KEY POINTS:
Hanover investors might have been encouraged to see chairman Greg Muir, appearing on Campbell Live last week, to publicly stake his reputation on the outcome for investors of the company's restructuring proposal, which will be put to them by the end of this month.
Fact is, as chairman of the company, Muir's reputation has always been on the line. If only as far as what it would imply for Hanover's investors' interests, Stock Takes sincerely hopes Muir's reputation emerges from all of this intact and even somewhat burnished.
Muir's good name is not the only one at risk here, Sir Tipene O'Regan is also a Hanover director.
But then there are some other well known public figures caught up in the finance company failures, including one of the messier looking ones - Lombard, whose chairman was former National Government justice minister Sir Doug Graham.
Also on Lombard's board was former Labour Government justice minister Bill Jeffries.
Both men, along with Lombard's other directors, appeared in marketing material for the company and why not? Stock Takes assumes they were in a better position to, well, direct Lombard's activities and judge its health than say Colin Meads was at Provincial Finance or Richard Long was at Hanover.
Earlier this year, KPMG financial services group deputy chairman Godfrey Boyce told Director magazine that good governance "means having a board of directors which has sound and prudent lending policies, closely monitors the quality of its loan book to minimise bad exposure, and has a solid liquidity and funding policy".
"I think you can conclude," Boyce said, "that if there is anything less than a 70 per cent payout [to investors] that will raise questions about what was going on; and what lending transactions or other transactions were waved through."
In their first report, Lombard's receivers estimated debenture holders could eventually get 21 per cent to 44 per cent of their $127 million back.
Sir Doug remains the deputy chairman of New Zealand's largest investment fund, the taxpayer-owned New Zealand Superannuation Fund.
BUILDING UP
Fletcher Building shares have been recovering somewhat in recent days after the almighty drubbing they received over the past year.
Apart from the grim domestic housing market outlook Fletcher's big problem has been its US Formica acquisition, made in July last year.
The timing - just before the full extent of the sub-prime crisis became apparent and the US housing market headed into a massive slump - couldn't have been much worse.
Then again Formica, while a chunky investment, is not as important to Fletcher as US operations are to other Australasian building products companies.
Australia's Boral reported its annual result this week. In 2006, the company made 30 per cent of its earnings in the US. That has now shrunk to 2 per cent.
Boral's net profit fell 18.6 per cent to A$242.8 million ($296.7 million) compared to Fletcher's 3.5 per cent decline to $467 million.
Boral chief executive Rod Pearce described the result as "disappointing", but said the US market had been "really good" to the company for the past two decades and was going through a "'generational downturn" likely to continue for another year.
"In 12 months or so we'll all be looking for the improvement," he said.
Despite the massive US impact on Boral, investors have largely stuck with the company. A year ago, its shares were trading at A$7.89, yesterday they closed at A$6.15.
Compare that to Fletcher Building, whose shares were trading at almost $13 a year ago, hit a three-year low of $6.04 mid-July and closed yesterday 13c higher at $7.16.
Stock Takes wonders why Boral's shares should fare so much better than Fletcher Building's.
PIN MONEY
Absolute Capital and ABN Amro's PINS notes, in which New Zealanders have about $70 million invested, were one of the first local investment products hit by the credit crunch with the first hint of trouble with the securities surfacing in July last year.
This week investors in the 2006 issue, which raised $50 million, were given an update on the value of their holding.
For every $100 invested, their PINs are worth $67.53. That's essentially the capital protection element of the product, under which Barclays Capital is obliged to return $100 at maturity - in 2014.
The equity portion of their investment has long since disappeared, having done so when Absolute Capital was forced to crystallise losses incurred in its leverage investment in stricken credit markets.
Investors with about $30 million in the 2005 issue have fared slightly better. The value of their investment was $82.80 as at June 30, with $69.23 of that being the capital protection portion and $13.57 being the equity component.
A spokesman for ABN Amro in Australia, the product's current manager, said cash from the 2005 notes was invested in equities as well as credit products and was not as heavily leveraged.
This week's notice about the 2006 series mentioned the possibility of an early redemption. Note holders may be asked to decide whether $67 now is better than $100 in 2014.
However there will inevitably be additional costs, which ABN Amro said would be lower next year when an early termination clause in Absolute's contract with Barclays expires.
ABN Amro and PINS trustee NZ Permanent Trustee will be in touch with investors about a meeting to vote on an early redemption proposal should that be seen as a viable option.
PRIVATE EQUITY
In response to last week's Stock Takes item about private equity, a representative of a prominent private equity firm got in touch to make the point that his outfit was doing absolutely fine.
Ralph Waters' predictions a couple of years back of "train smashes" in the sector were just sour grapes after Fletcher Building lost out to Catalyst Partners in bidding for Metropolitan Glass, Stock Takes was told.
Fair enough, Stock Takes didn't wish to imply that every private equity firm had big debt-related headaches.
Then again it appears there are concerns emerging from a number of sources about the ongoing viability of some of the big deals done last year.
The Australian Financial Review reported that the debt issued to fund the $1.25 billion purchase of Independent Liquor and the $2.24 billion Yellow Pages acquisition last year was now changing hands at steep discounts to face value.
Such steep discounts, in fact, that they suggested some serious misgivings regarding the ability of the issuers to repay their debt.
Stock Takes went to Yellow Pages with these numbers, and was assured they were "absolutely incorrect".
Yellow Pages, we were told, is continuing to meet earnings targets and was having no problems servicing its debt, which in any case did not require refinancing for another five years.
The company was only aware of one transaction involving its senior debt, and that had seen it change hands at face value.
HOARY OLD CHESTNUT
The Inland Revenue released its long awaited (at least by some) Imputation Review Discussion Document last week.
Tax expert Thomas Pippos is sounding decidedly unimpressed by the document.
"Taxpayers looking for clear indications of a change to the status quo will be disappointed. You only need to be a little pessimistic to conclude that there doesn't seem to be much of a will to do anything other than tighten the existing rules!"
Pippos points out that any discussion around the issue of mutual recognition of imputation credits is off the table.
The issue is an important one because a combination of local and Australian tax rules has tipped the balance against Kiwi shareholders. The upshot is that if an Australian corporate cannot access imputation credits on its majority investments here, the rational strategy is to move to 100 per cent ownership, load debt on to the subsidiary to the maximum level allowed, and thus minimise tax paid here.
With the huge flow of banks, food and beverage and media firms into Australian ownership in recent years this has helped diminish the local equity market.
Pippos suggests the IRD has missed an opportunity to tackle the issue. He believes any review of the regime should look at how it could be altered to allow offshore investors to co-exist with locals "rather than being encouraged to take 100 per cent of the local business over".
In addition it should discuss how foreign investors can invest here without any additional tax cost. While the document touches on this second point, it only does so glancingly, he says.
When he was here a month or two back Australian Treasurer Wayne Swan said Canberra would look at the issue of dividend imputation in its review of the tax system. But if we aren't giving this much of a push, why should the Australians?
