Greed strikes again in restructuring plan OK


Ah, take the cash and let the credit go, nor hear the rumble of a distant drum. – Omar Khayyam, Persian poet 1048-1122

Hanover Finance investors, including Queenstowners, signed away a chance for 50c in the dollar from receivership for a longer-term, less-certain chance for 55c.

Shareholders Association chairman Bruce Sheppard urged investors at the Hanover meeting in Auckland to reject the debt-restructuring plan and get more information. This triggered a “sit down and shut up” response from investors.

It also triggered a Sheppard outburst. His descriptions of Hanover investors included “idiots and dumb wits”.

The independent accountants’ report suggested investors had a better chance to get all their money back if they accepted the Hanover moratorium. Investors bought the “all”.

The report also noted that, discounting future cashflows, a net present value of 46c-55c was likely from the debt restructuring. It said this compared with a likely 39c-50c from receivership.

Ultimately, greed led people to invest in Hanover in the first place for a percentage point or two higher than a safe bank deposit. Greed may have struck again when they backed the restructuring plan.

Perhaps investors just won’t think. During the 1980s, for example, many living on investments relished high inflation. They refused to see that because of income tax on the inflation component of interest rates, they were often on effectively negative returns. They were losing wealth.

Queenstown as a whole gets some benefit from the vote. Hanover will unwind more slowly, which may help Wakatipu developments that took a large slice of the company’s investments.

A chartered accountant, Sheppard does sterling work on behalf of share investors. Putting questions at meetings, he’s worn a Second World War tin hat and a Viking helmet. This gets his criticism on to TV and into print.

Investors free to attend company meetings, always held on weekdays, often squirm more than directors at pertinent questions.

Renowned shareholder advocate Max Gunn’s hounding of Elders executives after their takeover of NZ forestry interests often drew glares and “sit down” calls from other shareholders. Time proved Gunn right.

Otago wine pioneer Michael Mellon, at the meeting that decided the fate of then NZ-owned Whitcoulls, challenged Brierley directors but without support. Shareholders looked embarrassed. After the meeting, many crowded around to agree with Mellon – yet they backed the Brierley plan.

When Bruce Judge’s financial empire collapsed 20 years ago, hundreds of shareholders who’d just lost their money yelled to reporters at the company’s last public meeting: “Leave him alone!”

It’s like the Stockholm syndrome in which hostages sympathise with kidnappers.

Nor should investors be hypnotised by reports from auditors or independent advisers, such as the accountants who reported on Hanover Finance. Auditors can miss huge faults, such as the non-existent stocks at Fortex.

Independent reports can also be wide of the mark, as in the Feltex float.

Meanwhile, investors who have money left should be happy with Government-guaranteed deposits. The Reserve

Bank website lists qualifying institutions.

Once the guarantees end, memories of the current finance-company mess will make investors cautious for 15-18 years.

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