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Margin lending profile on the rise

By Phil Boeyen, ShareChat Business News Editor

Friday 7th December 2001

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New Zealand investors can expect to hear more about margin lending in the New Year as financial houses increase promotion and introduce new products.

Although margin lending in New Zealand is nowhere as popular as in Australia, the market looks set for increased growth as Kiwi investors become more comfortable with the concept.

At its simplest margin lending allows investors to use their current investment portfolio, including shares and interest-bearing securities, to borrow for further investment.

The main players in the market in New Zealand are J B Were, ASB Securities, Fulcrum Securities and newcomer, Forsyth Barr, which entered the market with an established business and brand after purchasing Leveraged Equities in October.

Forsyth Barr MD, Neil Paviour-Smith, says the broking company decided it wanted to offer a margin lending service after completing market research.

"We looked overseas at trends in the industry and saw a gap in our product range. We had been looking at starting to get a business in place when the opportunity to acquire Leveraged Equities came up."

Mr Paviour-Smith says although acquiring the business in the post-September 11 market may have not been the best timing market-wise, interest has picked up as the market has improved.

The company has not been actively promoting the service since acquisition, instead bedding down the purchase, but it plans to do more promotion next year, particularly to its own sharebroker client base.

The biggest margin lender in New Zealand is J B Were. Manager of the firm's private stockbroking business, John Cobb, estimates the company has around 90% of market share.

However that doesn't mean the firm is resting on its laurels, and Mr Cobb says it is planning to introduce a range of new products next March

"We currently only lend on New Zealand and Australian securities but will be expanding that to international markets as well with multi-currency loans."

J B Were introduced margin lending to its New Zealand clients around four years ago. Mr Cobb says it initially grew very quickly and is still experiencing good growth.

ASB Securities has only been on the local margin lending scene since March. While it has mainly been introducing the service to current clients it is also planning more promotion next year to expand its client base.

Unlike most margin lenders who operate on fixed-loans, ASB Securities offers a revolving line of credit.

Head of margin lending, Jason Watson, says clients find revolving credit easy to use and appreciate the flexibility compared with fixed loans.

"We also automatically account for any new purchases of securities, which effectively means there is no maximum borrowing limit because as a client's portfolio grows, the facility is increased."

Mr Watson says ASB Securities has been able to leverage off the knowledge base of its parent company, Commonwealth Bank of Australia, in providing clients with an approved list of both New Zealand and Australian equities, although he says the revolving credit concept is only offered in New Zealand.

All the margin lending firms admit that New Zealanders remain more wary than Australians about margin lending on securities and are much more familiar with borrowing on property.

That attitude appears to be partly due to a hangover from the crash of the late 80s - when people who borrowed to fund share purchases were caught short - and because the NZ market has not been as strong as its Tasman cousin in the past decade.

Jason Watson, who has worked in the industry across the ditch, also believes that many more Australians use financial planners and that's where they are introduced to the concept.

Teaching investors more about margin lending appears key for the industry to grow here and ASB Securities and the firms agree that educating investors will play an important role in any promotional activities next year.

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