Don’t put Dominion in the Doomed box

Friday, June 20th 2008, 11:56AM 4 Comments

by Philip Macalister

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.
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Comments from our readers

On 20 June 2008 at 4:49 pm Well done said:
It is refreshing to finally read a balanced view of Dominion. The NZ business journalists need to spend some time learning about business before writing articles misleading the NZ public. Interestingly the Australian articles I have read have been very balanced in their coverage of Dominions issues, a total contrast to the NZ media.
On 20 June 2008 at 8:27 pm Kiwi Patriot said:
Both Phil and Well done are right, but I believe that the Dominion Finance situation endorses the saddening decline in our economic management process.

About a month ago, RBNZ sources were suggesting introduction of a new window for registered banks and perhaps even qualified non-banks, to put up 'alternative' securitised debt as collateral for 'lender of last resort' facilities to provide assistance for up to 12 months.

So far, nothing has been officially announced, but such a move would be good remedy to establish equilibrium in our 'running scared' market environment. Investor shock is here, and who is brave enough to prevent it?

Not only do well managed finance companies inherently 'borrow short and lend long' - but all our banks do it too. When investors start to doubt reinvestment decisions, they turn to quality, and even good quality audited accounts mean nothing to 'the herd'. Only perception reigns and who influences perception?

Recent finance company collapses, including (it appears) Dominion, have happened due to liquidity issues. Is the quality of finance company debt assets any better or worse than those of the banks? Finance co's are typically geared 12:1, whereas banks reach 18:1. Considering the cause, and quickly providing a viable remedy may save next week's 'bad news' story.

C'mon RBNZ and political leaders! Please do something positive for us ordinary Kiwis.

On 22 June 2008 at 12:28 am Sarah said:
There are many companies that are in trouble right now because the economy has taken a dip. As a small internet business marketer I have felt the hit somewhat as well. In times like these it is important to get the essentials back in place - for me that is strong ad copy using glyphius, temporary price reductions, traffic generation and expense control. I hope Dominion pulls through.
On 25 June 2008 at 10:07 am Miles K Cross said:
Disciplined and common sense people such as those running Dominion
and St Laurence deserve to survive - as opposed to others who displayed
very little respect to the fundamentals.
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