Gareth Morgan says new book should better equip small investors

Gareth Morgan. Photo / The Listener

Continuing his assault on the shortcomings of the finance industry in a new book, economist Gareth Morgan says he is also hopefully better equipping people "if they're going to play the money game".

The help provided in his book, After the Panic: Surviving bad investments and bad advice, includes a list of the finance companies and funds that got into trouble in recent years, the key people in the companies, and a list of directors.

A selection of quotes from documents published by some of the companies also highlight the disconnect between what companies were saying before they malfunctioned and what actually happened.

Take, for example, Provincial Finance which went into receivership in mid-2006 with $296 million at risk.

"You can have peace of mind when investing with Provincial Finance as you're dealing with an experienced, dedicated finance company," Provincial Finance said in a prospectus in 2005.

"... when you invest with Provincial Finance you'll enjoy high levels of personal service, regular, easy to understand performance reports, attention to risk, and a good rate of return over the term of your investment".

Or what about Capital + Merchant Finance which went into receivership in late 2007, owing about $190m.

"Capital + Merchant Finance is of the opinion that it has 'insured' itself in the unlikely event that there was to be a loss on some or a number of its investments," a 2007 prospectus said.

There's North South Finance, whose investors approved a moratorium last year.

"NSFL's directors have experienced a number of economic downturns and have the requisite experience to protect our shareholder funds and our investors' funds," a 2007 prospectus said.

Mark Hotchin and Eric Watson's Hanover Finance, which suspended capital and interest repayments in mid-2008, also sounded reassuring in a late 2007 prospectus.

"Central to our business strategy is an understanding of the importance of prudent cash management," the Hanover prospectus said.

"It is also important to maintain a balance between maturities of loans to borrowers on one hand, and funding from investors on the other, in order to ensure that investors are paid in full when the secured deposits mature.

"Our investors can take comfort that we are well placed in these areas."

But a year later, when investors voted on a five-year rescue plan, comfortable was probably not the most accurate way to describe the state they were in.

Under the plan, the company set out to repay nearly 16,400 investors in Hanover and a subsidiary their principal of more than $500m.

In the book, Morgan said that in his opinion it was critical that investors knew who had "demolished" investor wealth in the past, so they could apply the 'once bitten, twice shy' principle to dealing with them in the future.

He described some of those listed in the book as "highly regarded New Zealanders".

"I do not suggest that they are directly culpable, but as directors they are still responsible. If they weren't alert to what was going on at executive level then they were not fulfilling their directorial duties," Morgan said.

He also pointed out that some of those who "annihilated" clients' wealth had come back "under different corporate guises".

"All too often, the public doesn't realise that it's dealing with someone who has wreaked such damage in the past."

- NZPA