Yes it is challenging for all finance companies and there will be consolidation in the industry. There are strong inflows to the banks but they also face global risks with the flow on impact through the sub-prime market meltdown and the rogue trader in France.
The media comments can contribute to a run on funds and good finance companies may struggle through no fault of their own. Where does the responsibility lie here?? It seems the only news worth printing is negative news.
Let me take a different perspective and turn a negative into a positive. Out of all the finance company receiverships so far which two will achieve the best recoveries?
Provincial Finance and Western Bay Finance. Estimates are 95cents and 82cents respectively. Not bad, but what would happen if they were managed better? 100% principal plus interest perhaps?
Both companies have regular principal and interest cash flows from their consumer finance books. So it is the humble car loan which is recovering most of investors' principal compared to the lack of cash flow from some of the other finance companies in receivership.
Media reporters should remember, "Lose lips sink ships". Be sure of your facts and be ethical and not alarmist in what you say.
At Broadlands we have communicated directly with our own investors over the last 6 months and taken a personal approach with investors who have appreciated the open and honest comments. The overriding feedback from investors is they are sick of negative media comments which are unnerving investors and making them sit on the fence.
The beneficiary of this is usually the banks who have strong cash holdings but at the same time are feeling the carrying costs of these extra funds. There is evidence that bank term deposit rates have reduced in the short and long term and investors are already earning below inflation adjusted returns. But like everything else finance companies, banks, fund managers etc all have their place in an investor's portfolio in assisting with capital growth/or income. It is important that advisers and product providers acknowledge this or everyone loses a sense of perspective.
Finance companies are an essential financial intermediary and economic facilitator in New Zealand. They provide funding to assist businesses, property subdivisions, fund purchase of business assets and the list goes on.
If this funding strata disappears the economic consequence will be felt widely, and by investors also as their capital will not necessarily be contributing to economic growth.
In summary, there are many aspects to the finance company debate. Do not let our minds be clouded by all the negatives. Broadlands like other finance companies have adjusted their operations and we enjoy considerable shareholder support to protect and reassure our investors.
We respect the media and their role in open debate and commentary. But they in turn must respect and understand the financial markets and the damage their written and spoken word can cause. By all means sell newspapers but not your soul.
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