KEY POINTS:
Former Brierley Investments chief executive Paul Collins remembers clearly the first shudders of the 1987 sharemarket crash.
The head of what was then one of New Zealand's largest firms had flown to Hong Kong for a board meeting of European Pacific - the finance company later to be at the centre of the Winebox Tax Inquiry. It was Tuesday morning, October 20 and news that a near record 4.3 per cent fall on New Zealand's sharemarket had kicked off the Black Monday around the world was beginning to filter through.
Australia's all ordinaries index had followed the New Zealand market, falling 3.74 per cent, but then the panic picked up steam. The Nikkei fell nearly 15 per cent, the FTSE plunged 10 per cent and the US benchmark Dow Jones Industrial average finished off the day down 508 points, or nearly 23 per cent. All of this had been precipitated by a sharp drop in New York the previous Friday amid mounting fears over US trade deficit and higher interest rates.
The next day, in an attempt to make light of the bloodbath, European Pacific's chief executive placed a plastic hand gun on each director's blotter pad around the boardroom table.
This comment on the crash was clear and it was a view that Collins shared. "My own feeling at the time was that it was likely to be more far reaching than many suspected," he says.
On the Tuesday shares rallied, but it was the start of a pattern of partial recoveries and deep falls that repeated itself again and again over subsequent months, leaving a trail of destruction.
By mid January 1991, New Zealand's all-share index had fallen from 1240.6 just before the crash to 385.98. The market's value fell from $45.5 billion to $14.3 billion.
It was a plunge of more than 68 per cent and one from which the New Zealand market has still not recovered. Indeed, the NZX all market capital index, now at around 1170, still needs to rise another 25 per cent if it is to surpass the heights reached at its peak in 1986 of 1464. The recovery in overseas markets was much more rapid. By 1988 some business commentators in Australia, the US and Britain were describing Black Monday as a correction. Their markets recovered quickly.
The Dow recovered its pre-crash heights in January 1989 and is now six times its pre-crash value.
Collins, now running Wellington-based Active Equities, is one of the few former high-flyers willing to discuss the period. He looks back with a degree of fondness and amazement that the market had got so out of hand.
"They were halcyon days. Whatever share you bought went up in price virtually overnight and I say price, not value. Fundamental value had not changed at all but prices were just astronomic," Collins says.
In the two years leading up to the crash, the sharemarket had become increasingly popular, with the number of individual shareholders growing from about 50,000 in 1985 to about 110,000 in 1986.
Activity on the market was frenetic. In 1986 an average of two companies were listing every week, and on the eve of the crash the New Zealand market sported 309 listed companies. It now has just 123.
Olly Newland, founder of Landmark Corporation, a listed property company which grew to $450 million just before the crash and later fell into receivership, recalls the boom as an exciting time.
"I was trading something out of nothing. We were all building up these assets and investments amid adulation from shareholders. It is very hard to resist that. You would make pronouncements with great gravity, that turned out to be true, simply because the market was going up. You actually moved the market with these things. You believed you could walk on water. But you found that the market was much stronger than you could ever be."
The mood of the public was no different, Newland says, remembering the popular sharemarket clubs.
"Sharemarket clubs were hot. I was speaking at many of them, their eyes were spinning, you could see they were away with the fairies. They were convinced they had the magic formula. It was crazy."
Most agree the seeds of the crash were found in the deregulation of the financial sector by the Labour Government, led at the time by David Lange.
Banks were given more freedom to lend where they chose, while interest rate controls were relaxed. At the same time, a relaxation of foreign exchange controls created new sources of funds and new regulations throwing open the doors to foreign banks for the first time exposed New Zealand institutions to competition.
All of this, combined with a demand for credit, led to a frenzy of lending - often at the expense of a robust examination of credit quality - and fuelled a boom in mergers and acquisitions. And it came during a time when the country's economic fundamentals were not great.
The so-called investment companies that dominated the New Zealand market at the time were the chief beneficiaries of the availability of funds. These firms' primary assets were shares in other firms, often with similar assets and objectives as their own.
A Herald graphic in early 1987 sets out the web of interests linked to the cross-shareholdings between various firms affiliated to Bruce Judge and finance group Euro National. It illustrates the complex web of shareholdings that were de rigueur for any self-respecting investment company at the time.
Once the market began to fall, banks found themselves holding, as security, assets worth much less than their original loans. The result? Credit was withheld, exacerbating the fall.
Former Equiticorp head Allan Hawkins, who was later jailed after the firm's collapse in 1989, said ultimately it was the credit squeeze that claimed his company.
He was flying back to New Zealand, having just made a deal to buy New Zealand Steel from the Government - a deal that was later found to be illegal and cost the Government $268 million in payouts to Equiticorp creditors. Hawkins says his initial reaction to news of the crash was: "Nothing in particular, it was just one of those things, there had been a bit of nervousness, so we knew there was a situation coming up that we would have to deal with."
That situation was serious. Equiticorp had bought New Zealand Steel for $327 million of shares, which it had agreed to buy back if no buyer could be found.
After the crash Equiticorp had to stump up with the cash because shares could be bought more cheaply on the open market.
Hawkins says it was not the New Zealand Steel deal that sunk his company. "It was about a year later when the banks started to tighten up, particularly the BNZ in New Zealand.
"By the time we got into strife they probably had not lent for a year," Hawkins says.
"They were looking to get repayment from assets where there was not a lot of liquidity left."
Sir Michael Fay, principal of investment powerhouse Fay Richwhite, says the crash itself was not the biggest impact on the New Zealand economy in the 1980s.
"Interestingly, looking at my diary at the time, most of my entries were to do with the Big Boat and the America's Cup," Sir Michael says.
"It was a very interesting climate, there was a tremendous surge of entrepreneurial thinking of young people moving in to a new world. The biggest impact from the crash was that so many people hit the wall on the back of the readjustment of values after 1987."
He says the debt burden or even the reputational damage following loan defaults held many back from participating in public markets again.
Sir Richard Carter, former managing director of Carter Holt Harvey and great-grandson of the forestry giant's founder, looks back at the period with some distaste.
"We were basically bad news because we were normal," says Sir Richard, who has retired to the family property in South Auckland.
"We were just a staid old producer of things. We were not paper shufflers like some of the names that were around. One of the crazy things was it was the likes of the speculators who seemed to be sucking all the credit out of the banking system. We are having a hell of a job trying to keep our normal business activities afloat."
Sir Richard says the hype was such that the banks preferred to lend to the investment firms despite his business producing stable and solid cash flows. The Carter Holt share price fell, leaving it vulnerable to the very firms Carter eschewed. All the big names of the time looked over the books.
Carter says of the crash: "I was not all that much surprised, probably being one of those people who thought at the time that the hype around the sharemarket was vastly overdone."
Some investors, such as Michael Cashin, former chief executive of the now defunct Renouf Corp, made lucky escapes. Cashin, now a professional director, had left Renouf and sold all his shares two weeks before the crash.
"I had felt unsteady about the market since the beginning of 1987," says Cashin, who was taking time out at his holiday home in Taupo to decide his next move.
Others were less fortunate. Newland, who had borrowed to buy shares, lost millions. For years he struggled to keep creditors at bay until he finally cleared all his debts.
"Have you ever seen the film Alien? There is a monster thing that grabs you in the face and wraps itself around your head - that's the feeling you have," Newland recalls. "I finally settled the whole thing in 1992 and 1993. I just rolled my sleeves and got stuck in as a sole trader."
Thousands of New Zealanders who lost their life savings were forced to do the same.
Where they are now
Graeme Hart
Then: Floated his company Rank Group in January 1987 and scored its big win in 1989 with the acquisition of Government Print for $23 million.
Now: After a string of deals including Wormald, Whitcoulls, Burns Philp, New Zealand Dairy Foods, Goodman Fielder, and Carter Holt Harvey he is New Zealand's richest man.
Ron Brierley
Then: Sir Ron Brierley listed Brierley Investments in 1970. Within 15 years it was New Zealand's largest company. After a falling out with BIL executives Bruce Hancox and Paul Collins, he took the reins of British-listed GPG, a former Equiticorp subsidiary.
Now: He remains chairman of GPG, his reputation as one of New Zealand's greatest creators of wealth intact.
Alan Gibbs
Then: Gibbs sprang on to the national stage when he and his friend Charles Bidwell took control of ceramics group Ceramco. Gibbs was instrumental in helping the Labour Government transform the economy, from advising on health reforms, through to being part of the consortium that privatised Telecom.
Now: Gibbs is based in London developing amphibious vehicles. The last reports of Bidwell also placed him in London.
Peter Masfen
Then: In the 80s he was chairman of Corporate Investments, which had interests in tourism, forestry, manufacturing and property. Corporate Investments survived the crash and later changed its its name to reflect its major asset, Montana Wines. This was later sold to Britain's Allied Domecq after a protracted takeover battle.
Now: Masfen now runs his own investment company and is a professional director and chairman of the highly regarded Property for Industry.
Craig Heatley
Then: Chairman and chief executive of Rainbow Corp, which had interests as diverse as tourism, manufacturing and retailing. It was taken over by Sir Ron's Brierley's BIL. Heatley was asked to join BIL, but declined and was instrumental in launching Sky Network Television, among other things.
Now: Runs his own investment company, with interests in technology, including fledgling telecoms provider Woosh, and troubled text messaging group Plus SMS, now called cre8.
Lloyd Morrison and Ray Thomson
Then: Morrison and Thompson took over OmniCorp in 1985. They focused on tourism and bought stakes in International Leisure Group (package tours for British holidaymakers) and Contiki International. Colin Reynolds' Chase Corp, took control and was forced to sell OmniCorp.
Now: Morrison founded the investment bank Morrison & Co in 1988, which saw the formation of listed investment company Infratil in 1994. Both are thriving. Thomson focused on technology investments and is now a director and shareholder in NZX-listed Wellington Drive Technologies.
Bryan Mogridge
Then: Mogridge was chief executive of Corporate Investments.
Now: Chairman of market darling Rakon and a director of Marac, Pyne Gould Corporation, Mainfreight, Paragon New Zealand.
Paul Collins
Then: Former BIL chief executive, who wrested control from Sir Ron. He resigned in the late 90s after BIL's performance faltered.
Now: Running investment firm Active Equities with form BIL director Patsy Ready.
Michael Fay and David Richwhite
Then: Sir Michael Fay and his business partner David Richwhite were principals of the then investment powerhouse Fay Richwhite. Sir Michael and his firm were heavily involved in restructuring the New Zealand economy, including the privatisation of assets such as the Bank of New Zealand, New Zealand Railways and Telecom.
Now: The often-controversial duo moved overseas in the late 1990s. They closed their Geneva office last year. Richwhite is based in London, but Sir Michael now intends to spend more time in New Zealand.
Colin Reynolds
Then: Chairman of investment group Chase Corp, which, at its peak in 1986 and 1987, had a presence in five countries - New Zealand, Australia, Hong Kong, the United States and Britain - and was worth $1.3 billion. It had stakes in or ownership of some of the better-known companies in Australia and New Zealand including Wormald, Feltex and Farmers' Trading. Chase, however, was placed under statutory management in 1989 and reported the largest loss for a New Zealand company, $841 million.
Now: His privately owned Symphony Group is now half-owner of the ING Property Trust's management company.
Allan Hawkins
Then: Allan Hawkins was Equiticorp chairman and chief executive and a big risk-taker. He acquired major interests in Feltex, Fisher & Paykel, Aurora Group, New Zealand Steel, Yates Corp, Carter Holt Harvey and Guinness Peat. The ride ended with the collapse of Equiticorp and a jail term.
Now: Chairman, chief executive of sharemarket minnow Cynotech Holdings, which now operates Budget Loans and Merlin Foods, an icecream cone manufacturer.
Gary Lane
Then: Teamed up with Heatley in Rainbow Corp, but after the BIL takeover went out on his own expanding into food manufacturing.
Now: Runs own investment company, Lane Capital, which has sold its interests in Hansells and health products maker Healtheries.
