St Laurence’s decision to pull the pin on property lending has surprised many in the industry, including myself.

The company was always regarded as one of the better operators in the market, run by people who were up front and worked on the refreshing ethos of putting the investor first.

That is what was refreshing when talking to St Laurence boss Kevin Podmore last night.

He describes the move as acting early and putting something in place which was good for everyone including investors, staff and the shareholders in his business.

He said, as reported on Good Returns, that hopefully everyone can be paid back and there will even be something left over for the company’s shareholders.

This attitude is in marked contrast to other companies, like Bridgecorp, which seem to be in denial over what has happened and how much damage they have caused people.

Podmore’s comments, when I asked him how does he feel about everything, sums the situation up well.

“It’s a bit of a relief actually,” he said.

Looking at the St Laurence issue with a wider view it is clear that the commercial property/development sector is stuffed and that other finance companies with exposure to it must be suffering too.

Again Podmore’s comments are revealing. He thinks the finance company sector, especially when it comes to property finance, will disappear. Strong words from a man who generally understates everything.

Another issue which I am wondering about is this. None of the companies which are in trouble have a proper rating. Maybe there is something in this? It seems to me some of the companies which have got into trouble could have sought ratings and in doing so that would have fitted their corporate philosophy, however they haven’t done so.

My, early, thoughts are that they didn’t go for ratings because they knew the result wouldn’t be satisfactory?

It’s a thought I am developing some more, but the early conclusion, if I am right, is that maybe ratings do mean something?

The troubles of Dominion Finance are indeed a little unsettling for investors, but I suspect – or hope – that the company will quickly come through the tough times.

After all, this is one of the quality companies and it has the added benefit of being NZX-listed, thus reasonably transparent, compared to the opaque murkiness of others which have failed.

Indeed some would say others told outright lies to investors.

I tend to put the finance companies into a couple of categories – the dodgy that deserved to collapse and the others which have got into difficulties due more to market conditions.

PropertyfinanceSecurities is a case in point. Its problems were brought about by the global credit crunch.

Dominion looks like it is suffering more because of a mismatch between assets and liabilities. As Good Returns reported a while back, the issue for many of the companies is this mismatch between when loans are repaid and when debenture holders are due their funds.

A couple of things on Dominion’s side are that it has been backed by some players, like South Canterbury Finance, which are held up as top players in this sector. In addition its management and board have a pretty good track record.

I note that SCF has sold its total holding of 4.5 million shares, at cost, for $5.9 million, to interests associated with SCF chairman Allan Hubbard.

The other point, and one which seems to get missed by the mainstream media, is that it’s not all doom and gloom out there. Some of the companies which got into trouble are pulling through, and others like Provincial are making reasonable returns to investors.

Sure there are some awful cases, but they are not all bad. I don’t expect Dominion to be too bad in the end.

By Rob Hosking, guest Blogger

Laws revamping how financial advisers and insurers are to be regulating may yet run afoul of election year.

Three bills – the Financial Services Bill, the Financial Service Providers (Registration and Dispute Resolution) Bill and the Reserve Bank of New Zealand Amendment Bill are already before Parliament’s finance and expenditure select committee.

A fourth, the Insurance Contracts Bill, is yet to be introduced.

The trouble is the workload of that select committee.

‘FEC’, as it is known, usually gets the more complicated laws.

Normally regulation of financial advisers – or the regulation of virtually any non-agricultural industry – would come before the commerce select committee.

But partly because the two financial adviser bills are linked to the Reserve Bank Amendment (which brings insurers under the same prudential regulation regime as banks), partly because the select committee has already dealt with big law changes in the sector (KiwiSaver and the PIE tax regime) and partly, simply because it is Parliament’s most high-powered select committee, the law changes will be argued through in that forum.

The trouble is the select committee is already over-burdened.

For example, it was supposed to have reported back by April or early May on its inquiry into monetary policy.

A draft report has been done, but MPs are still mulling it over. One MP admits the committee’s pre-occupation has been with the emissions trading scheme rules, which have rather blown up in the government’s face (and again, at other times that legislation would have gone to a forum, the local government and environment select committee).

FEC will also shortly be dealing with the annual omnibus tax bill – and it is another illustration of the backlog that that statute, informally known as ‘the May tax bill’ because that is when it is usually introduced, has yet to see the light of day.

The select committee is due to report back on the two financial adviser regulation bills by 1 September. Hearings have yet to start.
Meanwhile the pre-election mood is settling almost tangibly over Parliament. MPs’ minds are on re-election.

What that points to for the financial services industry is two things: either the law changes will be rushed through, to clear the decks before Parliament dissolves, or they will be put on hold until next year.

There is one slight blessing in that – so far anyway – none of the law changes have become political footballs. The downside of that though is MPs have a tendency not to think about them as hard as, say, the emissions trading rules.

All up, it means the industry and its representatives have to prepare for either some hastily enacted legislation towards the end of winter, or a long delay. They are likely to be equally frustrating.

A story this week on commissions and soft dollar incentives paid to risk advisers caught my eye.

The story, it’s here, is based on the independent report prepared for Tower shareholders in respect to GPG’s partial takeover offer. The report is written by Grant Samuels and is strongly critical of the commission levels paid to advisers.

This should come as no surprise as New Zealand pays the highest commissions on life products of any country in the world (so we are told).

What is worth noting is that it isn’t Tower making these comments, rather it is Grant Samuels.

As I understand it the company has been looking at a number of other life companies and had already come to this view about commissions before it walked in the door at Tower.

(This, I will note is in line with last week’s Blog, which mentioned changes in the ownership of some companies in the financial services sector in New Zealand).

One of the issues for the life industry, and it is not a new one, is the commission amounts being paid. While there has been a bit of a competition in recent years to see who can give advisers and brokers the most, I hear that some of the leaders in this field have started to pull back.

This is good news and is something that is well overdue. It’s time that commissions became more realistic.

Just for the record I’m not against commissions per se, rather the issue is having them at sustainable levels.