Why the Netwealth (ASX:NWL) share price is sinking 15% lower today

The Netwealth Group Ltd (ASX:NWL) share price is sinking lower on Thursday after an update on its deposit arrangement with ANZ Bank…

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The Netwealth Group Ltd (ASX: NWL) share price is crashing lower on Thursday morning.

At the time of writing, the investment platform provider’s shares are down over 15% to $13.50.

Why is the Netwealth share price crashing lower?

Investors have been selling Netwealth’s shares this morning following the announcement of changes to its deposit arrangement.

Netwealth notes that as a result of COVID-19 and current global economic conditions, the Reserve Bank of Australia (RBA) has reduced and maintained official interest rates at a lowly 10 basis points. It has also provided substantial liquidity to the Australian Banking sector at historically low rates and credit spreads.

In light of this and the reduced cost of funding for banks, the company revealed that its agreement with Australia and New Zealand Banking GrpLtd (ASX: ANZ) in relation to the interest payable on the total pooled cash transaction account is to be terminated in 12 months. This is pursuant to the terms of the agreement.

At present, the agreement provides a margin of 95 basis points above the overnight cash rate and will continue for 12 months.

Investors may be concerned that this could have an impact on funds under management inflows and margins.

What now?

Netwealth advised that it is currently in negotiations with ANZ and other banks to establish an alternate facility and deposit rate.

Furthermore, it notes that previously announced reductions in the RBA overnight rate, which reduced its cash administration margin by 40 basis points, will be progressively recovered when rates increase in the future.

It also reminded the market that it remains debt free and in a strong financial position.

HUB24 shares hit hard

Elsewhere, although rival HUB24 Ltd (ASX: HUB) has not commented on the matter, investors appear concerned that it will also have its arrangements terminated and have been panic selling its shares.

At the time of writing, the HUB24 share price is down a disappointing 13.5% to $20.97.

James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of Hub24 Ltd. The Motley Fool Australia owns shares of Netwealth. The Motley Fool Australia has recommended Hub24 Ltd. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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