Well, the first thing is that all those rumours were true! I had often heard that Capital + Merchant were in a vulnerable position and so it is proved to be correct.

Why didn’t we report that? Well we are in the business of facts, not gossip.

One thing that is useful to point out is that C+M probably didn’t do itself too many favours in the publicity stakes over recent times. Often when media approached the company for comments and they were refused information. Likewise, the company did a bit of hiding itself and never was too open about its ultimate ownership.

A couple of things which are useful to note about this latest failure are that relying on the existence of a wholesale funding line isn’t a guarantee of longevity.

Wholesale funders tend to set covenants around their support and make sure they have outclauses.

Added to this there is talk that some funders are facing as squeeze themselves thanks to the sub-prime crisis in the United States.

C+M’s issues, at this stage appear to be difficulty in getting Mum and Dad debenture money, even though they had a high media profile through their sponsorship of TV One news.

I have noted before that there is a potential flag when companies take on promotional activities out of kilter with their size. It maybe debatable whether C+M definitely fell into this category, but it is worthy of contemplation.

Out of this collapse have been renewed calls for compulsory credit ratings. I don’t agree with comments from the Consumers’ Institute calling for mandatory ratings. As I have said previously mandatory credit ratings are no panacea for the sector. Yes, they are useful, but they are not a panacea.

The good news is that, thankfully, I am not hearing too many other rumours about shaky companies, but no doubt there are still some out there which will struggle to survive.

It’s pleasing to see that the finance company scene has been quite quiet recently and it is appears to be in a bit of a rebuilding phase.

I understand another finance company should have an S&P rating by the end of this month. This is one a well-established company which, earlier this year, restructured its business and has also secured a couple of good wholesale funding lines.

When it gets its rating that it will be the fifth company to have an S&P rating, joining; UDC, Marac, South Canterbury and Geneva.

In addition to this Allied Nationwide has also announced it is going for an S&P rating too.
Feedback from the sector is encouraging at the moment too. Many companies say they are coming across more and better deals than they have seen in the past. This is partly because of the changes going on in the industry.

At the recent SIFA Conference one of the speakers who made this point says they are doing good quality loans at 20-22% rates. (My eyes watered too).

Also South Canterbury is seeking more funds, partly to take advantage of the opportunities in the market place.

On the flip side we are seeing more and more finance company rates edging up to and over the 10% mark.

I understand there is a lot of internal discussion about whether rates should cross this double- digit threshold. The downside being that many investors may look at rates at this level and say the risk is too high.

Clearly that isn’t the case. With bank one-year IAM rates sitting at 9% and offers like Rabo’s perpetual bonds going out the door at 9.48% for the first year it seems finance companies have little choice but to go into double digits.

Maybe these increases will address some concerns that finance companies aren’t offering sufficient reward for the risk?

Geneva Finance’s special meeting today to decide the fate of the company is likely to have fireworks – but we won’t see them as the company is restricting entry.

I assume the conclusion of the meeting is likely to be a fait au compli as Bank of Scotland will have sufficient votes to decide the outcome.

Geneva, as I have said before, has done some good things in terms of preparing itself for the downturn (although they haven’t necessarily helped it). And its proposed moratorium is precedent setting too.

Where it isn’t setting a good example is restricting entry to the meeting. Yes, I acknowledge it has a right to keep the meeting just for debenture holders. However, it is foolish and counterproductive to ban media, and organisations such as the Consumers’ Institute, researchers and other key industry players.

Such a move will backfire and create ill-will with many of the influential, agenda setting people in this industry.

As a business reporter of many years standing (decades actually) it is normal practice to let media and others attend things like company annual meetings, even when the company knows there will be fireworks.

Good Returns has argued pretty strongly to the company’s representative that observers should attend today’s meeting. While the request was listened to favourably, no response has been forthcoming.

udging by other reports in the media Geneva is facing a few challenges over its reluctance to release up-to-date financial statements.

The SST had a useful story on this and Consumer has been active too. There are a lot of questions which people would like to see answered and many of these have implications beyond just Geneva.

We are told the meeting will be “highly structured” which tends to imply that debenture holders may be stifled to some degree. Such a move is similar to restricting entry to the meeting.

At a time when Geneva needs friends, it’s doing a good job at alienating itself.

One of the things I was looking out for in the Cabinet reshuffle this week was what happened to the Minister of Commerce.

Lianne Dalziel has been running this portfolio, which has in its brief regulation and control of the financial sector, including advisers and finance companies.
There was a thought that she may have been replaced in this role, however that didn’t happen.

Dalziel has done a pretty good job in understanding issues and being prepared to listen to arguments when change is being considered.

However, there is a view, starting to be expressed more loudly in some quarters, that she has been far to slow to act in tidying up the finance company (or non-bank deposit taking) sector, and indeed the area of financial advice.

One of the issues which is starting to get traction is that New Zealand law offers very little in the way of investor protection.

This may start to become a bigger issue as next year’s general election moves closer and people realise how much money they have lost.

While she is still in this role, Dalziel maybe well-advised to speed up changes in this area as it could well become a soft spot for the government.

A few elections back NZ First Winston Peters spent some time on this issue, but failed to get much traction. This time around, with the events which have taken place, a political party could well hone in on this area.

More importantly though, if the sector is to grow and people are encouraged to save and take advice, then they deserve some half-decent protection.