Finance companies acted like ‘Ponzi schemes,’ registrar says
Some 30 finance companies were in receivership, liquidation or moratorium as at last month. Investors were owed a total of $4.5 billion by such firms as at July last year. The finance company sector in total is worth about $22 billion.
A major factor in the collapse of the industry was governance which lacked the experience and skills needed to oversee the complexity of the operations, Registrar Neville Harris said in a report to the Commerce Select Committee as part of the Ministry of Economic Development’s 2007/08 financial review.
The majority of companies rolled up non-performing loans into new debt, reducing the number of loans in default, and “masking the true performance of the loan portfolio,” he said.
“In many cases, funds received for investment from new investors were used to repay the maturing loans of existing investors,” Harris said in the report. “There is also a pattern of the company’s CEO or directors having been involved in previous financial industry failures.”
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