Allied looks for ways to back into guarantee scheme

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Allied Nationwide Finance is looking at ways to increase is capital so it can again be eligible for the goverenment's deposit guarantee scheme.

Thursday, March 4th 2010, 12:04PM 1 Comment

by Paul McBeth

Allied Nationwide Finance is working with its parent, Allied Farmers, towards boosting the finance company's fortunes after it received a BB- credit rating from Standard & Poor's earlier this week.

Chief executive John Mallon said they have a range of options on how to best boost the company's capital after this was flagged by S&P in its report.  This will include the introduction of the better quality assets from the Hanover and United loan books that were bought by Allied Farmers in December, in exchange for capital.

"There are a number of loans that we can take, but we have agreed limits with our trustee on how much exposure we can have to one borrower," Mallon said. "We can't take any single loan that's over $10 million."

Cash might also be a component of any capital injection into Allied Nationwide by the parent, though it is already enjoying a steady cash flow and is holding significant cash in the bank. While the company wants to boost its credit rating to a BB, which would grant it access to the government's extended guarantee scheme beyond October 2010, a key focus is preparing for the central bank's capital ratio requirements that will come into effect in September.

"We've never had a credit rating in 40 or so years of trading," Mallon said, who warns the current infatuation with credit ratings is creating a line in the sand that may not always reflect a non-bank deposit takers' overall strengths and weaknesses.

Allied Nationwide posted a loss of $1.2 million in the six months through to December 2009 compared to a loss of $1.6 million for the same period last year as it increased its revenue.

Paul is a staff writer for Good Returns based in Wellington.

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