Paul Lloyd Hotchin would now be 53. His family has not heard a word from him in at least 30 years. Lloyd Hotchin died without discovering what became of his eldest son, a friend of the father says.
"He just didn't come home one night and that was it". The friend (one of many people interviewed who did not want to be named) says there were no fears for his safety.
"He was a hard boy to settle down apparently," he told the Herald. "He just went overseas and they never heard from him again.
"Much to their distress, they tried everywhere to find him. They did a lot of research and it never did reach fruition. It's not thought that he's in New Zealand."
A Herald check with police indicates he was not reported missing - usual practice if foul play is suspected.
However, Mark Hotchin yesterday told the Herald his brother had died but would not elaborate.
Lloyd Hotchin's death notice, published in the Herald in November 2005, said in part, "Lloyd, darling husband and best friend for 50 years, of Beverley, and beloved father and mentor to Mark, John and lost son Paul."
The Hotchin boys grew up in Mangere across the road from the Kirwans, whose son John found fame with the All Blacks.
They attended Catholic schools, St Joseph's Primary in Onehunga and Marcellin College in Royal Oak.
Hotchin appears to have also attended St Paul's College which lists him among its alumni as having done well in business.
Lloyd Hotchin had a successful joinery factory, Fine Line Joinery, as well as shrewd eye for property. The family's financial standing rose and they moved to a big house in St Andrew's Road, Epsom.
Rod Pascoe, a friend of John Hotchin in their younger days, recalls that Mark was rescued by his father when his first business, a sports goods store, got into financial trouble. "Lloyd helped Mark out financially," says Pascoe. "Our group of mates were very impressed that Lloyd would help his boy in this way rather than let him get a bad credit rating with a business failure."
Pascoe recalls the young Mark Hotchin as energetic, hospitable and industrious. In his early 20s he would buy and do up old houses for resale. "I remember visiting him when he and John were living in one such house in Campbell Rd, One Tree Hill, about the time Mark's girlfriend gave birth to his daughter."
"I always had a lot of time for Mark. Even when he got hugely wealthy, he didn't shun mates and acquaintances from the past or pretend he didn't see them at events."
A source who socialised with Mark Hotchin in that early period of his life said Hotchin never touched cannabis "when the rest of us were right stoners.
"I thought then that he had a focus the rest of us lacked, and that risking a conviction, even for something as minor as possessing dak, was out of the question."
One of Mark Hotchin's current friends told the Herald that while Hotchin "certainly has an ego", his financial success wasn't handed to him on a plate. "These guys [Mark and John] grew up pretty tough. They didn't have a silver spoon in their mouth."
There wasn't a history of tertiary education in the Hotchin family and Mark left school to work in his father's joinery factory. Hotchin senior's interest in speculative property investment rubbed off.
Mark Hotchin said of his father in a 2003 interview, "Dad drove things pretty hard. He instilled a strong work ethic. It plagues me sometimes."
In 1982, aged 23, he cross-leased a Parnell section and built a townhouse on the front. This was a time when few were doing this and he returned to it later with gusto when town planning changes made many more properties subdividable.
"Mark started doing two or three a year and made a bit of a margin and thought 'why don't I do 20 or 30 a year, or as many as I can find'," says Mark's friend.
They are a business-orientated family. "John has been reasonably entrepreneurial. Obviously he has his own [court] case to face at the moment, but they had a fair bit of motivation and desire to succeed."
Mark had been pretty successful to be able to have the equity to [set up] Hanover, to buy the assets from Elders."
Mark Hotchin credits as having given him "a leg-up" on the wealth ladder a St Heliers property called Regency Court. He bought it 1991 in a distressed sale for $6 million, completed it and sold it for $10 million.
This was a good period for him. He bought small taxi operation Corporate Cabs which grew while providing good cashflow and then took a bold step buying Matarangi Beach Estates at a time (1995) which coincided with a trend for people to have a lesser home in Auckland in order to buy a place at the beach.
His move from property developer to executive director of a finance company arose out of his experience after the 1987 crash and as a property sub-divider. After 1987, he and his father had to move fast to sell out of commercial property and invest in rental flats. That was driven by pressure from lenders. "I must admit I prefer to be on this side of the desk lending money rather than borrowing," he said in a 2003 interview.
Carving up and building on residential sections relied on borrowing. He used finance companies, an industry that got its oxygen from a lack of competition in the banking industry. There were plenty of investors looking for a better return than 6 per cent being offered by banks. Finance companies scooped up demand from those outside of the bank's lending criteria commonly, developers.
"Mark came to realise that if he owned the finance company, he could control all angles," says the friend. "At a time when the price of assets [property] was going up because anyone could get credit, it was easy money."
A third aspect in the creation of Hanover Finance was Hotchin meeting Eric Watson. Watson, the son of a working class solo-mother, had made himself wealthy but his public companies had performed poorly for small investors.
They reportedly met at a ball in 1997 at what was then The Regent Hotel. With shared interests in business, cars (Hotchin raced in rallies), horses and beautiful women, they became firm friends as well as business partners and would holiday together overseas.
The pair bought 30 per cent of Elders Finance in 1999 and in December that year bought it outright. Elders became the core of what would become Hanover Finance. Two years on, their other finance and investment assets (Nationwide Finance, Leasing Solutions, Elders Home Loans and Hanover Securities) were rolled in to create Hanover Group with reported assets of $650m.
Hotchin gained a stake in Watson's rugby league team, The Warriors, and was appointed to the board of Watson's Pacific Retail Group but was left to run Hanover with Watson (who moved to London in 2002) available "as sounding board".
A former colleague of both men, suggests Watson added a harder edge to Hotchin. "Eric takes an aggressive approach," he says "He drives everything foot flat to the floor. It's quite crude. There isn't much appreciation of business cycles or anything long-term. It's like everything is a moneymaking [venture].
"Eric Watson's master skill is he can read people like a book."
The source describes Hanover's modus operandi thus: They had an infinite amount of cheap capital [from investors] that they could lend on to people doing property deals at a huge margin. "There was a lot of dynamism, rising property prices, and as long as that continues they do well. They were as pleased as punch that they had this money machine."
He considered Hotchin to be more conservative than Watson. "Eric just wants leverage. He's always talking about how he can raise capital.
"I couldn't handle the culture anymore."
Mark Hotchin's friend says he is a good bloke to socialise with. "On a personal level he's very good with people, loyal to his mates and not pretentious in any shape or form.
"I liked him. But you have a certain moral compass in this world and it's all well and good being nice and matey to your friends but at some point you have to have some empathy. Maybe he has been unable to put himself in the shoes of everybody else and consider what it might look like."
Hotchin's 50th birthday bash with a large guest list on a Fijian island, continued development of an enormous $30 million Paritai Drive home and Hawaiian holidays incensed Hanover's investors after the company's collapse.
The source was less impressed by John Hotchin. "I think he's a complete cock," he said. "The fact that a lot of people lost a lot of money with him [Nathans Finance], he's like, six-foot tall and bullet proof. His ego is so big."
A female source who mixed in the same rugby crowd as John in the late 1970s was similarly unimpressed. "I thought he was a dickhead. I don't recall him being bright but he was supremely confident, pretty full of himself."
Mark Hotchin puts a lot of effort into fitness but is also a smoker. The Herald understands he gave instructions that a house (not yet built) for his property on Boatshed Bay, Waiheke Island, be designed to give him sheltered outdoor smoking spots whatever the wind direction.
Hotchin and Watson stand accused of taking millions of dollars out in dividends and borrowing from Hanover for their own property developments and joint ventures.
How was this possible in a company whose profitability is in question? The answer - and this is common not just to Hanover but many finance companies operating in the property sector - is loans were capitalised, meaning income was earned on paper by the way it was accounted for. A developer would not have to repay a loan, or interest accruing on it, until an agreed date, such as when the project was completed and the developer had made his profit. But interest would be recorded on the books, consistent with our accounting standards, as income.
The IRD requires it, notes a finance industry source, who suggests this is a flaw. The appearance of profit, however, gives the owners the opportunity to take out dividends.
But with little money coming in in the form of capital and interest on completed loans the main source of that cash in Hanover's case was its Mum and Dad investors, attracted by adverts portraying Hanover as a prudent and cautious lender.
Business commentator Brian Gaynor has noted that the result, though unintended, has the same effect as a Ponzi scheme. Interest on debentures, repayment of debentures and dividends to the finance company owners were all sourced from new debenture money.
In addition, "it appears a number of owners of finance companies sold properties to developers at vastly inflated prices and these purchases were 100 per cent funded by a finance company owned by the vendors."
Herald inquiries indicate this description may in part fit transactions on land where the Kawarau Falls Station development in Queenstown has hit trouble. According to industry sources a Hotchin and Watson company (it is unclear which one) bought the lakeside 6.5ha site for about $50m from Christchurch businessman Philip Carter and on-sold soon after to developer Nigel McKenna for a profit of at least $15m. McKenna's purchase was funded by Hanover.
McKenna's current financial problems may put repayment of that loan and his other debts to Hanover in doubt. Planned as an alpine village with hotels, apartments, private residences, worker housing and associated services including spas, gyms, restaurants and cafes, only the first stage of three of the Kawarau Falls development is being built. Two of McKenna's Kawarau project companies have gone broke and he is fighting a bankruptcy application. Outstanding Hanover loans (now owned by Allied) associated with Kawarau were recently listed by Allied at $116 million.
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Correction, clarification and apology
A column entitled "Hanover's Shameful Slam-Dunking" dated 29 November 2008 asserted that Hanover's prospectus should have included information that most of Hanover's loans were second mortgages and that interest on loans was capitalised. Another entitled "Hanover Debacle Must be Turning Point" dated 6 December 2008 asserted that Hanover adopted misleading accounting policies in relation to capitalised loans. The Herald accepts that Hanover's prospectus No. 36 accurately disclosed on pages 55-61 that most of Hanover's loans were second mortgages and that the interest on the loans was capitalised, and retracts and apologises for the suggestion that Hanover misled or withheld information from the public as to the nature of its lending.
Articles entitled "Hanover House of Cards Doomed to Fail" dated 6 March 2010 and "Mark Hotchin: The Man Behind the Money" dated 19 February 2011 asserted that Hanover declared dividends out of non-cash profits, and an article entitled "Brian Gaynor: Message to Hotchin - own up or shut up" asserted that those dividend payments should not have been made. The first two of these articles also asserted that Hanover was, in effect, operated like a Ponzi scheme. The Herald acknowledges that Hanover was not a Ponzi scheme, and that Mr Hotchin did not act illegally in receiving dividends from Hanover, and apologises if any readers took those messages from these articles. The main purpose of all of these articles was to call for greater regulation of the finance industry.
