·  Site Map
Ratings debate of Finance Companies in New Zealand

Advertising complaints - Geneva Finance

Advertising complaints body slams Geneva Finance ad

by Anthony Davies | Thursday, 26 October 2006

Geneva Finance has been forced to change its advertising after the Advertising Standards Complaints Board (ASCB) upheld a complaint that the firm's advertising promoting its debentures as "a sound investment with a couple of pluses" was misleading.

In a majority decision released yesterday, the ASCB ruled the advertisement "did not reach the high standard of social responsibility required of a financial advertisement" and also that "the headline, and in particular, the word 'sound' would be likely to mislead the average consumer as to the nature of the product offered. This interpretation would be compounded by the inclusion of the reference to the B+ credit rating, as B+ in many other situations was an above average rating."

In his complaint, R Lamond alleged that that the B+ rating mentioned in the advertisement "sounds very good" but actually means that the debenture is a junk bond.

After considering submissions from Geneva Finance and its advertising agency Mallville Marketing Group, defending the advertisement, the ASCB referred to the S&P website to ascertain just what a B+ rating denotes.

It found it meant: "Adverse business, financial, or economic conditions will likely impair the obligator's capacity or willingness to meet its financial commitment on the obligation," - and, accordingly, ruled the advertisement was in breach of the Advertising Standards Authority Code.

In their submissions to the ASCB, both Geneva Finance and Mallville Marketing Group claimed the Securities Commission had cleared the advertisement.

"The advertisement and the wording and information structure on Geneva's website was reviewed and approved by the Securities Commission in August 2005 following their publishing of their Report on Disclosure by Finance Companies. The format and content was required to be the same as what they required to be disclosed in the company's Prospectus and Investment Statement. The Report emphasised that if a company has a credit rating it is required to disclose it," Geneva Finance wrote. Mallville Marketing Group wrote: "Our assertion is that the advertisement in question is not misleading. There is nothing in the advertisement that is not a statement of fact and that has not been cleared by the Securities Commission".

This was refuted by Securities Commission general counsel Liam Mason. "We don't approve adverts and statements to the effect that we do are of concern. We haven't approved any of their [Geneva Finance�s] adverts," he told financialalert. He declined to say whether he would be approaching either Geneva Finance or Mallville Marketing Group to discuss their claims with them.

Geneva Finance chief executive Dennis Kelly was in a board meeting in Australia when contacted for comment. He declined to say whether Geneva Finance would be appealing the ASCB ruling, and said only "there was a complaint about the ad and the ad's been subsequently modified."
� 2006 financialalert Limited.

First published in financialalert www.financialalert.co.nz
Back to top

S&P releases non-bank rating details

S&P releases non-bank rating details

by Anthony Davies | Friday, 10 November 2006

Standard and Poor's is pressing ahead with plans to launch a new rating system specifically for the New Zealand non-bank finance sector. To be called "Relative Strength Ratings", they have been designed to cover finance companies, building societies, credit unions and mortgage trusts.

The announcement, which was foreshadowed by S&P a number of months ago, comes a few weeks after the Advertising Standards Complaints Board upheld a complaint that a Geneva Finance advertisement, promoting a debenture issue as "sound" when it was rated by "B+" by S&P was potentially misleading.

Paul Stephen, S&P's Corporate and Government Ratings managing director, says a key feature of the new ratings is they are user-friendly. "The strength of our ratings scale is that it provides investors with an easy-to-understand benchmark to help them compare the relative creditworthiness of finance entities.

"This service has been introduced in response to an overwhelming demand from the New Zealand market for credible ratings that enable comparisons within the non-bank finance sector. Finance companies, building societies, and credit unions place high value on the benefits offered by credible ratings. Investors, advisers, and planners are seeking better information to make informed choices. Regulators are looking for improved transparency, disclosure, and market disciplines. Three recent failures in the New Zealand finance company sector have galvanised opinion that credible ratings will assist both investors and finance entities utilising the service, and be of overall benefit to the industry.

The new ratings scale runs from "nzf1+" (Extremely Strong) to "nzf9" (Highly Vulnerable to Defaulting) and finally "D" where an entity is about to be or has been placed in receivership.
In launching its new ratings, S&P does not compare them to its traditional ratings. "That's deliberate. We're positioning the relative strength ratings as particular to the non-bank finance sector," Stephens told financialalert.

S&P's promotional material also does not indicate where the cutoff point is for "Investment Grade" ratings. However, based on the descriptions S&P gives the two sets of ratings, it is likely that "nzf6" (Reasonably Adequate capacity...) is roughly equivalent to "BBB-".

"The [new] scale is still rooted in the probability of default. It specifically looks a two-year default probability," says Stephens.

When asked whether the new ratings will supersede the traditional ratings, Stephens says they will complement them. So a finance company with a traditional rating won't need to migrate to the new system. In fact, he adds, S&P will be encouraging finance companies and other non-bank entities to be rated by S&P using both systems.

S&P expects to publish the first Relative Strength Ratings early next year.
� 2006 financialalert Limited.

First published in financialalert www.financialalert.co.nz
Back to top

S&P launches finance co web guide

S&P launches finance co web guide

by Anthony Davies | Tuesday, 18 September 2007

Standard & Poor's has a launched a web page to help financial advisers and investors better understand the risks of investing in non-bank deposit taking (NBDT) institutions.

Described as a "one-stop credit rating tool kit", the webpage contains abridged ratings reports of those institutions rated by S&P � currently Geneva Finance, Marac Finance, UDC Finance and South Canterbury Finance � as well as S&P reports and media releases on NBDTs. The reports include the "key rating factors" behind a company's rating, a summary of its financial statements including comparatives with selected competitors and the industry average, and a profile of the company and assessment of its strengths and weaknesses.

S&P says the web page initiative was prompted by the recent Cabinet decision to make ratings mandatory for NBDTs as part of a regulatory reform package.

"Credible credit ratings for NBDTs are one of the cornerstones of the New Zealand Cabinet's decision to develop new proposals for the regulation of NBDTs. Standard & Poor's believes that credible credit ratings will assist New Zealand financial advisors to better understand risks in the NBDT sector. This is important considering increasing responsibilities upon New Zealand financial advisors in the provision of prudent advice," says Paul Stephen, managing director of S&P Corporate and Government Ratings.

"As part of Standard & Poor's commitment to New Zealand, and more generally toward an improvement in financial literacy concerning what credible credit ratings mean in the context of the NBDT sector, we believe this web page will serve as a valuable reference guide."

Stephen adds that with the failure over the last 18 months of nine finance companies affecting deposit-takers to the tune of more than $1 billion, the NBDT sector and financial advisory industry are undergoing a "generational change in industry regulation and market dynamics".

In promoting its new service, S&P stresses that it's not providing a recommended list but a set of tools to help investors and advisers make their own investment decisions. "A credit rating is Standard & Poor's opinion on the general creditworthiness of an obligor, or the creditworthiness of an obligor with respect to a particular debt security or other financial obligation. Over the years credit ratings have achieved wide investor acceptance as convenient tools for differentiating credit quality... A rating does not constitute a recommendation to purchase, sell, or hold a particular security. In addition, a rating does not comment on the suitability of an investment for a particular investor," it says.

� 2007 financialalert Limited.

First published in financialalert www.financialalert.co.nz
Back to top

INFINZ - finance company scaremongering

INFINZ head slams finance company scaremongers

by Anthony Davies | Thursday, 20 September 2007

Institute of Finance Professionals New Zealand (INFINZ) executive director Paul Hocking thinks the finance company sector is currently facing enough challenges without having to also cope with ill-informed commentators trying to talk it down further.

"It is unfortunate that company failure through company-specific reasons, including in some cases poor business practices, has occurred in the lead up to an international liquidity crunch, as the former is now exacerbating the latter's impact upon the funding of the finance sector. Many small businesses in New Zealand rely upon robust and accessible finance companies, and any threats to this funding source through ill-considered political, media or commentator utterings are not helpful or responsible. We all need to step back, take a breath and look at the short- to medium-term implications of what is happening rather than focus on the next big headline," he says.

INFINZ is running a one-day conference on finance companies in Auckland tomorrow which Hocking says will be a forum "for senior executives to assess the current environment and discuss the opportunities and challenges that may arise from regulatory changes".

"The non-bank finance sector in New Zealand is experiencing unprecedented turbulence with nine finance companies collapsing within the last 16 months. Most recently with Finance and Investments, LDC Finance, Five Star Consumer Finance, Property Finance Group and Nathans Finance, the sector is contending with global financial markets volatility in addition to diminishing investor confidence and the impending implementation of a new regulatory regime.

"The INFINZ Finance Companies Conference is an opportunity for the regulators, market participants and advisers to calmly address the problems facing the sector and take the discussion into a forum where meaningful debate can occur."

� 2007 financialalert Limited.

First published in financialalert www.financialalert.co.nz
Back to top

Sort By: