S&P tips more finance failures

More finance company failures were likely in the next year, international ratings agency Standard & Poor's said yesterday while putting the boot into the local sector for its lack of transparency.

S&P director Craig Bennett said the agency had predicted trouble before the collapse of National Finance 2000, Provincial Finance and Western Bay Finance in the past three months.

S&P released a report reviewing the top 20 finance companies, based on publicly available information.

It found the general credit quality of the sector was low and the lack of information made it hard for investors to determine risk.

"There are some entities that are stronger than others and better managed," said Bennett. "But, at the other end, there are companies that are small and weak on a financial analysis. There is a large disparity between the stronger and the weaker ones. The level of disclosure and the lack of a comparable benchmark doesn't enable that comparison to be readily identified."

The list of 20 companies studied - and their ranking - has not been released because of the lack of comparable information.

However, further analysis was under way and S&P "would be looking to release additional information concerning the relative position of the companies" once it was available.

"We don't feel the transparency is there, especially for the mum and dad investors, for them to be able to measure the appropriate risk," said Bennett. "What we will be looking to do is try to assist the development of a benchmark to enable that comparison."

Matthew Goldsack, head of research for Wellington-based Arcus Investment Management, said the report was in line with recent findings.

"We've done quite a lot of research into the finance company sector over the last few months and, like S&P, we've predicted the incidence of defaults in New Zealand will increase."

Goldsack welcomed the call for greater transparency for the finance company sector: "Anything that basically creates a level playing field for assessing the risk would be welcome."

He urged investors to have a well-diversified portfolio and seek seek quality finance advice if in doubt.