Friday 20th of June 2008

The troubles of Dominion Finance are indeed a little unsettling for investors, but I suspect – or hope – that the company will quickly come through the tough times. After all, this is one of the quality companies and it has the added benefit of being NZX-listed, thus reasonably transparent, compared to the opaque murkiness of others which have failed. Indeed some would say others told outright lies to investors. I tend to put the finance companies into a couple of categories – the dodgy that deserved to collapse and the others which have got into difficulties due more to market conditions. PropertyfinanceSecurities is a case in point. Its problems were brought about by the global credit crunch. Dominion looks like it is suffering more because of a mismatch between assets and liabilities. As Good Returns reported a while back, the issue for many of the companies is this mismatch between when loans are repaid and when debenture holders are due their funds. A couple of things on Dominion's side are that it has been backed by some players, like South Canterbury Finance, which are held up as top players in this sector. In addition its management and board have a pretty good track record. I note that SCF has sold its total holding of 4.5 million shares, at cost, for $5.9 million, to interests associated with SCF chairman Allan Hubbard. The other point, and one which seems to get missed by the mainstream media, is that it's not all doom and gloom out there. Some of the companies which got into trouble are pulling through, and others like Provincial are making reasonable returns to investors. Sure there are some awful cases, but they are not all bad. I don't expect Dominion to be too bad in the end.