Reyker Securities, the UK custodian and administrator with some £350m of structured product investments belonging to Merchant Capital's clients, has notified investors that Merchant House Group (MHG), the parent company of the defunct structured products provider, has been placed into administration.
Adrian Barnwell, head of risk management and strategy at Reyker said in a statement that the firm's solicitors were notified on 12 April that the directors of MHG placed the company into administration.
"Merchant [Capital] had been obligated to pay for the ongoing custody and administration costs relating to structured product plans that it managed. In the event of Merchant defaulting, (...) Merchant House Group had guaranteed to pay these liabilities," said Barnwell. "Because MHG had not honoured this guarantee, some weeks ago Reyker Securities instigated winding up proceedings against MHG."
A hearing on the proceedings started yesterday in the UK High Court.
According to Barnwell, Reyker's custody will not be affected by the administration of either Merchant or MHG, as none of the invested assets or cash is held or controlled by either of those companies.
Reyker will be issuing portfolio valuations for the Merchant products within the next few weeks and will update all ex-Merchant structured product clients with whom Reyker has a contract, along with relevant independent financial advisers, said Barnwell.
"All income payments, maturities and re-investments continue to proceed as normal," said Barnwell. "Although underlying structured product investment values may go down as well as up, all consumer holdings remain safe in Reyker's professional custody."
Barnwell said that when Merchant ceased to be a registered promoter or plan manager with the Financial Services Authority/Financial Conduct Authority (FSA/FCA) and went into administration, it ceased to handle all of its plan management responsibilities which included monitoring the plans; dealing with queries from advisers; arranging counterparty bank redemptions; and managing valuation and early redemption requests.
"When Merchant collapsed, the FSA (now the FCA) asked Reyker to fulfil the plan manager role as well as our safe custody and plan administration role," said Barnwell. "In order to prevent market disruption and avoid impaired handling of consumer interests, Reyker agreed to this for the time being, although without accepting legal liability for this role which remained or remains legally the responsibility of the MHG/Merchant group."
Reyker started marketing structured products to UK retail clients through professional advisers on 5 March, and appointed former Incapital Europe's managing director, James Chu as head of product development in a move to push its newly launched business.
Merchant Capital's client monies were transferred to Reyker on 9 March 2012.