KEY POINTS:
Listening to Strategic Finance chief executive Kerry Finnigan talk this week about the agreement he, his colleagues and the Bank of Scotland International have reached to purchase the company back off stricken Australian investment company Allco, Stock Takes was reminded of the old saying about second marriages -
that they are a triumph of hope over experience.
"Going forward we felt when we did the transaction with Allco we were getting into bed with someone that was substantial and could assist us if there ever was a need. Clearly that judgment was misplaced or the market delivered a different outcome. Second time around we'd like to think our judgment is a lot better with our choice of partner."
Indeed.
Allco HIT's sale of Strategic is expected to help its parent pay down money it owes to BOS International.
Last week Allco HIT posted a loss of A$322.2 million ($393.8 million) as part of the parent company's A$1.73 billion loss, due primarily to writedowns on goodwill, mortgages and managed funds.
Looking at its share price, Allco has lost the confidence of investors and is also facing a class action from litigation funder IMF Australia for alleged continuous disclosure breaches.
Allco Finance shares closed A2c lower at A29c yesterday.
PROBLEMS MUSHROOM
IMF Australia has also revealed it is taking a class action against Octaviar (previously MFS Ltd), the ultimate parent of failed New Zealand finance companies OPI Pacific Finance and MFS Boston.
Like the Allco action, IMF is alleging a breach of continuous disclosure requirements. It says MFS, as it was called at the time, failed to disclose risks that the company would be unable to meet its earnings forecast late last year.
OPI Pacific investors will meet on Monday at Ellerslie Convention Centre to consider whether the company should enter into a secured debt arrangement with its parent and whether to accept an offer to pay out 22.5c in the dollar on their debentures.
Stock Takes was contacted this week by an OPI Pacific debenture holder who was peeved that the information received from the company so far about the offers was insufficient to make an informed decision and made available only about a week ago. He was hoping the company would elaborate at Monday's meeting. Investors who can't make it to the meeting must have their proxy forms in by tomorrow morning.
Seems like business as usual for OPI Pacific which has tended to treat its investors like mushrooms - keeping them in the dark and feeding them ... well let's not go there.
In the offer documents Octaviar says that if investors are in any doubt about how to deal with the proposal, "you should contact your broker, financial adviser or legal adviser".
Stock Takes hopes that should investors go to their financial adviser they receive better counsel than was given by the formerly Octaviar-owned Vestar Group which put so much client money into OPI Pacific, Capital + Merchant and other dogs.
A MERE BAGATELLE
The banking sector is continuing its efforts to reassure the media and, by extension, the public that they have come through sub-prime and the credit crunch relatively unscathed and that they remain safe.
This week the Bankers' Association hosted a lunch for reporters with a couple of bank chief executives and a senior Reserve Bank officer in attendance.
While it's always a bitter pill for those who have lost cash or had their deposits frozen in the recent finance company and mortgage trust freezes and failures, the RBNZ once again pointed out the total amount lost or at risk is relatively small.
New Zealand households have $149 billion in financial assets including $83 billion in bank deposits, $10 billion in non-bank deposits including finance companies, building societies and credit unions, and $56 billion in managed funds, life insurance and unit trusts.
To date $3.8 billion in non-bank deposits have been lost or frozen. The figure is now $1.6 billion for managed funds and the like and nil for bank deposits. Overall $5.4 billion or 3.6 per cent of total household financial assets have been affected.
Looking solely at finance companies though, the picture is as you might expect, pretty gloomy, with 67.8 per cent of households' assets in this particular sector lost or frozen.
ENDS OF THE EARTH
Of course, as has been pointed out frequently, the wellbeing of our local banks depends largely on our ability to keep paying off our mortgages. Understandably, people look to the carnage in the US housing market and wonder whether things could get as bad - or worse - here.
The talk around the table was that New Zealanders and indeed Australians tend to be fairly dogged in maintaining their mortgages under stress. That might be a reflection of the stoic Australasian character but more likely simply reflects the fact that in the US many homebuyers have non-recourse loans.
With these loans, should borrowers find they owe the bank more than their house is now worth and can't make payments, they can simply walk away, perhaps posting the keys to the bank in what has now become known as "jingle mail". The bank is left with little chance of recovering the difference between what it is owed and what it can get for the property.
Here the situation is different. "We can chase you to the ends of the earth," said one major bank chief executive.
CLUBBED AND CRESTFALLEN
Members of the Gulf Harbour Country Club, formerly Blue Chip founder Mark Bryers' baby, have banded together and bought the golf course for $5 million from receivers Grant Thornton.
Grant Thornton seized the club in July on behalf of failed finance company Capital+Merchant after Bryers defaulted on a loan from the company.
Grant Thornton will not say how big the loan was, but Stock Takes understands it was about $20 million.
The money was raised by the 600 members through loans and membership schemes.
Now $5 million for an 18 hole championship golf course with a substantial clubhouse building and facilities sounds like a pretty good deal to Stock Takes but Tim Downes of Grant Thornton believes it was a fair price.
Downes said Bryers' loan from Capital+Merchant was far in excess of $5 million, and "way beyond any realistic value of the golf club".
Downes assumes Bryers either used the loan for more than just buying the club from Starline Group's Jamie Peters, or else paid "a stupid price for whatever the reason" for it.
"In my view Capital + Merchant Finance made an ill-judged decision to lend money to Bryers to buy the golf course and that adjacent land and that's been proven by the outcomes we've achieved."
The kind of ill-judged decisions in fact that mean the company's debenture investors will likely see only 8c out of every dollar of their money back.
Meanwhile, Bryers' attempt to foist the Blue Chip model on unsuspecting Australian investors appears to be running into difficulties.
The ASX last week suspended shares in Blue Chip Financial Solutions or Northern Crest as it was renamed on April 1 this year in an attempt to quarantine it from its New Zealand problems.
ASX suspended Northern Crest's shares, which last traded at A9c in April, after the company failed to pay listing fees. On top of that, its website, and that of subsidiary Barkley Walsh, are no longer functioning.
SAVVY OPERATORS
Shares in Delegat's Group enjoyed a decent run up after (and curiously, a day or two before) announcing a record June year net profit of $19.1 million last week.
Managing director Jim Delegat was understandably upbeat about both the result and the company's outlook.
Good weather and more land coming into production boosted the 2008 harvest by 39 per cent and companies like Delegat's were well placed to use the increased supply to meet "growing global demand for super-premium New Zealand wine", Delegat said.
Goldman Sachs JBWere's Adrian Allbon found the Delegat's result to his liking, noting among other things excellent cost control and the long maturity profile of the company's debt.
Allbon altered his earnings estimates for the company by reallocating the bumper 2008 harvest across 2009 and 2010 sales rather than assuming the majority of the volume would be sold in 2009.
That lowered his 2009 net profit estimate by 7 per cent but boosted the 2010 figure by 4 per cent. Allbon said Delegat's current share price - $2.35 when he wrote his commentary - represented an attractive buying opportunity considering the 2008 harvest and the prospect the falling dollar could provide a boost to earnings. "We reiterate our BUY recommendation ... "
Delegat's shares closed 3c lower yesterday at $2.42.
