Wednesday 21st of November 2007

It’s pleasing to see that the finance company scene has been quite quiet recently and it is appears to be in a bit of a rebuilding phase. I understand another finance company should have an S&P rating by the end of this month. This is one a well-established company which, earlier this year, restructured its business and has also secured a couple of good wholesale funding lines. When it gets its rating that it will be the fifth company to have an S&P rating, joining; UDC, Marac, South Canterbury and Geneva. In addition to this Allied Nationwide has also announced it is going for an S&P rating too. Feedback from the sector is encouraging at the moment too. Many companies say they are coming across more and better deals than they have seen in the past. This is partly because of the changes going on in the industry. At the recent SIFA Conference one of the speakers who made this point says they are doing good quality loans at 20-22% rates. (My eyes watered too). Also South Canterbury is seeking more funds, partly to take advantage of the opportunities in the market place. On the flip side we are seeing more and more finance company rates edging up to and over the 10% mark. I understand there is a lot of internal discussion about whether rates should cross this double- digit threshold. The downside being that many investors may look at rates at this level and say the risk is too high. Clearly that isn’t the case. With bank one-year IAM rates sitting at 9% and offers like Rabo’s perpetual bonds going out the door at 9.48% for the first year it seems finance companies have little choice but to go into double digits. Maybe these increases will address some concerns that finance companies aren’t offering sufficient reward for the risk?