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Financial crisis hits Presbyterian savings

The credit crunch reached the church today when it was announced the Presbyterian Mutual Society, with assets of some £300 million, was unable to meet massive demand for withdrawals and was stopping repayments to members.

A run of recent withdrawals meant it no longer had the money to meet demand.

In a statement the society said: "Because of the current exceptional financial circumstances it is unable to meet demand from its shareholders for withdrawal of funds."

It was consulting its lawyers and financial advisers and had asked the Government to guarantee its funds.

Set up in 1982 to operate for the benefit of its members and the Presbyterian Church in Ireland - although a separate legal entity from the church - it currently has some 9,500 shareholder accounts.

Shareholders have been told they can't for now have the money - up to £300 million - they have invested.

At the moment it has about £130 million in fixed or other assets and £170 million lent out to borrowers.

Its activities consist of receiving money from shareholders - on which it pays a divided -, making loans to churches and private individuals, and making investments in commercial property in England and Scotland from which it derives a rental income.

The society is not covered by the Financial Services Compensation Scheme, but has made approaches to Government seeking to have it extended to its shareholders.

It is understood the issue has gone right up to Prime Minister Gordon Brown, son of a Scottish Presbyterian Minister.

The society said the credit crunch had begun to have a severe effect on its levels of liquid assets, and it believed its lack of cover under the Government's guarantee scheme had led to an increasing number of people moving their funds out.

It said: "The society recently wrote to shareholders explaining that a continuation of very significant levels of withdrawals would place it in a position where it was unlikely to be able to meet the obligation under its rules to provide repayments to shareholders on 21 days' notice."

It added: "It is now evident that we have reached a situation where there is insufficient cash held by the society to meet the continuing level of demand.

"The society has decided that, in the interests of all its shareholders, it must now cease making repayments to members.

"The society deeply regrets that it has been forced to take this action because it is acutely aware that, in many cases, the lack of access to money will cause hardship for individuals."

However, it said it was in a position where it would only be possible to make repayments when its assets were sold or when loan debt was recovered and that would take some time.

"The sale of its commercial property holdings in current market conditions is not desirable," the society said.

Directors were continuing to take independent legal and financial advice and were actively exploring all possible ways of resolving the situation and ensuring the funds it held on behalf of its shareholders were protected.

It added: "The society has made approaches to Government to seek assistance, including asking for the Financial Services Compensation Scheme to be extended to cover the society's shareholders.

"At this stage the society has had no definitive response from Government. As soon as further information is available , the directors of the society will make it available to shareholders."

The Presbyterian Church in Ireland said it was deeply concerned by what had happened, but it would not be underwriting the society.

Clerk of the General Assembly, Rev Dr Donald Watts, said: "It is easy to point out that the mutual society is a separate legal entity which is quite separate from the church.

"It is also clear that the church cannot in any way underwrite the commitments of the society.

"However, the reality is that many Presbyterians who have invested in the society are now understandably worried and we have a responsibility to care pastorally for them."

Dr Watts said the assets of the society were in loans and property which was secure - but it was not a good time to sell.

"The directors are rightly asking for time to handle the situation in the best way for everyone, but of course that may not be how this develops."

He said the Moderator had written to the Prime Minister, encouraging a positive response for the financial guarantee, and the society directors had held discussions with ministers of the Stormont Executive.

The rules of the Belfast-based society say those wishing to become shareholders may buy shares in multiples of £100, up to a maximum of £20,000.

However it says further amounts can be added by way of loans to the society.

On its website the society gives an assurance that it does not speculate with its shareholders' funds.

It declares: "The directors give a categorical assurance that they do not under any circumstances speculate with investors' funds entrusted to their care, but use such funds specially for the purpose of advancing loans to those shareholders who wish to borrow from the society.

"The society uses surplus funds to purchase commercial property from which it derives a rental income and retains a percentage of the total capital in cash that is invested in established banks in Northern Ireland.

Belfast Telegraph