Financial year had plenty of argy-bargy

Monday 27th December 2010

The mop up of the financial crisis that has engulfed the world's economies since 2007 continued in 2010 and while New Zealand patted itself on the back for surviving well, there is a stink that won't go away.

Investors pinched their noses when the state took control of the humble Allan Hubbard while the not-so-humble crew at collapsed Hanover Finance frolicked in playgrounds of the rich.

There was sympathy for elderly couple Bruce and Judy Bartle who invested in Blue Chip but the Supreme Court ruled against them.

The financial year was a busy one. The Serious Fraud Office, Registrar of Companies and Securities Commission did charge white collar criminals, though as jail terms started to be handed down some of the convicted argued for home detention.

Receiverships put many assets on the market and some buyers got it right but some - like Allied Farmers, which bought Hanover's assets - got it wrong.

The receivership team at Korda Mentha were criticised for agreeing to sell the Crafar farms to Chinese interests nearly a decade after they were criticised for not selling forests to China. However, few complained when the endowment fund of ivy league Harvard University purchased Big Sky Dairy Farm in the South Island.

AMP and the Abu Dhabi Investment Authority walked away from the biggest development site in the country in Auckland leaving it with vendor Lion Nathan.

The big Australian banks, hurt by a $2.2 billion tax bill settled this time last year, seemed to be making money from a shift to floating from fixed rates by mortgage holders and countered Kiwibank by stressing their commitment to New Zealand.

The NZX was declared virtually extinct by a stock broker yet the astute investors at Aspiring Asset Management thought there was money to be made.

"The New Zealand equity market is a quirky, difficult market in which to operate. It has become much maligned by many fund managers who have forsaken it for Australia.

"Quirky market it may be, but it is our quirky market where we enjoy a reasonably significant 'hometown advantage'," Aspiring said.

Telecom moved to sever its network arm to try to win the Government's favour for broadband, Fletcher Building became the biggest listed company and Fonterra continued to be the real big business story.

Huge private businesses like Fulton Hogan again quietly outperformed and were on the job quickly after the Christchurch earthquake.

The 37 state-owned businesses and funds remained off limits to other investors but Treasury has advice prepared if the Government presents privatisation as an issue to voters at the next election.

There was tragedy at the mine of listed company Pike River Coal before it really got going as a business but the gold miners are having good times and coal miner Bathurst was in Wellington this month pushing a new mine project.

The Government got no thanks for spending $1.8 billion of taxpayers' money on refunding deposits of collapsed finance companies and its moves to get the money back are under intense scrutiny. Non-banks are merging in order to survive.

In Parliament there is an enormous fight about regulation. There is no need to regulate, the regulators just nodded off, the Business Roundtable said.

The summary of facts in the Bartles case arguably encapsulate the issues for regulators trying to protect consumers "of normal intelligence but lacking sophistication in business matters" this year.

The Bartles, who had not had a happy experience in a previous investment in real estate on the Gold Coast, borrowed $629,566 to buy an investment apartment in central Auckland in a complex deal that gave them just 10.1 percent of the capital gains if the property boom continued.

Many people argued that it was wrong that a financial institution could lend a couple living on a pension of $21,736 a year that much money but the court decided it was quite wrong to hold GE Capital culpable.

"Whilst the Bartles are deserving of much sympathy, it was they who chose to put their faith in Blue Chip and their chosen lawyer," the Supreme Court said.

Commentators and bloggers endlessly called for the end of the "kiwi love affair with investment property". The relationship has certainly cooled this year but you can't help wondering what cash buyers are up to.

Consultation on savings policies may produce lower taxes to make deposits more attractive to investors and in future consumers may be asked to pay for financial advice upfront rather than via murky commissions.

The call has gone up again for investors to be better educated and more savvy.

The Bartle case provided insight into why conservative people take big investment risks.

They simply wanted access to the equity in their home to obtain a higher level of income in their retirement.

And that is an issue for many people and a dilemma for policy makers.

NZPA

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