Wednesday, July 23, 2008

Hanover Finance bites the dust

What can I say, except that I am really glad I didn't put any of my $400,000+ retirement money into a finance company.

No doubt many people felt that Hanover Finance, which today announced it was suspending acceptance of new investments and repayment of existing deposits, was secure - even if lesser finance companies were falling by the wayside.

This is what the company's website said until today:

Hanover Finance has a proud history of delivering strong financial performance and consistent returns to investors over 23 years. We are one of the five biggest finance companies in New Zealand and one of only six with an international long term credit rating, BB+ from Fitch Ratings.

Key to our success is our wealth of experience in property finance. We know the market. We deal with experienced, successful developers who we know, and we apply strict loan approval criteria which results in only one in five loans being approved. Over the years we have managed the business through a range of market conditions, delivering consistent returns to investors through sound financial strategies.

Today, the entire website has gone, and been replaced by a press release that reads, in part:

Hanover Finance, which continues to meet its Trust Deed obligations and has ongoing financial capacity to trade, says it is acting early to preserve value in the business as market conditions continue to deteriorate and uncertainty mounts over borrowers’ abilities to repay as forecast.

Shareholder Mark Hotchin says: "Against a backdrop of global credit uncertainties, falling property prices and lower reinvestment rates, the industry model has collapsed. Alternate financiers are increasingly unwilling to step in, and we’re also now starting to see borrowers trying to take advantage of the uncertainty to delay payments - further compounding the situation."

It's dismal news for the investors who put about $1.2 billion into the company, according to the December 2007 six monthly accounts (the latest available).

Mr Hotchin, a co-owner of Hanover Finance (with Eric Watson), said this evening that the recent collapse of finance companies Dorchester Finance, Dominion Finance and St Laurence had seen all new investment in Hanover dry up.

Reinvestment rates from debenture holders had plummeted from around 40 percent to less than 20 percent in the past few months.

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