Rates Round Up: April 16

Bank profitability grows; fraud on the increase; more criticism of FMA over Hanover

Monday, 16 April 2012

by Niko Kloeten

New Zealand’s banks recorded an increase in profitability in the December quarter, despite their total assets shrinking by more than $6 billion.

Accounting firm KPMG’s Financial Institutions Performance Survey for the quarter showed that total assets at the big four Australian-owned banks plus Kiwibank, SBS Bank and TSB dropped to $362.2 billion, from $368.3 million in the September quarter.

However, net profit after tax across the firms increased to $1.147 billion in the quarter, up $77 million from the September quarter and nearly double the $584 million profit recorded in the March 2011 quarter.

Despite media reports of surging house prices, residential mortgages across the banks increased by only 0.9% in the quarter to $168.9 billion.

Bank deposits continue to be a popular choice for investors, reaching $194.9 million in the December quarter, up $7 billion (4%) from the September quarter and up $14 billion (8%) from the December quarter in 2010. 

Finance company cases drive fraud increase
A number of finance company fraud cases have resulted in a big increase in the total value of fraud going through New Zealand’s court system.
KPMG has released the latest edition of its six-monthly fraud barometer, which found the total value of fraud cases involving more than $100,000 hit $280 million in the second half of 2011, almost triple the amount in the same period in 2010.

There were 24 cases during the half, including five “super frauds” of more than $3 million, and two involving more than $100 million (the prosecutions of former LWR Industries chief executive Ken Anderson and former Datasouth director Gavin Bennett ).

KPMG's head of forensic services, Stephen Bell, said the number of cases was lower than usual, possibly due to the time and resources devoted to the large-scale frauds.

He said the total value of fraud was likely to increase even further this year, with South Canterbury Finance and other finance company cases due to hit the courts.

More criticism of FMA over Hanover
The Financial Markets Authority has copped more criticism of its civil proceedings against Hanover, with expat lawyer and blogger Cathy Odgers accusing the regulator of playing a “dirty game.”
Odgers, who blogs under the moniker Cactus Kate, wrote in an opinion piece published on the New Zealand Herald website that the FMA should have focused on what happened to the Hanover assets after they were purchased by Allied Farmers.

“Hanover was deliberately sensationalised by leaks, drip-fed to media and anti-big business bloggers as their conduit. Should you attempt blogging balance, within minutes hatemail hit the inbox invoking your deceased Grandmother's legacy.

“It was billed as the FMA's show-stopper but sizzled like cold sausages on the Mad Butcher's gasless barbecue to just $35 million from a 7-month timeframe, an unknown tiny percentage of investors with civil proceedings involving alleged prospectus violations that unless a suitably vintaged professional, no one has a hope of comprehending.

“I have questioned how many aggrieved investors obtained a prospectus let alone read one.”

Odgers said the civil action was “on behalf of a select few investors” for 7% of the total value of funds invested.

“Why is it that a school cleaner in South Auckland is now funding a civil claim for a Hanover investor who at one stage had more money than they would ever save in a lifetime?”

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