By Bernard Hickey
The trustees that have seen their business of monitoring finance companies collapse along with the finance companies are now welcoming the growth of KiwiSaver funds that they are monitoring.
In a release titled "KiwiSaver funds help Trustees grow", the Trustee Corporations Association said supervising trust deeds and providing back office services to KiwiSaver funds was helping grow the country’s five Trustee corporations.
The five are Guardian Trust, Trustees Executors, Public Trust, Perpetual Trust and Covenant Trustee.
Interest.co.nz's Deep Freeze list shows 61 finance companies and investment funds have collapsed or been frozen since May 2006, locking up or losing NZ$8.515 billion of funds in 238,932 investors' accounts. At current estimates, around NZ$2.8 billion worth of savings have been lost.
The list shows that Guardian Trust was the trustee for nine of the finance companies and investment funds, including two frozen ING funds, Hanover Finance, three Axa mortgage funds, an AMP Property Fund, Compass Capital and Allied Nationwide Finance.
The list shows that Trustees Executors was the trustee for five finance companies and investment funds, including the Tower Mortgage Fund, the Canterbury Mortgage Trust, St Kilda Finance, Rural Portfolio Capital and South Canterbury Finance.
The list shows Public Trust was the trustee for the Guardian Mortgage Fund.
The list shows Perpetual Trust, which is owned by Pyne Group Corp, was the trustee for 22 of the 61 finance companies and trusts, including Provincial Finance, First Step Trust, Nathans Finance, LDC Finance, Capital + Merchant, Numeria, MFS Pacific, Boston Finance, Lombard Finance, Kiwi Finance, Cymbis, Dominion Finance, St Laurence, Dorchester Pacific, Hanover Capital, United Finance, Totara Mortgage Fund, Strategic Finance, Mascot Finance, Strata Finance, Structured Finance and Vision Securities.
The list shows Covenant Trustees, which is owned by Graham Miller, was the trustee for 15 finance companies, including National Finance, Western Bay Finance, Bridgecorp, Bridgecorp Investments, Chancery Finance, propertyFin Securities, Five Star Consumer Finance, Clegg and Co, Beneficial Finance, Geneva Finance, Belgrave Finance, IMP Diversified, North South Finance, Orange Finance and Mutual Finance.
Now they're running KiwiSaver funds
The Trustee Corporations Association said these five trustees supervised 1310 issues worth nearly NZ$160 billion as at 30 June this year, up 12% from the same time in 2009.
These securities included KiwiSaver and superannuation trusts, capital market issues, unit trusts, debt securities and retirement villages.
“While we’ve had a high profile in relation to finance companies in recent years, the reality is that they represent a small part of our business,” said the Chairman of the Trustee Corporations Association, Clynton Hardy.
The Trustees had seen huge growth in back office services for KiwiSaver funds, which included maintaining investor records and providing custody and accounting services for each fund.
“There has been an increase of over 30 % in KiwiSaver membership numbers for the year to 30 June, so the increase in work in this area has been phenomenal,” Hardy said.
New Regime
Aside from this corporate trust work, personal trust activity has remained steady, with the 5 Trustee companies managing over 26,000 trusts with funds in excess of NZ$6.3 billion.
With a completely new regulatory regime on its way for the Trustees, the TCA says there are still some areas that need “to be ironed out," Hardy said.
“We welcome the new Trustee licensing regime and the advent of the Financial Markets Authority. We don’t believe any of our members will have trouble meeting the new standards of accountability,” Hardy said.
Trustees worried about auditors
“However, if we’re to help achieve the common goal of restoring investor confidence, then we need high quality information. While we’re pleased to see auditor registration introduced, we’re not happy with the level of auditing assurance the market is currently receiving, and we’ll be raising our concerns with government.”
Trustees are part of the new regulatory regime for finance companies and other non-bank deposit takers, including credit unions and building societies. Trustees and credit ratings agencies essentially form the front line in the regulatory process, monitoring such smaller deposit-takers.
Bollard grumpy
Meanwhile, Reserve Bank Governor Alan Bollard was critical in his book "Crisis: One central bank governor and the global financial collapse" of the performance of trustees in the collapses of finance companies, and of Perpetual Trustee and Covenant Trustee in particular.
Bollard wrote at length about the problems with finance companies.
"Who had been responsible for this state of affairs? Under-prepared over-optimistic, unprincipled financiers? A gullible, under educated investing public? Inadequately attentive regulators? An under-resourced and under-committed trustee industry?," Bollard wrote.
"Our corrective focus was on the latter, a curious group of old established trustee firms who contract with finance companies to supervise the trust deeds under which the companies take debentures from the public," he wrote.
"The more we examined their performance, the less impressed we were. One or two trustee firms had been particularly prominent in supervising the riskier end of the finance industry. We had some tough talks with these trustees, telling them the future had to be different and wanting to know how they intended to prepare. Some of them were surprised, indeed angry, at our response."
8 Comments
Let me tell you a story about the privileged protection enjoyed by the "professionals"
There was a company called ABC Learning Centres (it had investments in NZ) The brother-in-law of the principal did the fit-outs of each new child-care centre. Kitchens, bathrooms, and hand-basins and other plumbing supplies were capitalised at $100k for each item. The assets of the company skyrocketed as the capitalised assets grew. The company fell over in 2008 and went into receivership early 2009. The Foundation Auditors happily approved the accounting treatment of capitalisation of all expenditure, for 5 years. Then one of the Big-Four accounting firms got involved and expressed a different opinion. And that's where it lays today. Total silence. Two years later. A $3 billion failure has had the covers pulled over it. A probable reason for the "professional" silence is the prospect of a class action against the original auditor. Then again it might just disappear altogether into the mists of time.
That raises the following question: Why have no questions raised about the auditors and the trustees in relation to all the finance company disasters.
An interesting column Bernard, though we reject the insinuation that Trustees were somehow responsible for the collapse of all the finance companies you list.
It doesn’t matter what compliance regime you have, Trustees can never protect investors against fraud or other criminal activity, as we have seen for example with Five Star Finance. Nor should they be held responsible for the kinds of ‘creative’ accounting and concealed related party loans undertaken by many finance company directors, examples of which appear in the media almost daily.
The buck must stop at the Governance level. The Directors’ role is to run the business. The Trustee’s role is to actively supervise compliance with the Trust Deed, not to second guess Directors’ business decisions, and we hope there will be more Director accountability to come in the courts.
That said, we are on record as saying (to Parliament’s Commerce Select Committee and to the Minister of Commerce) that there were definitely things we could have done better, and we have taken action across a range of areas in the past years, as you will see from the documents we sent you with the media statement.
On the legislative front, we put a proposal to the Minister to licence Trustees, and this was accepted. This means that our Statutory Trustee Members will relinquish their statutory preference that was enshrined in the Securities Act in exchange for a direct relationship with the regulator and robust supervision. The result is the Securities Trustees and Statutory Supervisors Bill, currently before the House.
We also made strong representations to Government to split the KiwiSaver issuer role away from that of the Corporate Trustee. The risk and benefit of the KiwiSaver issuer role will now rest with the provider, which is where it should always have been and the Trustee Supervisor will be free to monitor the scheme provider. This change is enshrined in the Financial Markets (Regulators and KiwiSaver) Bill.
As far as regulators are concerned, we strongly support the Government’s decision to establish the FMA, who will now oversee the Trustee licensing regime. In the non banking deposit taking sector, we have actively engaged with the Reserve Bank and recently signed an MOU with them, covering our supervisory role with NBDT’s.
Finally, I note that you have lumped Finance Companies and managed funds together in your article. Your readers no doubt know that these are two different asset classes with very different compliance regimes.
CLynton Hardy, Chairman, Trustee Corporations Association of NZ Inc.
Finally I note that you have lumped finance companies and managed funds together in your article. Your readers need to know that these are two very different asset classes, with totally different compliance regimes.
Clynton Hardy, Chairman, Trustee Corporations Association.
bernard,
The problem you have is that is many commentaries on the NZ financial markets you seem completely unaware of the legal status or of any legislative changes that may be coming.
Further, many of your readers (note those earlier in the comments section) seem to have no clue as to what the legal status is of many securities, companies and trusts.
What the heck has the failure of ABC Learning Centres (an Australian company run by a disgraced Australian) got to do with NZ trustee companies? What do your readers understand about anything??
It may be useful on your website to have a 'how things work' section that explains how business operations are structured and what changes may be coming up, and refer to it in your many commentaries. I mean for god's sake, lets lift the intelligence level around here just a bit.
I still don't get why no criticism has been laid at auditors throughout this entire debacle. Is it because your paper, the trustee or the government are scared of the BIG auditing firms? why have they not been taken to task? they must have known what was going on. It’s really not that hard to uncover fraud, related party lending, especially on the scale that has been publicized. furthermore even the rbnz was aware of auditor issues - just take a look at SCF and the "behind the scenes" actions of the rbnz to have the auditor replaced. these issues haven't just materialized in the past couple of years - they have been around for decades. finally, impairment, provisioning, related party all words that have shot to prominence in the past few years are not unique. why did nbdt historically have virtually no provisioning (and the banks still don't) and why did these amounts shoot up virtually overnight - almost across the board. what caused this and who was behind such dramatic change? these are questions that have remained unanswered. why?
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