Yesterday I spent some time at the EUFA-organised public meeting of people who lost money in Bridgecorp.

The aim of the meeting was to discuss what sort of action people who lost money in Bridgecorp (and other finance companies) could take against advisers.

The answer to that question appears a little unclear at this stage.

What was useful though was to get the feel for what is going on. There were about 70 people at the meeting. Mainly grey haired investors, along with a good contingent of media and one prominent financial planner from Tauranga was spotted down the back taking notes.

Unfortunately for the meeting, and those in attendance, a couple of lawyers who spoke took over proceedings and spoke for far too long about generalities. It seemed to me they (at least one) were using it as an opportunity to tout for business.

Another is pretty determined to prove that New Zealand has absolutely no investor protection and the people who should be fixing this situation (including the Minister of Commerce and the head of the Securities Commission) need replacing.

Much of the talk has been about class action, however it seems this is unlikely. (Class action is where one mistake is made and many people are affected). Rather the talk is group action, where a bunch of people who have had similar experiences band together. An advantage for some in this is that people with more marginal claims maybe able to piggyback off those with more clear-cut claims.

While the lawyers were keen for business there are no promises of success.

Much of it hinges on what actually happened between the adviser and their client. No doubt any case will be a good test to see how well advisers have been keeping practice notes.

Poor old Geneva Finance. Last week I mentioned in the Good Returns Weekly Wrap that Standard and Poor’s two-notch downgrade of the company, from B+ to B- seemed like pretty rough treatment from the rating agency.

As you could expect S&P were on the phone pretty quickly after reading the comments.

Since then plenty more has happened and it leaves lots of questions and thoughts in my mind.

A week ago my proposition, and I know it was one shared by many others in the industry, was that they felt S&P had essentially given Geneva some rough treatment.

The reading of the situation was that Geneva was talking to some institutional crowd about taking a stake in the business and the discussions would be concluded soon.

My thoughts are that S&P had already put the company on a Credit Watch and if this was the issue then it should let the discussions run their course.

However, reading S&P’s statement it appears that its view was that Geneva’s risk profile had changed and therefore it had to downgrade the company two notches.

No doubt S&P will defend itself by saying that if it came across information that changed its views then it was obliged to act, rather than sit on the fence.

It’s very difficult to argue against that.

However, what I, and many others don’t know, is how did the risk profile change? No one in the know is providing details or information.

What is clear though is that S&P’s downgrade probably did a good job in triggering the next series of events. Namely Geneva asking its clients for a moratorium and S&P dropping the company to a D rating.

One could assume that the previous downgrade from B+ to B- immediately stopped funds flow. A D rating is like giving it the death penalty.

I hope that Geneva survives and comes through this. It is one finance company which has worked hard to set standards (eg: a rating) and has put in place measures (a wholesale funding line) to help it if the market deteriorated, as it has.

It seems unfair that a company which has tried to do the right thing gets hammered like this.

It also shows that the rating from a crowd like S&P can work against the company. In some ways the past week has showed people who ratings work.

So the legal eagles, or should they be called vultures, are now circling the decaying remains of collapsed finance companies looking for options to take legal action.

Yes I know it sounds a little dramatic, but I have this picture in my head of vultures circling some dead beasts in the desert looking for something to feed off.

I guess it was predictable that this would happen, but it is surprising how many have suddenly appeared. In our story on Good Returns today there are four lawyers named.
When we, earlier in the week, spoke to one, Andrew Hooker, he wasn’t particularly forthcoming on what he was doing and kept repeating a line about only wanting to help clients and adding in it wasn’t a witch hunt against advisers.

While one has to take him at his word, there is still a feeling that amongst all this legal interest there is some anti-adviser element.

One of my concerns, as mentioned previously, is that all advisers are being caught up in these collapses when clearly not all of them use finance companies and of those who do use finance companies the large majority have no doubt been sensible about how they have done it. Or put it this way I suspect it would be very hard to argue that the advice has been incompetent.

Hopefully some of these lawyers will read Andy Harris’s comments we reported on Tuesday. Harris, a former Bridgecorp business development manager, takes a strong stand for advisers.

Another issue which becoming intertwined with all this is the involvement of Kapiti-based adviser Chris Lee. Lee seems to becoming more and more involved in a lot of the discussion around finance company collapses and I wouldn’t be surprised to see him come under attack soon. He tends to polarise people and I hear some of his anti-fans are planning to add a new dimension to his profile.