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Former Lombard Group Chairman Sir Douglas Graham has defended his performance and that of his board, arguing the board had operated carefully within its rules and could not have prevented the collapse of the property financier.
Speaking in an interview with interest.co.nz, Sir Douglas rejected any suggestions that the board had not notified the NZX quickly enough about the deterioration in its loan book or that it should have exited the disastrous Brooklyn rise development that eventually overwhelmed Lombard Finance.
The property market deteriorated so quickly, the reaction of banks to the global credit crunch was so draconian and sentiment in the finance company debenture market was so damaged after the collapse of Bridgecorp that Lombard was overwhelmed by events, the former Justice Minister said.
Receivers John Waller and John Fisk at PricewaterhouseCoopers released their first report this week, detailing the parlous state of the loan book they found and estimating a recovery rate for investors with NZ$111 million debentures of between 21 to 44 cents in the dollar.
Speaking in depth for the first time since the receivers report was released, Sir Douglas said he was shocked and disappointed at the estimated returns, given he had also invested in Lombard debentures and owned a now worthless 5% stake in Lombard Group.
"I feel very distressed about that," Sir Douglas said of the likely losses faced by many investors.
"But I'm not sure I could have done more," he said. The former chairman said he had re-considered all of the actions of the board in the months leading up to the collapse and believed Lombard Finance would not have done much differently that would have been able to change the final outcome.
Managers had tight rules on lending and kept within those, he said. "We carefully monitored the performance of the loans and the reports of their managers," he said, pointing to the creation of a sub-committee of the board to review major loans after it became clear that new provisions for bad debts would be necessary as the end of the financial year approached. The board then sought advice from Korda Mentha on the size of those provisions in March.
"We were all working on that when were told by our borrowers that they wouldn't be able to refinance because they couldn't get bank finance," he said, adding that the estimates this week from PwC were more than twice as bad as those prepared by Korda Mentha shortly before the collapse. Sir Douglas said Lombard obtained legal advice from Minter Ellison that it was not breaking NZX disclosure rules by not disclosing the decision to review the loan book for new provisions.
Local banks who would have refinanced property investments before the credit crunch had virtually shut down lending in the severe market turbulence when the US Federal Reserve was forced to bail out Bear Stearns and support other investment banks. By late March one loan to Tim Manning, the developer behind Brooklyn Rise, had ballooned to NZ$40 million or 30% of Lombard's loan book because it had not been refinanced and was a loan where interest was not due to be paid until the project was completed and the whole loan repaid.
Lombard lent to the original developer Lance James, who had struggled to get the massive residential development off the ground and through the consents process. Lombard then provided further finance to Manning when he bought the project off James to ensure Lombard did not lose its original money.
When Lombard was told that some borrowers could not refinance in early April, Lombard then immediately told its trustee and sought a debt and interest payment moratorium, Sir Douglas said. Perpetual Trust entertained the idea for a day before calling in the receivers on Thursday April 3.
- INTEREST.CO.NZ
