S&P affirmed Kiwibank owner NZ Post Group's AA- rating but dropped the state-owned company's ratings outlook from stable to negative.

However, it wasn't Kiwibank S&P was concerned about; NZ Post chief executive Brian Roche said the agency had dropped the group's outlook due to the continuing decline in its mail business.

"New Zealand Post is well positioned to deliver on a sustainable physical network, growing the bank, creating a digital future and a superior customer experience," he said.

Fitch said it had placed the big four Australian banks - ANZ, Commonwealth Bank (which owns ASB), Westpac and National Australia Bank (BNZ) - on ratings watch negative (RWN) due to concerns about their reliance on short-term funding from overseas.

Any cut in credit ratings for the big banks would be limited to only one notch, it said.

The warning followed a review of the Australian and Canadian banking sectors, which found the banks in both countries are "justifiably highly rated" but the Australian major banks' ratings are "under some pressure" at their current levels.

"Specifically, the RWN for the four major Australian banks largely reflects Fitch's view that despite significant improvements, these banks continue to have a weaker funding profile than other similarly rated peers."

Fitch's ratings for CBA, Westpac and NAB are at AA, while the rating for ANZ is AA- due to that bank's expansion into Asia.

Stubbs said due to the loose money policies of central banks, interest rates are "very cheap historically" and although this is good for people with mortgages, the same can't be said for those suffering low returns from their deposits.

Deposit rates are "unattractive"; however, "if you invest in the bond markets there are some very good opportunities to make money."

For instance, he said Tower's bond investments had returned 11% annually over the past three years, compared to term deposits which offer returns at or even below the level of inflation.

"Politicians have effectively said, we can make a few people pay now or make a whole lot of people pay later; these are the fixed interest investors.

"By depositing that money you are losing money and recapitalising the banking sector.  We are in volatile times and people value safety but as a long-term investment it seems to us an inappropriate amount of money to be receiving."

Ludlow gets more jail time

Former National Finance 2000 boss Allan Ludlow has had an extra nine months added to his prison sentence after further convictions over his role in the company's collapse.

Ludlow was already serving a sentence of five years and seven months, handed to him last October after he was convicted of seven charges brought by the Serious Fraud Office, including false accounting and theft by a person in a special relationship.

Last week in the High Court at Auckland Ludlow had his sentence extended after he was convicted of eight charges brought in a separate proceeding by the Financial Markets Authority.

Ludlow pleaded guilty in December to the charges, which relate to misleading statements made to investors in the company.

Justice Kit Toogood ruled that a total sentence of six years and four months for all the offending would be appropriate.

National Finance 2000 went into receivership in 2006 owing $21 million, of which 49c in the dollar has been repaid.

Two other National Finance directors, Ludlow's estranged wife Carol Braithwaite and Tony Banbrook, have pleaded not guilty to their respective FMA charges and will go to trial later this year.

Last Monday Judge Joanna Maze granted the five continued name suppression until their next appearance in the Timaru District Court on February 13.

However, on Friday two of the defendants, former chief financial officer Graeme Brown and Timaru chartered accountant Terry Hutton, applied to have their name suppression removed, followed by McLeod yesterday.

Two other defendants continue to have name suppression.

McLeod's lawyer Stephen Rennie said his client was disappointed the SFO had chosen to lay charges against him.

Last Monday in the Timaru District Court Judge Joanna Maze allowed name suppression to continue for the five accused until their next appearance in the court on February 13.

However, on Friday the judge granted an application by two of the men, former South Canterbury Finance chief financial officer Graeme Brown and Timaru chartered accountant Terry Hutton, to have name their suppression removed.

Brown faces one charge of false accounting, while Hutton, who used to work for Allan Hubbard's firm Hubbard Churcher, has been charged with false accounting and creating a false entry.

Hutton's lawyer Jonathan Eaton told media his client had sought to have his name suppression lifted due to speculation about the identities of the five facing charges.

The other three accused face a total of 18 charges, including entering the deposit guarantee scheme by deception, breaching the guarantee and failing to declare related-party transactions.

PGC investors told of chance for bargain

Investors in Pyne Gould Corporation could sell their shares now and buy them back later for cheaper, according to the company's independent directors.

The opportunity has arisen as a result of the takeover bid by NBR Rich Lister George Kerr's vehicle Australasian Equity Partners No. 1 LP (AEP).

According to PGC chairman Bryan Mogridge and independent director Bruce Irvine, AEP has managed the 50% target required for a takeover but is unlikely to reach the 90% mark for compulsory acquisition of the remaining shares.

The share price could drop, meaning shareholders could sell their shares at the 37c being offered by AEP and buy them back later, Mogridge and Irvine said in a statement.

"Naturally, there is risk in this strategy but we felt it important to point out the opportunity to shareholders and advise you that we as the independent directors will consider our position in this regard and may decide to sell some or all of our shares into the AEP offer and then repurchase at a later date.

"Once again we must reiterate that before you take any action you should discuss the situation with your advisor and recognise that any decision to act is yours alone."

Judge Joanna Maze allowed the five accused to keep their names suppressed until that date.

The five face 21 charges laid by the Serious Fraud Office in December after a 14-month investigation following South Canterbury Finance's collapse in August 2010.

Former South Canterbury Finance chairman Allan Hubbard died after a car crash in September last year.

Kennedy says the shares were held by family trusts and were sold because Heartland hasn't paid any dividends since it listed a year ago and the trusts needed cashflow.

The sale followed a rearrangement late last year of shares held by family trusts - a stock exchange notice in December showed Kennedy transferred 100,000 Heartland shares from one family trust to another of which he isn't a trustee.

He hasn't sold any of his own shares, Kennedy says. The annual report shows Kennedy owned 392,023 shares beneficially at June 30 last year, persons associated with him held 2,830 shares and there were another 2.08 million shares held non-beneficially. The latter are those held by trusts of which he is trustee.

Kennedy also participated in Heartland's share purchase plan last August which partly financed its acquisition of PGG Wrightson Finance, paying $45,000.

Heartland was formed from the merger of Marac Finance, CBS Canterbury and Southern Cross Building Society.

Kennedy was a director of CBS Canterbury for 24 years and was its chairman between 2002 and 2008.

However, the trial of the five individuals, who have name suppression, is likely to be months away at least.

Late last year the Serious Fraud Office laid 21 charges against the five alleging a variety of offences, including theft by a person in a special relationship, obtaining by deception, false statements by the promoter of a company and false accounting.

The charges came three months after former South Canterbury Finance cwner Allan Hubbard died following a car crash.

Today's hearing is likely to deal with adjournments and whether to continue with name suppression for the accused.

South Canterbury Finance collapsed in 2010, costing taxpayers $1.7 billion paid out to debenture holders under the government's deposit guarantee scheme. 

So far the receivers have repaid about $570 million to the government.

Downgrades add to Euro woes

Europe has been hit with a mass ratings downgrade, with Standard and Poor's lowering its credit ratings for nine European countries.

France was among the casualties, losing its coveted AAA rating, while Austria also slipped one notch from AAA.

Germany retained its AAA rating but Malta, Slovakia and Slovenia were all downgraded by one notch Italy, Cyprus, Portugal and Spain were lowered by two notches.

The latest round of downgrades is likely to increase borrowing costs for these countries and could see a continuation of the flight to risk that saw investors accept a negative yield for German government bonds issued last week.

The downgrades have sparked anger in Europe, prompting complaints by European politicians about the American ratings agencies.

Standard & Poor's cut New Zealand's sovereign credit rating in September last year.

That's because a number of companies Southbury Group held shares in or lent money to are either inactive, insolvent or in receivership, they say.

Southbury Group's major asset is 100% of Southbury Corporation which owed SCF $103.9 million on November 3, the date the receivers were appointed to both companies.

Southbury Corporation's major assets are an $18.1 million (as at November 3, 2010) loan to Southbury Group and its 100% shareholding in SCF and it hasn't been able to repay SCF anything.

"We do not expect that there will be sufficient funds generated from either SCF or Southbury Group's realiseable assets to enable a return to be paid" to Southbury Corporation, the receivers say.

The receivers' third report is even bleaker than their second which had indicated a Southbury Group had also owned shares for which it had paid about $10.6 million.

Southbury Group's receivers' fees amounted to $62,386 between May 3 and November 2 and Southbury Corporation's were $7,6,95. In the previous six months the group's receivers' fees were

$131,440 while the corporation's receivers' fees totalled $57,270.

The receivers say potential breaches of legislation identified will be reported to the relevant regulatory authorities and that both the Southbury companies may have been parties to some transactions causing concern.

"Due to the ongoing nature of the investigations, we are unable to provide details regarding individual issues or our findings since doing so could prejudice any subsequent proceedings which may be taken," they say.

Statistics New Zealand figures show New Zealand household sector saving was $200 million in the year to March 2011.

Although this was equal to only 0.2% of household net disposable income, it was the first time since 2000 that the households overall spent less than they earned.

It was a big turnaround from the March 2010 year, when household expenditure was $1.6 billion more than income.

The biggest blowout was in 2006 when New Zealand households splurged their way to a $6.85 billion gap between what they spent and what they earned.

"Household sector saving is positive for the first time in more than a decade, after borrowing first began to decline several years ago," economic statistics development acting manager Vannessa Turner said.

However, the good behaviour of households has been more than offset by the profligate spending of central and local government, which combined for negative $2.4 billion in the year to March.

Savings in the government sector peaked at $11.8 billion in 2007.

The deterioration in government finances helped New Zealand's overall national savings rate decline to $1.2 billion in the year to March from $2.0 billion in the same period last year.

Kiwi Finance investors to get their money

Debenture investors in Kiwi Finance will receive full reimbursement and are to be repaid approximately $1.2 million, the Financial Markets Authority has announced.

The payment covers all remaining principal owed to secured debenture investors, plus interest outstanding up until Kiwi Finance went into receivership in April 2008.

Three of Kiwi Finance's four former directors, Rodney Greensill, Chris Simkin and Barry Lambert, have undertaken not to act as managers of an issuer of debt securities for a period of five years.

Rhys Greensill has undertaken not to act as a manager of an issuer of debt securities for a period of three years.

The Greensill family is paying all of the $1.2 million of reparation, which is reflected in the shorter period of Rhys Greensill's management undertaking.

FMA chief executive Sean Hughes said the outcome was an excellent one for Kiwi Finance investors.

"As signalled in our Enforcement Policy earlier this year we want to focus our resources on conduct that harms the function of open, transparent and efficient capital markets.

"In this instance full restitution of investors' funds, together with an enforceable undertaking from the directors, is a good conclusion to the investigation and a strong outcome for Kiwi Finance investors."

The number of finance companies in KPMG’s Financial Institutions Performance Survey: non bank sector 2011 dropped to 13, down from 16 last year, due to the receiverships by Equitable Mortgages and NZF Money and the voluntary administration of GMAC Financial Services NZ.

This was accompanied by a 3.4% reduction in assets across the sector, down from $9,041.3 million to $8,731.7 million.

However, the aggregate profitability of finance companies has increased 33.1% from $150.4 million in 2010 to $199.9 million this year. This increase has been driven by a reduction of $85.5 million in operating expenses, mainly through impaired asset expenses reducing from $182.2 million to $123.7 million.

Meanwhile, “net interest income has been flat and there have only been marginal reductions in non-interest income and the level of tax expense,” according to KPMG’s report.

As a result of the contraction in assets and the increase in profitability, the gearing ratio for finance companies has improved from 6.11% in 2010 to 7.25% this year, while the average interest margin improved from 5.61% to 6.29%.

However, companies classed as “savings institutions” (building societies and credit unions) haven’t performed so well – net profit after tax for the sector was $16.9 million, an increase of only $1.2 million over the previous year.

And the report noted that “was it not for the inclusion of Heartland [which achieved profits of $7.1 million], profits for the sector would have decreased compared to the prior year.”

The average interest margin for the sector has decreased by 64 basis points from 4.25% to 3.61%, with credit unions decreasing from 7.24% to 6.82% and building societies decreasing 3.46% to 2.86%. Wairarapa Building Society was the only company in the sector to see an increase in interest margin but it remains the lowest of all entities in the survey, increasing 11 basis points to 1.63%.

Impaired asset expense across the sector rose from $17.7 million to $22.4 million, mainly due to the inclusion of the former Marac book in this section of the survey; if Heartland numbers were excluded the impairment expense would have decreased.

Total assets for the sector increased by $1,250 million to $4,457 million, again due to the inclusion of Heartland Group; excluding this the increase was only $77,000.

There has been strong growth in customer deposits, which are up by $80.0 million compared to last year (excluding Heartland).

“This is consistent with the increased saving trend we have seen in the banking sector, a result of deleveraging in the New Zealand economy,” the report said.

Its decision comes a year after the FMA's predecessor, the Securities Commission, gained a court order freezing the New Zealand assets of Hanover founder Mark Hotchin pending it laying charges against him. It is the first and only such order.

The Serious Fraud Office has also been investigating Hanover's affairs since September 2010 but hasn't laid any charges yet.

The FMA says it expects to file a claim in 2012 – no more precise date was provided – against those who signed the prospectuses issued by Hanover Finance, Hanover Capital and United Finance “seeking pecuniary penalty orders and compensation for investors.”

“This has been a significant investigation for FMA, focusing on a period in which investor deposits totalled approximately $35 million,” says FMA chief executive Sean Hughes.

“We have now reached a point in the investigation where we are confident that we have good grounds to commence civil proceedings. We believe this is the most effective regulatory response and we’re confident it offers the greatest opportunity for success,” Hughes says.

If the FMA's succeeds in making its charges stick, it may help other parties to bring related claims and is examining avenues to seek compensation from other parties on behalf of aggrieved investors, he says.

“Given the public interest in the investigation we want to keep the market as informed as we can. The decision is also in line with FMA’s Enforcement Policy, allowing it to bring proceedings promptly and cost effectively and to go beyond directors when considering liability.”

The Securities Commission had said it would lay charges relating to Hanover before the end of 2010.

Hanover froze more than $550 million owed about 16,000 debenture holders in July 2008 and then engineered a debt-for-equity swap in December 2009 which saw those investors become shareholders of Allied Farmers. The latter's market capitalisation is now just $3.2 million.

The council to become the first local authority in New Zealand to access foreign currency markets to meet its borrowing needs.  

This move was made possible following a recent law change, whereas previously local authorities were only able to borrow money domestically limiting the investors who could participate in bond issues.

"The successful launch of this facility is a core part of council's strategy to diversify its funding sources and lengthen the term of its borrowing," Auckland Council's chief financial officer Andrew McKenzie said.

"In going overseas, we will achieve both objectives and leverage off our position as one of the best rated institutions in the country. Auckland Council intends to fully hedge any currency exposure related to the borrowing.

"Auckland Council is committed to investing in the transformative projects that will benefit all Aucklanders for generations to come. To do so, we are looking at diversifying our sources of funding to secure the best rates for the people of Auckland region."

HSBC New Zealand chief executive Noel McNamara said, "The ground breaking programme will see the Council lead the way for Local Authorities to borrow funds offshore.  

"It also clearly highlights the advantages that borrowing in a currency other than New Zealand dollars can provide and ensures the Council has the widest range of investors open to it to meet its funding needs."

GFNZ's investors agreed to a moratorium in November 2007 when the company owed them $132.4 million. GFNZ says after paying the scheduled September 30 repayment early on August 31it has now repaid more than $119.5 million in principal and interest.

"The performance of the loans originated after April 2008 continue to deliver encouraging returns and, with sustainable new funding, has the ability to assist in moving the group into profit," GFNZ says.

The results of its new lending strategies "are encouraging" despite the difficult economic environment which is making it particularly difficult to collect on its pre-moratorium assets challenging, it says.

The board and management are committed to achieving profitability.

The Commission prosecuted Ludlow and his company Mortgage Rescue under both the Credit Contracts and Consumer Finance Act (CCCF Act) and the Fair Trading Act, in relation to consumer credit contracts entered into with two families.

Mortgage Rescue offered homeowners in financial strife temporary finance to stave off mortgagee sales.

The company encouraged homeowners to borrow more than was required to pay their arrears, so they could carry out renovations to their homes.

Judge Hinton observed that in his view Ludlow "lacked the skills to be in the industry" and did not "display the integrity and fair dealing that is appropriate in this type of dealing."

The judge said that Ludlow's response to borrowers cancelling their contracts or disagreeing with him was "clearly unlawful and in the circumstances, outrageous".

Broadlands Finance credit rating downgraded

Standard & Poor's has lowered its long-term issuer credit rating on Broadlands Finance Ltd (BFL) to 'CC' from ‘CCC', and placed it on CreditWatch with negative implications.

The ‘C' short-term issuer credit rating on Broadlands remains on CreditWatch with negative implications, where it was placed on November 24.

The actions reflect S&P's opinion that it is likely that BFL will selectively default on creditor obligations that are due to BFL's key shareholder, Anthony Radisich.

"We believe that BFL's intentions are to suspend and not make payment on an interest amount due on Dec. 15, 2011, on its loan from its key shareholder, and to suspend and not make payment on a quarterly interest amount due on Dec. 31, 2011, on debenture investments in BFL by its key shareholder," said credit analyst Gavin Gunning.

"Should these circumstances come to pass, we would be required under our rating criteria to revise our ratings on BFL on Dec. 16, 2011 to ‘SD' (selective default). Under our rating definitions, an obligor rated 'SD' has failed to pay one or more of its financial obligations (rated or unrated) when it comes due."

Standard & Poor's says the company's liquidity outlook is "weak" and there is uncertainty about its future business model, given that the debenture funding model has been seen by BFL as unsustainable, leading to its decision to withdraw from the New Zealand debenture market on October 19.

Local government bonds to be AA+

Debt issued by the new Local Government Funding Agency will be given an AA+ rating from Fitch and Standard & Poor's.

This is the same rating given to New Zealand's central government, although it is uncertain what sort of yield bonds issued by the new agency will bring.

The agency, which has been set up to help fund local authority borrowings, met last week to discuss its first debt issue, which will take place in February.

Local government debt is at about $5 billion but this is expected to more than double to $11 billion over the next decade.

Other upgrade triggers could be an improvement in Heartland's deposit reinvestment experience - it averaged 74% at October 31 - and "evidence of its ability to compete with other New Zealand banks on factors other than price or underwriting standards.

On the other hand, an unexpected rise in non-performing loans or credit losses could trigger a ratings downgrade.

However, S&P no longer seems so worried about Heartland's non-performing property loans -which prompted the agency to put Heartland's outlook on negative in the first place.

Now it says headwinds in the commercial property market mean it could take longer for the company to "restore its asset quality and earnings profile."

S&P highlights what it calls Heartland's "weak" business position and the "vulnerability" of its retail funding base in the context of the major banks which dominate the New Zealand market.

"Heartland's business stability could come under significant stress should larger market participants materially step up competition," it says.

S&P also worries about what might happen to Heartland's funding base if the major banks were to compete more aggressively for domestic retail deposits.

But it "maintains a favourable view of Heartland's management which has to date successfully managed a range of complex issues relating to formation of the new group."

Heartland group treasurer Craig Stephen says S&P seems confident his company has its problem property loans under control.

"We haven't let them down. We haven't let our investors or our shareholders down. We've delivered on everything we said we would."

Heartland proposed retail bond issue has been postponed but could happen in the first quarter of next year.