KEY POINTS:
"I told you so" is a tiresome phrase, but Hanover's troubles come as no surprise to anyone with even a passing interest in the finance company sector over the past few years.
In July 2003, Weekend Herald columnist Brian Gaynor said that Bridgecorp and Elders Finance (as Hanover
was then called) were the two fastest-growing of the "new breed of aggressive finance groups". He warned investors should search for warning signs in their prospectuses, and noted Elders had a high proportion of related-party loans.
This week Gaynor reflected on Hanover's huge amount of related-party loans - $100 million worth in March 2004, according to the National Business Review.
"That was one of the biggest problems with those guys," he says. "They had a lot of property development companies themselves, and they were lending to those companies from Hanover, and probably they were putting no equity into those companies, so they were creaming profits during thegood times."
Hanover also grew too far, too fast, Gaynor says.
Kerry Finnegan, chief executive of Elders/Hanover from 2001 to 2005, says the finance company grew "commensurate with the market" it was in.
"I'm pretty clear as to the quality of the work that was undertaken at that time." But Finnegan says it was a different Hanover after his departure. "That's why I left, I wasn't happy with the direction it was going."
Gaynor says Hanover and its fellow financiers were not frank with investors. The average retail investor does not read the business pages and would not necessarily understand that Hanover is a mezzanine lender, taking risky second mortgages on property developments, he says.
"To me one of the real problems is the prospectuses and investment statements don't give a clear picture of what the companies are doing.
"Most people don't go through 120 pages, they want it presented succinctly in one or two or three pages, but very few of these finance companies ever did. They kind of misled people."
Hanover has its roots in a chance meeting between its entrepreneur owners Mark Hotchin and Eric Watson at a ball in 1997.
The pair struck up a friendship, and eventually invested in Elders Finance in 1999.
In 2001, the two joined forces to form New Zealand's biggest privately owned finance company, Hanover Group, consisting of five companies: Elders, Nationwide Finance, Leasing Solutions, Elders Home Loans and Hanover Securities. It had a combined asset base of $650 million.
By February 2002 it was defending the level of related-party lending between Elders and Watson's complex web of interests.
The next month, Hanover Group bought transtasman consumer lender FAI Finance Corporation, and in April it launched United Finance to provide finance to its office leasing business, Leasing Solutions.
At that point related-party loans accounted for 16.5 per cent of Elders Finance's $400 million loan book. That year Elders announced a record annual after-tax operating profit of $14.1 million.
By May 2003, Hanover's Axis Property Group had a portfolio of $200 million and was eyeing major expansion across the Tasman.
Two months later, Watson and Hotchin talked of floating Hanover on the stock market. Meanwhile, the group was locked in a takeover battle with Guinness Peat Group for Tower, which it ultimately lost.
That August Elders announced an annual net profit of $19.6 million.
In 2004, the original owners of Elders took court action to stop Hanover using the Elders name. Elders was officially renamed Hanover Finance in September 2005.
Meanwhile early in 2005, Elders had taken on ex-news reader Richard Long as its public face, appealing to the mum and dad debenture holders which were its funding base.
In June of that year, Hotchin and Watson invested in a Californian joint venture building tens of millions of dollars worth of condominiums. It is now the subject of court action.
In August, Hanover sold its office technology company Onesource, and went scouting for more finance company acquisitions.
By September Kerry Finnegan had left, and in December, Greg Muir took over from Mark Hotchin as chairman of Hanover Group.
In 2006, new chief executive, Andrew Schmidt, said he wanted to expand the group into investment banking and funds management.
By this stage the first wave of finance company failures had struck, with the collapses of National Finance 2000, Provincial Finance and Western Bay Finance. But Muir said Hanover's year had been "truly superb".
In January 2007, Hanover Group said it was looking to sell or possibly float off about $250 million worth of property, but said it was not under any pressure to sell.
In March, it sold Nationwide Finance to Allied Farmers for $33 million.
In May, it hired international banker Sam Stubbs as group chief executive, an appointment that was to last just six months.
However that August Hanover Finance was able to announce another record annual after-tax profit of $44.9 million.
In December 2007, Hanover sold United Home Loans' $230 million mortgage portfolio to Lombard Group for a reported $2 million to $3 million.
By 2008 the slide had set in, with another dozen or more finance company failures, a ruling of misleading advertising by the Advertising Standards Authority, mortgagee sales, and a rash of legal action against developers to call in debts.
THE HISTORY
* 1999 - Hotchin and Watson buy Elders Finance.
* 2001 - They form Hanover Group out of five companies.
* 2002 - Hanover buys FAI Finance, launches United Finance.
* 2003 - Hotchin and Watson talk of floating Hanover.
* 2005 - Richard Long becomes face of Hanover; Kerry Finnegan steps down as CE; Greg Muir becomes chairman.
* 2006 - New CE Andrew Schmidt plans expansion into investment banking and funds management; first wave of finance company failures.
* 2007 - CE Sam Stubbs lasts six months; more finance company failures.
* 2008 - More finance company failures; Hanover launches court action against debtors; announces moratorium.
