In April its key subsidiary Lombard Finance & Investments fell over and was later placed in receivership owing 4,400 investors $127 million.
They say the company, at its previous annual meeting, felt it was in a strong position reporting a net profit before tax of $7.7 million.
The finance company made a profit of $5.8 million, no dividend was declared so the company could build up capital reserves, the equity was at around 12.5% “which at that time was at the upper end for finance companies in New Zealand.” Added to this Lombard Finance's and around $32 million in cash and a loan book of $145 million.
The directors say the market deteriorated quickly and “the hard truth of the matter is that New Zealanders have fallen out of love with property.”
“Investment in the property sector was a significant driver of economic activity. Finance companies funded that investment and investors made significant returns. Sentiment turned against property investment very quickly.”
The directors say the issue was not that there was a reduction in new deposits, but “the severe and rapid deterioration of the position of its borrowers and the consequent impact on their ability to meet their committed loan repayments” which brought the company down.
They believe a moratorium, rather than receivership, would be in the best interests of investors.
“Lombard Finance's directors regarded a moratorium as the best course in the then current market environment to maximise recoveries from the borrowers in an orderly manner and to preserve value for both the finance company debenture-holders and for the shareholders of Lombard Group.
“As a matter of record, the Trustee rejected the moratorium proposal.”
They say that considerable time has been spent on restructuring the group to reduce costs to enable it to restore profitability and continue to operate with an initial focus on the group’s mortgage origination business.
They are assessing the "new territory" of the New Zealand financial sector following the fundamental changes which have occurred over the past 12 months to determine a future strategy.
“Despite the cyclic reduction in real estate values, the directors are confident that the New Zealand economy is sufficiently strong to weather this particular storm, albeit with some casualties.
“In terms of the future strategy there are a number of opportunities that are being carefully considered,” they say.
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