Wednesday, October 17, 2007

Greed is Bad: Geneva Finance Folds

Geneva Finance, the latest New Zealand Finance company to go belly up has me slightly barking.

I say this because while directors and presumably trustees of the company have either been silent and or untruthful about matters unfolding over the last several weeks as their Standard and Poor's credit rating slipped from B+ to B- and now a D.

My first beef concerns the company and company trustee failing to adequately inform investors and prospective investors in the company, that the condition of the company was dire.

Investors and business media were repeatedly told by those in the know that Geneva was "doing fine" and they were able to trade themselves out of difficulties.

My take on the company at the this time was more negative than management and the writing really was on the wall when confusion reigned about a week ago when mainstream media were alerted to serious problems by a customer of Geneva that was told that they were not processing any further loans.

When questioned by several media about whether loans had been suspended it was at first denied then days latter validated.

Even at that point Geneva Finance was still taking deposits from investors and continued to do so until Monday, when the company announced they had defaulted on interest payments to investors.

My second beef comes to the point that directors of Geneva were accepting deposits from investors when they knew the company was in deep trouble.

Going further to this, the trustee, who is supposed to look out for investors when difficulties such as this arise has been strangely silent all this time.

Clearly the conduct of the directors of Geneva Finance and the Trustee has been less than adequate and serious questions put to them need to be answered.

The company is now going to ask investors in Geneva that they allow a moratorium be agreed to where the company will cease payments to investors for 6 months while they "restructure" the company.

Mr Riley said the plan would allow Geneva to stabilise its position, focus on negotiating a significant debt and equity transaction that would secure the long-term future of the company."

Shaun Riley, the chief executive stated:

The company had needed to "act quickly and prudently in the interests of our investors", he told Radio New Zealand.

"We're extremely confident that the period of the moratorium will be enough for us to put the company back into that stable position, secure that significant debt and equity transaction and really secure the long-term future of the company."


This is interesting language, it was also used over the last few weeks by the board to explain to investors that the company was doing OK.

Geneva Finance is owned by Finance Investments Holdings, which in turn is half owned by three Auckland property developers, Peter Francis, Gary Hitchcock and Nigel Burton.

As well as the 50 per cent holding, the trio own $7.1 million in preference shares, ranking above ordinary shares, and equivalent to another 35 per cent of the company's total capital.

Francis was a high profile "financier" in the 1980s and was chief executive of the failed Chase Corp, a top 10 company on the stock exchange in the mid-1980s which posted New Zealands biggest ever corporate loss before going belly up in the aftermath of the October 1987 crash.

Ironically it was only a day before the 20th anniversary of the crash that Geneva folded its tent.

Directors were not upfront with media and failed to fully inform investors in a prudent and sufficiently quick time frame.

The message is clear to me though.

It looks like management of Geneva Finance are simply trying to stave off the inevitable.

All the language and slack attitude of directors and the trustee points to this and directors so far haven't inspired the confidence in the market for us to think that they will come out with a positive conclusion in 6 months time.


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Greed is bad: Geneva Finance Folds
Financial 101: Learn before you leap
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c Share Investor 2007