Finance Company Outcomes

During the past week several significant events occurred relating to the blurry past of the demise of finance companies. The finance company sector collapse debacle seems to have gone on for years, over four years in fact and therefore it predates the so called global financial crisis.

The first finance company of any significance to go into receivership was Christchurch based Provincial Finance. Despite large amounts having been lent against cars in the South Auckland area to those who would have been unable to obtain credit if any legitimate credit check had been carried out, the eventual outcome for investors was in hindsight pretty good. They almost received all their principal back.

It was not so lucky for investors in Nathans Finance. All they really receive is the satisfaction of knowing that two of the former directors have been sentenced to spend a little over two years in prison. This will no doubt be in one of the central North Island prisons such as Rangipo. Roger Moses will emerge from prison as a healthier, fitter person with fewer assets than a week ago, as he will have paid over $400,000 reparation. Most likely he will be reasonably comfortable in his Remuera Road home when he gets out of prison, and he may find that his social circle will be somewhat smaller.

Moses is an enigma. He was one of the fathers of the New Zealand financial planning industry. He co-authored several investment books and appeared on the Paul Holmes show several times relating to investment matters. He and the “shadow Nathans Director” Gary Stevens were like conjoint twins in business. They sold their franchised Financial Planning business Reeves Moses InvestorCare to Sovereign which was effectively owned by the ASB Bank. One of the conditions of the purchase was to meet certain growth targets especially the growth of the contributory mortgage scheme. They were very successful in this thanks to the efforts of a mortgage manager Peter van Nieuwkoop.

Moses and Stevens were charged by the Securities Commission a number of years ago relating to the management of the contributory mortgage company. They got off the charges, unlike their employee van Nieuwkoop who was fined $12,000. Interestingly, they employed Owen Tullentire to try and tidy up the Contributory Mortgage loan book. Tullentire subsequently went on to run the ill-fated Capital + Mortgage Finance company in which investors have lost hundreds of millions of dollars. His court case is pending.

Sadly, on Friday the formerly highly rated South Island businessmen Allan Hubbard died in a road accident. This week he was due to have his day in court relating to the activities of his failed companies such as South Canterbury Finance. The South Canterbury investors were the lucky ones in the finance company debacle as their investments were protected by the crown guarantee. Unfortunately the cost to the tax payer will be very large. Hubbard had a lot of followers who still seem to think he could do no wrong. Yes he may have had a philanthropic approach, but the reality was that his businesses empire was too big for him to manage.

The case against the former directors of Bridgecorp seems to keep stalling. Now it is because the lawyers for the defence have not been paid. Maybe they should get paid 3 cents in the dollar so they will have some empathy with the investors of the failed company.

Between Nathans, Capital + Merchant, and Bridgecorp, investors have lost well over a billion dollars. If South Canterbury Finance was not covered by the crown guarantee the losses to those investors would have been a similar amount.

Disclaimer

Steven Barton (FSP 32663) and Susan Pascoe Barton (FSP 32382) are Certified Financial Planners and Authorised Financial Advisers.  Their initial disclosure statements are available free of charge by contacting them on (07) 3060080 or they can be downloaded from www.pascoebarton.co.nz. This column is general in nature and should not be regarded as personalised investment advice.