Marac hopes to convince savers over time to invest without guarantee

Pyne Gould Corp has re-affirmed its goal of seeking a banking licence for Marac Finance, but it noted it needed to regain an investment-grade credit rating, build a consistent track record of earnings, and build scale into its business. Marac retail investment manager Andrew Ford told interest.co.nz that it expects to meet the criteria for the government guarantee scheme and intends to be in the scheme, but over time it hopes investors will gain enough confidence in Marac to be without the gaurantee.

"At the moment the focus for Marac is on improving the credit rating. Today's annoucement should help build confidence to invest without the guarantee," Ford said. Marac currently has a speculative credit rating of BB+, just one notch below investment grade, and has been buffeted by poor performing loans including property exposures, and has assets of $1.3 billion. The property loans have been taken over by other parts of the PGC group and are now managed by Perpetual. Profits to December for Marac were weak at $5.8 million, after a one-off $3.3m pre-tax provision for a much publicised loan irregularity. Managing director Jeff Greenslade said forensic investigations are continuing into the unauthorised loan that dates back to 2003. "It is indeed a one off and we are confident we can recover the balance," Greenslade said. Marac also recently launched a "non-guaranteed deposit" offer with the cost of the avoided guarantee fee being offered to investors as a higher return. It has received some support, garnering $2 million a week since it was launched, according to the company. Following some important changes to their capital structure, net equity has risen above 15% of total assets, and approaching $200 million, giving it much better gearing than any New Zealand bank. Here is the PGC statement relating to Marac:

MARAC's Consumer business lending on motor vehicles continues to perform strongly and grow market share. MARAC's focus remains on the middle tier section of the market "“ new and near new cars. Business lending to small and medium sized businesses remains constrained due to economic conditions, coupled with a deliberate strategy of exiting higher risk accounts. However, in the latter part of the year new lending increased. Property lending continues to be managed downwards, but a patchy market means this withdrawal will be slow to complete. A thorough review by both internal audit and the company's external auditors has been carried out on the company's loan book following the discovery of an unauthorised loan of $4.4m. This review indicates that this was a one-off and MARAC is confident it has proper controls in place. The company is pursuing with vigour all remedies available to it to maximise its recoveries in respect of this loan. A pre-tax provision of $3.3m ($2.3m post-tax) has been made. PGC strengthened MARAC's balance sheet by investing a further $35m in new capital, not requiring MARAC to pay a dividend and arranging the sale of $175m of property loans at face value to another PGC subsidiary. Collectively these steps resulted in MARAC's total equity increasing from $153m (10.8%) to $197m (15.2%). MARAC's balance sheet has never been stronger, with strong investor support and $277m of liquidity, the company remains focussed on securing a banking licence. This will require returning to a consistent track record of earnings, regaining an investment grade credit rating and building further scale in the business.