KEY POINTS:
It's bad enough that many Blue Chip investors face an agonising wait to find out how much, if any, of their money they will get back. It's even worse that some face losing their homes after using them as security to borrow money from former Blue Chip company
Tasman Mortgages to invest in Mark Bryers' scheme.
It's a bad look. A business lends money to investors, taking security over their home, mishandles the cash and then insists they repay their loan.
Of course Tasman no longer belongs to Blue Chip, or Northern Crest Investments as it is called now, it belongs to separate company Lombard Group. Just how separate is Lombard from Blue Chip?
As the Business Herald has reported, it looks very much like Lombard Finance and Investments, which was placed in receivership last night, is owed money by Bryers, and by Blue Chip Financial Solutions/Northern Crest.
Furthermore, it has also partly financed some of the property developments Blue Chip was selling its clients into, for example the Icon Central development in St Martin's Lane.
In a furious reshuffling of the project's financing in early November, which saw a series of caveats and a short-term mortgage placed on the development by companies linked to Blue Chip as well as a caveat and a subsequent mortgage by Lombard, two of the existing mortgage holders got out. They were the Public Trust and, interestingly, Capital + Merchant Finance, itself now in receivership.
That left Westpac holding the first mortgage, Babcock & Brown holding the second, some outfit called Bridgecorp with the third and Lombard the fourth.
Stock Takes is no expert on these matters, but if a second mortgage is less secure than the first, how secure is the fourth? What would compel a responsibly managed finance company to make such a loan in what was by then clearly a worsening credit environment and property market?
FOLLOW THE MONEY
Meanwhile, some Blue Chip investors are asking Tasman for a holiday on the mortgages they drew down to invest in Blue Chip, to help them hang on to their homes. Blue Chip, of course, has helped itself to a pretty substantial and ongoing holiday on payments to its investors, which is why they have this problem.
Thing is, it's probably not Tasman's call. As mortgage "broker" or "arranger" it's not actually the company's money that was lent. So whose is it?
Stock Takes asked Tasman director Mac Bycroft this question yesterday and a couple of others: how big is your book and what proportion of it has been lent to Blue Chip clients?
Bycroft said he'd have to run our questions past chief executive Michael Reeves and he'd get back to us. He didn't. To be fair, Reeves has had a lot on his plate lately.
Let's see what we can deduce ourselves. Reeves said last month that about 10 per cent of Tasman's business was with Blue Chip clients. Last week Lombard Group said that when the $230 million United Home Loans book was combined with Tasman's, "the mortgage book managed by the Lombard Group is in excess of $500 million".
Okay, that means Tasman's book is about $270 million and its Blue Chip business about $27 million.
As for the source of this money, Lombard has been active in mortgage securitisation so the cash may have ultimately come from investors in mortgage-backed securities.
TRUST ME
An aspect of Lombard's collapse Stock Takes finds incredible is that its finance company was, according to its trustee Perpetual Trust, not in breach of its trust deed despite, among other things, a single loan of a value north of 150 per cent of what was less-than-gold-plated shareholders' equity.
Lombard is the latest of several finance companies overseen by Perpetual Trust to strike difficulties. Another trustee firm, Covenant Trust, has a similarly abysmal record. Perpetual's Louise Edwards says this is simply a result of targeting finance company business.
Stock Takes is aware the very word "trustee" is enough to induce sleepiness in many people. They often don't know what one is or why they should care. Actually, as Commerce Minister Lianne Dalziel pointed out when she announced a new regulatory framework for non-bank deposit takers last year, they are, and will remain, finance companies' front-line regulators.
"The proximity of trustees to the market and the knowledge and expertise that have been developed over the years confirms they are best-positioned to provide that frontline role," she said at the launch of the Trustee Corporations Association's 2007 annual review.
That document's only reference to the spate of finance company collapses during the year was in a letter from Dalziel to the TCA, confirming it was business as usual under the new rules.
While finance company trustees' job is to protect investors' interests, they are actually selected and hired by the companies themselves. That strikes Stock Takes as less than ideal.
The Government spent two years coming up with the new regime and patted itself on the back for the way it consulted with the industry to do so.
Sure, trustees will have greater powers to request information from their clients/paymasters, and the Reserve Bank takes on a role as prudential regulator, but really, how well has private sector regulation of finance companies worked so far?
CHANGING SKIES AHEAD
Goldman Sachs JB Were analyst Marcus Curley is "less bearish" on our national flag carrier than he was previously.
He's removed Air New Zealand's shares, which he still rates a "sell", from his firm's conviction list, ie the stocks Goldman Sachs hold their most resolute views on.
So what's changed?
Curley says Goldman Sachs remains broadly comfortable with its estimate that Air New Zealand's second half earnings will be down almost 30 per cent to $122 million and everybody else has now come to a similar view which is now reflected in the company's share price.
Yesterday it closed 3c lower at $1.34, having lost about 25 per cent since mid February.
"The question now is more difficult, which direction will be the next move, at this moment we think it's likely to be down but it's a more difficult call," Curley said yesterday.
"On balance, we believe the risk to earnings still lies on the downside with slowing source country economic growth coupled with increasing competition from Emirates on the Tasman sector from early 2009."
LEARNING CURVE
Several weeks ago Stock Takes heard that China's State Grid Corporation was among the likely bidders for Vector's Wellington electricity network.
This week Hong Kong's South China Daily News reported the same thing, also indicating bids might be around the US$1 billion ($1.25 billion) mark. So what would SGC, whose offshore investments are limited, want with Vector's Wellington network?
Stock Takes asked an infrastructure expert, who believed an SGC purchase would likely be about warming up for something a little more ambitious.
The expert believed SGC may want to gain experience in working with the regulators in a Western economy. Some might argue that if SGC can learn how to get on with our Commerce Commission, preferably not from Vector itself, it can handle anyone.
