I am often asked the question – what has caused the meltdown in the Finance Company Sector in New Zealand – and the answer is simple. It’s greed.
It all began in the USA with the sub-prime crisis. Greedy lenders lending far too much to poor borrowers. Greedy borrowers borrowing far more than they could hope to repay. So the dramas began in the banking and mortgage sector in the States and the effects spread throughout the world.
In New Zealand we had greedy owners and directors of finance companies who raised money from the public and then lent it to developers – many of whom were related parties – in an appallingly cavalier manner.
And of course we had greedy financial planners who poured millions of dollars of client’s money into these disreputable, bound to fail finance companies. Bridgecorp didn’t have any trouble raising funds from some advisers when they were offering two and three times normal brokerage. I would have thought such ridiculous levels of brokerage would have rung alarm bells.
So greed created an environment which resulted in these poorly run finance companies failing.
The problem we now face is that the investing public has decided that all finance companies are poison and that of course is not true.
Companies like South Canterbury Finance have been around since 1926 and they have been an essential part of commerce – financing plant and equipment, property, aircraft, vehicles and participating in New Zealand’s growth.
The sad part of the meltdown in the Finance Company Sector apart of course from the thousands of individual loss stories, is that now, even very good companies are suffering.
Companies like Strategic Finance, that has one of the best teams of personnel in the country, have suffered due to the lack of confidence in the sector. Because of the failure of other companies re-investment rates that were around 70% have dropped to 10% and that is unsustainable.
But Strategic highlights the difference between them and the shonky lot like Bridgecorp and Blue Chip. No hiding the Porsche or other assets from the investors for Strategic. The management team have put up $22m of their own funds and is negotiating a restructure plan that will see all investors protected for both income and capital.
Frankly I’m not sorry to see the Petricevics of this world biting the dust. I’m just sad that he and his cohorts have hurt so many people and damaged a good sound industry.
Related Links
Somerset Smith Partner’s disclosure-statement. (PDF 1.1mb)
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