capital protection which ensures that the initial value of the
investment is not reduced when held to maturity. In downward cycles, the capital is protected by
allocating the investment to an underlying bond. If the investment is 100% allocated to this bond,
Ordinary Meeting Agenda 09/05/13