Collapse of Capital + Merchant Finance

MEDIA RELEASE

29 November 2007

Collapse of Capital + Merchant Finance

The mandatory requirement for finance companies to have approved credit ratings should be brought forward following the collapse of Capital + Merchant Finance, the Consumers’ Institute said today.

Capital + Merchant, operating in property finance, was one of the bigger finance companies in this country, yet mum and dad investors had little way of knowing or measuring the risk of what they were putting their money into.

“The government has promised mandatory ratings in 2010 but 13 finance company failures in 18 months should be a strong enough signal that the industry needs to be more tightly regulated now,” Consumer CEO Sue Chetwin said.

This month Consumer launched a fixed interest website, www.consumersaver.org.nz/terminvestments, aimed at helping people make sensible fixed-term investment decisions. “Interestingly Capital + Merchant Finance wouldn’t respond to requests for information,” Chetwin said.

However, it was obvious from its prospectus that it was in trouble. Finance companies that lend in the property sector should have a debt equity ratio of about 6. Capital + Merchant Finance with $219 million of assets had a debt equity ratio of 17.7.

Consumer also believed the move to regulate who was allowed to be a director of a finance company should be brought forward.

The receivers for Capital + Merchant Finance are Grant Thornton. A dedicated page on the Grant Thornton website is being set up at www.grantthornton.co.nz/capitalmerchantfinance and this will be updated as information comes to hand.

In addition, a dedicated phone line (09 308 2970) and email address (capitalmerchantfinance@gtak.co.nz) have also been established for any investors or creditors who have an enquiry relating to the company.

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