KEY POINTS:
With the finance company carnage deepening alarmingly in recent weeks, Stock Takes has been fielding emails and calls, not just from disappointed investors, but, increasingly, from disgruntled borrowers.
One felt that given the Business Herald's extensive coverage of the impact of the failures on investors it was only fair that we discuss the plight of borrowers.
This particular caller told us he'd borrowed $4 million from one of the three companies that has recently struck difficulties. His loan was due for repayment in a month's time and he'd generously offered to repay it immediately to help out with the company's liquidity problem.
All he wanted for this largesse was a discount on the principle amount of "a little bit more than 10 per cent".
The company concerned declined, saying they'd rather take him to court. The borrower was aggrieved his offer had been spurned and told Stock Takes he intended to take legal measures to delay repayment when his loan was due.
Meanwhile, troubled Dorchester Pacific's annual report issued this week revealed the company is facing legal claims from borrowers totalling nearly $6.5 million.
There are undoubtedly instances of behaviour and practices by finance companies and their management for which those responsible should face court action and subsequent penalties, including imprisonment. But it also appears likely that at least some opportunistic borrowers, noting the desperate situation faced by many companies, will seek to exploit that, in most cases employing or using the threat of legal action.
While finance companies, their investors and in many cases borrowers will lose out, it is an ill wind indeed that blows lawyers no good.
GOING GANGBUSTERS
As strange as it might seem, Hanover Finance finds itself facing court proceedings under the US Racketeer Influenced and Corrupt Organisations or RICO Act which provides for extended penalties for criminal acts performed as part of an ongoing criminal organisation.
The charges are among a number brought by property developer Mark Cooper.
The Business Herald reported Cooper's initial actions against Hanover early this year when he brought obscure Californian usury charges against the company and also alleged it was involved in $15 million worth of undeclared related party loans.
Among other things, Cooper is arguing that he had a joint venture agreement with Hanover to develop apartment buildings in California, and that this was done through a series of subsidiaries or front companies in order to get around constraints on overseas lending contained in Hanover's trust deed.
However, Cooper says Hanover subsequently chose to play hardball by behaving more like an unaffiliated financier, rather than a business partner as stipulated in a joint venture contract.
About $30 million in loans are involved in the various disputes, many of which have yet to be heard in court.
However, Hanover chief executive Bruce Gordon says those that have been dealt with so far have not gone well for Cooper. He also told Stock Takes Cooper was attempting to use recent finance company failures to help his action.
"Cooper and his interests are a disgruntled borrower who is trying to take advantage of the disrupted financial services market to force Hanover to come to an unacceptable arrangement, to forgive outstanding debts and they are using the courts and the media to try [and] take advantage."
HARD TIMES FOR BROKERS
Commonwealth Bank of Australia is understood to be now negotiating the contract for the purchase of ABN Amro's Australasian businesses, which include the company's New Zealand institutional and research arm and a half share in retail broker ABN Amro Craigs.
Should the transaction go ahead, a well-placed industry source believes the outcome would include an acceleration of the current rationalisation in New Zealand's sharebroking and investment banking industry.
CBA already owns a retail sharebroker here, ASB Securities. If it chose to put that together with ABN Amro Craigs then it would be reasonable to expect some job losses.
If the source is to be believed, there are already a number of ABN Amro CVs in the market at present.
"That's on top of the people who are being pushed out of organisations anyway.
"It's tough in banking and broking at the moment, the markets and volumes are down and mergers and acquisitions are quieter.
"People have got less money to invest and are investing it more conservatively, head counts have been falling, people leaving are not being replaced."
Given the recent global turmoil that has hit the New Zealand market at a time when, despite what the headline NZX-50 might have suggested, it is in a long-term decline, things look bleak for the broking industry, at least until such time as our domestic savings reach significant levels.
DAMN THE TORPEDOES
Given what's happening in the markets, the present doesn't seem to be the best time to be launching a new investment fund, but that isn't stopping Wellington-based boutique outfit Kinloch Funds Management.
Next week, it will launch its new Emerging Markets Property Securities Fund which will invest in large listed property companies in, funnily enough, emerging markets.
Most of its investments will be in emerging Asian markets but funds will also be allocated to companies in Eastern European, South American and even South Africa. Kinloch says the fund will be the first of its type launched in Australasia, "and is an exciting new entrant to the investment market".
FLYING HIGH AFTER HIGH COURT WIN BUT ROUGH WEATHER AHEAD
With the Lambie family's bid for the return of 36.4ha land acquired by Auckland Airport in the 1970s being turned down by the High Court last week, the airport and its shareholders had at least one thing to smile about.
Goldman Sachs JBWere analyst Marcus Curley reckons the ruling "effectively eliminated downside risk estimated at 11c per share".
But in a recent research note, Curley says regulatory risks are still hanging over the airport.
The most immediate of these is the prospect that the Commerce Commission will deny the airport the opportunity to move from two to a single duty-free operator.
He says the commission's strongly worded decision to block the sale of Swiss-based Nuance Group's Auckland Regency duty-free operation to Hong Kong firm DFS Galleria set a precedent for the commission's investigation into the airport's decision to move to one operator in August next year.
If the airport was forced to retain the status quo, Curley expected a $2 million to $3 million fall in projected full-year 2009 concession revenue which would reduce Goldman Sachs' earnings estimate for the year by 1 per cent, taking it to $2.22 a share.
However, allowing for "derating" of the New Zealand equity market, Goldman Sachs has fair value of the airport's shares at $1.90. Moreover, Curley's fair value assessment doesn't take into account any downside risk associated with the commission's current review of airport pricing.
The rigorous approach taken by the commission over the duty-free issue suggests to Curley that its airport pricing review will be pretty tough, too.
He reckons the outcome could affect AIA shares to the tune of 10c each.
Curley rates the airport a "hold", with a more positive recommendation dependent on the share price reflecting "a material proportion of regulatory risk".
In order to do that, they'd have to be trading at around $1.80. Yesterday they were moving that way, closing down 5c at $1.90.
