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New Zealand rugby boss Jock Hobbs' Strategic Finance, which has frozen repayments to investors owed $350 million, yesterday said mounting bad loans would likely turn last year's $30 million profit into a $15.5 million June year loss.
"Strategic, along with all participants in the property finance sector, has been affected by loan defaults and there are likely to be further loan defaults due to the continuing slowdown in the New Zealand economy and in particular the property development sector," the company said in a sharemarket announcement.
As a result, Strategic's board expected to make "significantly higher levels of impairment and provisioning" in the company's June year numbers.
"These additional provisions, bad debt write offs and one off adjustments are expected to result in a net operating loss for the year ended 30 June 2008 in the vicinity of $15.5 million."
The final amount will be known once auditors KPMG had completed their work.
"This is a disappointing result but it is considered appropriate in the current economic environment," the company said. The increased provisions were "collective" and were "not allocated to any specific loan exposure".
Hobbs, chairman of the New Zealand Rugby Union, was among a group of Strategic's shareholders and founders which completed the sale of the property financier to Australian company Allco last year.
He is also part of a consortium which includes Bank of Scotland International and Strategic's management, now negotiating to buy the company back off Allco.
The Business Herald understands the proceeds of the sale, should it go ahead, will be used by Allco to repay debt it owes to BOS International.
Meanwhile, Geneva Finance, which like Strategic is largely reliant on BOS International for funding, also said it was taking a hard look at its loan book.
Geneva's board said it had asked management to complete a full review of the company's lending portfolio, "in response to the ongoing deterioration in market conditions".
Unlike Strategic, Geneva is not exposed to the property market. Its portfolio largely comprises consumer finance loans.
Geneva's board said it was concerned about the increased costs of living being absorbed by its customers, "especially food and petrol price increases over the last six months and the risk this raises in regard to asset quality, particularly of the older historical loans". The review process was expected to take three to four weeks at which time the board would advise the market of its profit forecast.
Geneva's NZAX listed shares closed unchanged at 9c yesterday.
