Why is National guaranteeing FAI Finance?

A taxpayer guarantee for a finance company owned by Hanover has Wigram’s Progressive MP Jim Anderton puzzled. The government has given a Crown guarantee to FAI Finance - wholly owned by Hanover and, through a network of companies, by Mark Hotchin and Eric Watson.

“The absolutely top policy guidelines specified by Treasury for considering a Crown guarantee are ‘the maintenance of public confidence in New Zealand’s financial system; and maintaining the confidence of general public depositors in New Zealand financial institutions.’ It is not clear how a guarantee for Hanover companies fits thῡt guideline, Jim Anderton said.

The Treasury says factors that should be taken into account in giving a guarantee include the size of the entity and related party exposure, the business practice of the entity, the ‘good character’ and business acumen of the entity and “The track record of the entity.”

Last year Hanover froze over half a billion of investors money and investors approved a recovery plan in December.

In June last year, the latest date recorded in its prospectus issued this month, FAI had assets in loans worth a total of $28,582,000, at an average interest rate of 21.63%. This sum included $15,119,000 due in 2-5 years. Investors had $18,542,000 in FAI at an average interest rate of 9.9%. Among those entitled to their money back, $6,468,000 was on call, $7,514,000 due in 6-12 months, and $382,000 due in more than two years.
The Crown receives a fee for the guarantee, which could be worth as little as $28,000 a year.

Jim Anderton said a Crown guarantee to Hanover is a strange response to the financial crisis.

“The point of the guarantee is to prevent the entire deposit base of New Zealand fleeing. But there is still room for non-guaranteed businesses that should be able to charge an interest rate reflecting their risk. Hanover is the sort of company that the market can make its own decisions about.

“Mr Hotchin and Mr Watson appear to be affluent men and it is hard to see why they shouldn’t give the guarantee from their own resources instead of those of the Crown.”

Who owns FAI Finance?

Companies Office records, 24 February 2009

FAI Finance
Directors: Mark Hotchin
Greg Muir
Shares: 15,766,588 - all held by Hanover Finance

Hanover Finance
Directors: Mark Hotchin
Greg Muir
Shares: 71,651-596
• 37,835,596 held by Hanover Financial Services
• 33,815,000 held by Hanover Capital

Hanover Capital
Directors: Mark Hotchin
Greg Muir
Shares: 5,000,000 all owned by Hanover Financial Services

Hanover Financial Services
Directors: Mark Hotchin
Greg Muir
Shares: 13,303,620 all owned by Hanover Group.

Hanover Group
Directors: Mark Flay
Mark Hotchin
Greg Muir
Eric Watson
Shares: 207,327,000 all owned by Hanover Group Holdings

Hanover Group Holdings
Directors: Mark Flay
Mark Hotchin
Eric Watson
Shares: 87,871,057
Of these:
• 77,279,174 owned by Hotchin Investments.
• 10,591,883 owned by Forefront Investments.

Hotchin Investments
Directors: Mark Hotchin
Dwayne McGorman
Shares: 39,500,000 all owned by Hotchin Trustee Ltd

Hotchin Trustee Ltd
Directors: John Radley
Tony Thomas
Shares: 1000, all owned by the directors (= trustees).

Forefront Investments
Directors: Leslie Archer
Mark Flay
Eric Watson
Shares: 596,933;
Of these:
• 5000 owned by Eric Watson
• 591,933 owned by Peak NZ

Peak NZ
Directors: Bruce Armitage
Don Stanway
Eric Watson
Shares: 100, all owned by Foreshore Investments

Foreshore Investments
Directors: Leslie Archer
Mark Flay
Shares: 100, all owned by Cire Trust

Cire Trust
Directors: Mark Flay
Eric Watson
Shares: 100, all owned by Eric Watson.

FAI’s loans/deposits
FAI Prospectus 7, registered 9 February 2009.

At 20 June 2008, FAI had assets in loans worth a total of $28,582,000, at an average interest rate of 21.63%.

This sum included $15,119,000 due in 2-5 years.

At the same date it had deposit liabilities (i.e. Money that investors have invested in FAI securities) 0f $18,542,000, at an average interest rate of 9.9%.

This included 6,468,000 on call, $7,514,000 due in 6-12 months, and $382,000 due in more than two years.

ENDS

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