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Bridgecorp report amazing reading

Wednesday, August 1st 2007, 8:06AM 2 Comments

by Philip Macalister

I have read – with a degree of amazement – the receivers first detailed report on the real state of Bridgecorp. It’s easy to sit here and say, with the benefit of hindsight, why would anyone have put money into this company? The report shows the company, had a high concentration of loans. Just 69. Most of the loans were low security, that is something less than first ranking status. The lending was mainly on development properties and interest was accruing and being added to the loan balance as opposed to being paid to the company on a monthly or quarterly basis. With even that amount of information a prudent investor or adviser could have seen that this was a high-risk company. Bearing the above in mind, and looking at its rates comparative to other finance companies, why would anyone have gone near Bridgecorp? Added to the points made above the report says that most of the good loans had been sold to other financiers. This fact was a pretty strong rumour in the market before the collapse. So the questions I ask are this: Did investors and advisers know this level of detail? Is all this new information? Did any of the researchers/raters know this information? If people did know this amount of information, why did they give the company money? PS: This post isn't aimed at trying to be smart after the event. It's more about asking some questions. The first being if people had access to this information, why did they use Bridgecorp. Secondly, and more importantly, if the information wasn't available, why not? Use the Comments link below to have your say on this post. PS: This post isn't being critical of advisers. Rather it's asking a couple of questions, namely if people knew this information why did they put money into the company. There may be good reasons. Secondly, and more importantly, if this information wasn't known, why was that?
« Bridgecorp and advisersLending gets harder for fin coys »

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Comments from our readers

On 1 August 2007 at 6:28 pm Thom Bentley said:
Phil, much of this information was easily assessible in the Prospectus. In fact at the SIFA conference in Taranaki in 2004, there was a session looking at 3 or 4 prospectuses including Bridgecorp. It was clear at that time that there were several loans which were worth more than 100% of Bridgecorp's equity each, so any one large default could have wiped out the equity and the company.

However the general consensus in the room was that Bridgecorp was a sound company and anyway, they had a "LLoyds Guarantee" so clients would definitely get their money back. It didn't seem to do any good poitning out that far from being guaranteed, Bridegecorp had insurance through Lloyds, which covered loans to a maximum of $4m each and a maximum of $20m in any year. Clearly the receivers' estimate includes the effect of any insurance.

It was also public knowledge that Bridgecorp was selling the higher quality loans (mainly to Compass). Whay would they do that unless they had cashflow problems?

In the end, I don't think it's good enough to say
On 1 August 2007 at 6:32 pm Thom Bentley said:
....that we're using hindsight here. Anybody in the financial planning industry could, and many many people did, see this coming.

It wil now be interestng to see how SIFA and others treat their higher profile members who had large amounts of client money invested in Bridgecorp. It's clearly at best incompetence and at worse criminal negligence of their fiduciary duty to their clients if they were recommmending Bridgecorp.
Commenting is closed

 

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AIA - Back My Build 6.19 - - -
AIA - Go Home Loans 8.74 7.14 6.75 6.39
ANZ 8.64 7.74 7.39 7.25
ANZ Blueprint to Build 7.39 - - -
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ASB Better Homes Top Up - - - 1.00
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BNZ - Classic - 7.14 6.79 6.65
BNZ - Green Home Loan top-ups - - - 1.00
BNZ - Mortgage One 8.69 - - -
BNZ - Rapid Repay 8.69 - - -
BNZ - Std, FlyBuys 8.69 7.74 7.39 7.25
BNZ - TotalMoney 8.69 - - -
CFML Loans 9.45 - - -
China Construction Bank - 7.09 6.75 6.49
China Construction Bank Special - - - -
Co-operative Bank - First Home Special - 6.79 - -
Co-operative Bank - Owner Occ 8.40 6.99 6.79 6.65
Lender Flt 1yr 2yr 3yr
Co-operative Bank - Standard 8.40 7.49 7.29 7.15
Credit Union Auckland 7.70 - - -
First Credit Union Special - 7.45 7.35 -
First Credit Union Standard 8.50 7.99 7.85 -
Heartland Bank - Online 7.99 6.89 6.55 6.35
Heartland Bank - Reverse Mortgage - - - -
Heretaunga Building Society 8.90 7.60 7.40 -
HSBC Premier 8.59 - - -
HSBC Premier LVR > 80% - - - -
HSBC Special - - - -
ICBC 7.85 7.05 6.69 6.59
Lender Flt 1yr 2yr 3yr
Kainga Ora 8.64 7.74 7.35 6.99
Kainga Ora - First Home Buyer Special - - - -
Kiwibank 8.50 7.99 7.79 7.55
Kiwibank - Offset 8.50 - - -
Kiwibank Special - 6.99 6.79 6.65
Liberty 8.59 8.69 8.79 8.94
Nelson Building Society 9.00 7.65 7.25 -
Pepper Money Advantage 10.49 - - -
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SBS Bank 8.74 7.74 7.09 6.95
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SBS Bank Special - 7.14 6.49 6.35
SBS Construction lending for FHB - - - -
SBS FirstHome Combo 6.19 6.14 - -
SBS FirstHome Combo - - - -
SBS Unwind reverse equity 9.95 - - -
Select Home Loans 9.24 - - -
TSB Bank 9.44 7.79 7.55 7.45
TSB Special 8.64 6.99 6.75 6.65
Unity 8.64 6.99 6.79 -
Unity First Home Buyer special - 6.55 6.45 -
Wairarapa Building Society 8.60 6.95 6.85 -
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Westpac 8.64 ▼7.49 7.35 6.99
Westpac Choices Everyday 8.74 - - -
Westpac Offset 8.64 - - -
Westpac Special - ▼6.89 6.75 6.39
Median 8.64 7.14 6.82 6.65

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