The special administrators of Pritchard Stockbrokers has estimated a £3.4m shortfall of cash in Pritchard’s client accounts.
In a letter sent to clients last week, administrators Mazars warned it is “highly likely” there will be a shortfall in their share of Pritchard Stockbrokers’ cash assets which were recently frozen by the FSA.
A creditor report says Mazars has identified £23.7m of client cash against £27.1m of client claims, creating a shortfall of £3.4m. A total of £6m of Merchant Capital client cash is currently frozen with Pritchard.
The Financial Services Compensation Scheme says it treats stockbroking as an investment activity and would pay a maximum of £50,000 to clients if the firm is declared in default.
A Mazars spokesman says only five Merchant Capital clients have over £50,000 of cash assets with Pritchard, although it will not give figures for the individual sums involved. Around 1 per cent of Pritchard’s 5,600 direct client have cash assets over £50,000.
Pritchard had a total of 11,100 clients, including direct and Merchant Capital clients.
Mazars was appointed special administrator on March 9 after the FSA suspended Pritchard’s permissions due to concerns about the way it handled client assets and monies.
On the same day, structured product provider Merchant Capital said it would transfer all £350m of clients’ non-cash assets from Pritchard to new custodian Reyker Securities but cash assets were frozen by the regulator.
As a result of the Pritchard suspension, Merchant Capital admitted on March 8 that some income payments to clients may be delayed.
Parent company Merchant House Group’s shares are currently suspended pending a review of its finances to determine whether or not it has sufficient working capital for its present requirements.
Earlier this month, Merchant House Group announced it was awaiting payment for shares worth £150,000 after it issued £761,500-worth of shares in February. A spokesman says: “Merchant Capital is separately capitalised and the directors of Merchant Capital are happy with the capital situation.”
Glasgow Rangers owner Craig Whyte was company secretary of Pritchard and is also director of Liberty Capital, a British Virgin Islands-based company which owns 10.8 per cent of Merchant House Group.
Merchant House Group has an IFA arm, Merchant House Financial Services, which was established in December 2010 after the acquisition of the assets of Clarkson Hill which is in default with the FSCS.