Hanover hits standstill

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Hanover Finance has put itself into what it calls a "standstill" freezing interest payments and refusing to accept new investments.

Wednesday, July 23rd 2008, 7:54PM

by Philip Macalister

It is not due to make its next quarterly interest payment to investors until September 30.

Hanover part-owner Mark Hotchin says he is "very disappointed" with this situation. "We are not in a place we thought we would be."

He says Hanover's "standstill" is the result of a number of factors, including a loss of investor confidence in the sector and a weak property market.

This is demonstrated by a number of factors.

Reinvestment rates have fallen to levels of around 20-25%. Hotchin says that is far too low to survive.

He says if rates held up at the 45-50% mark the company could "manage its book pretty comfortably".

He says a year ago it had rates of around 70%.

Hotchin says new investments had plummeted to. Recent rates are around 10% of what they were a year ago. Back then it was getting around $30 million a month in the door – now it is more like $3 million.

The company has capital of about $85 million which means that its capital backing wasn't too poor. The general view is that a ratio of between 10 and 12% is acceptable.

Hotchin says that Hanover had worked hard to find both a wholesale funding line and a shareholder.

These efforts have come to nothing, due partly to the "systematic collapse of the banking sector."

He also points out the ideal situation would be to have had a partner who provided capital and funding.

The company has been exposed to plenty of rumours in months and Hotchin admits these haven't helped the market.

However today's situation is "more about the collapse of (the finance company) sector as a whole."

At the end of the day Hanover's problems are partly a market failure.

Hotchin says you can "fight the market" in these sorts of conditions, but it's very hard to win.

You can read Philip's blog here: http://www.goodreturns.co.nz/blog/

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