The Untimely Demise of MFS Pacific Finance Limited
The Untimely Demise of MFS Pacific Finance Limited
Amongst the numerous investment funds and financial institutions falling victim to the global credit crunch, one that surely need not and should not have succumbed was New Zealand-based MFS Pacific Finance Limited.
Starting life in New Zealand in 1999 as a subsidiary of ASX-listed MFS Limited (now known as Octaviar Limited), an early venture saw the Company take over the name and management of several underperforming Waltus property funds, later followed by an offer of Debenture Stock and Unsecured Notes to the New Zealand public through a registered prospectus. From the outset the Company made clear that funds raised were primarily destined for lending in the broadly diversified Australian property market, with the same interest rates offered in either AUD or NZD reflecting a significant proportion of second or even third mortgage lending. Figures to 30 September 2007 show one third of such lending as lying behind first mortgage advances from MFS Limited’s own flagship Premium Income Fund, indicating a common interest between mortgagees. Cash raised in NZD but lent as AUD was hedged back to the New Zealand currency.
Over the next few years, MFS Pacific worked diligently to establish itself within the mainstream New Zealand finance company sector with restructuring in early 2007 placing MFS Pacific Finance under NZX listed MFS New Zealand Limited (38 of total assets as a fee in exchange, the Put Option became commercially as well as legally based.
This formal agreement effectively gave MFS Pacific Finance investors legal recourse to the full financial resources of MFS Limited, in support of both Secured Debenture Stock and Unsecured Notes. By mid 2007 the level of parent MFS Limited shareholder funds had reached a massive A$1.5 billion. No wonder the relatively generous fixed interest rates on offer of 9.25 unsecured, attracted widespread support.
MFS Pacific Finance became a significant partner and supporter of financial events around New Zealand, being on hand at major seminars and conferences. Company briefings were open and frank, personnel appeared well informed and competent.
The company seemed to take constructive criticisms on board – such as early disposal of the maligned Waltus name. Details of security type, missing from early communications, were added to later prospectuses. Early attempts to evaluate the Company’s liquidity were originally answered by production of a complicated combined line and bar chart purporting to show an excess of assets over liabilities spread over time but, which to this observer at least, seemed to indicate the opposite. However, later financial statements displayed the assets and liabilities maturity profile in the standard tabular format common in New Zealand registered prospectuses with an overall receivables excess over liabilities of about 2.6 from October 2007 to A$4 in early January 2008 but this was generally in line with the broad ASX losses over the same interval, so little justification for the ensuing rout can be found here. Markets don’t just suddenly react savagely to news that has already been widely known for months.
Further confusion seems to have been generated by suitor City Pacific first showing interest in merging with or acquiring certain financial assets from MFS Limited, then withdrawing, then showing renewed interest, only to withdraw again. City Pacific appears to have problems of its own.
Also, and although flagged in general terms earlier, a Board proposal in early January to address debt by raising A$550 million from shareholders while splitting the company in two must have contributed to dissatisfaction, it does not fully explain the sudden share price collapse.
No, what really hit out of left field in mid January – vital information unknown previously to the market – was that large shareholders, including Directors, were facing margin calls on shares effectively purchased on deposit, margin calls they were unable to meet. This news appears to have unnerved other substantial holders who quickly joined a rush for the exits. As every highly leveraged property owner knows, a modest fall in the market can wipe out ones equity. Margin traders of shares face the same fate but here the financier, or margin lender, usually demands immediate payment to make good any of the finance provider’s losses. Failure to meet such demand may result in immediate sale or confiscation of the leveraged security to limit losses, this being the norm rather than the exception. The decline of MFS Limited shares over several months, in line with market sentiment, was obviously sufficient to trigger margin calls. Dumping of huge volumes on the market, including notifiable directors’ holdings, did the rest.
CEO Michael King’s conference call on 18 January, following two days of trading halt, was intended to present the separation and cash raising issues but instead oversaw a massive volume of trades, approaching 120 million shares compared to normal volumes between one and five million, and a 69 sale of Stella Group for A$1.3 billion equivalent, effectively values that arm at just over $2 billion, compared to A$2.5 billion evaluated by analysts earlier. Hence total shareholders’ funds could take a half billion dollar hit from that one item alone. Nevertheless and even if remaining assets were all to be written down by 50 p.a. interest to debenture holders over the next 20 months.
Lessons
Unfortunately MFS Pacific Finance is beyond rescue as an operating unit in its original form and its passing is a genuine loss to the New Zealand finance company sector. In addition to offering investors currency diversification, MFS Pacific carried the potential to set a new benchmark of financial support for finance company borrowings through the “Put Option”. To date no other parent/subsidiary relationship of companies listed on the New Zealand Debentures Exchange has instigated a similar enforceable guarantee. Perhaps the new “Global Credit Crunch” reality will empower investors to demand just that.
In addition, as more intricate trading mechanisms such as margin trading, stock borrowing and short selling evolve, it becomes clear that disclosure of such potentially dangerous practices must become a mandatory requirement imposed by stock exchanges or legislation if markets are to be open and informed. Private investors have quite enough risks to contend with, without the secret avarice of their own company’s directors and executives exposing them to even more.
But while the mandatory objective may prove an optimistic goal in the short term, ordinary shareholders and fixed interest investors alike can take their own action immediately, wasting no time in sending the “totally unacceptable” message loud and clear to directors and executives where margin trading is concerned.
Internet Banking – Are you online?
Internet banking has changed the way we manage our money forever. Instead of having to call the bank, go there or wait for a statement to find out how much money weve got or where its all gone, we can now just log on at the banks website and find out instantly. Its a huge money and time saver, for both the customer and the bank.
Yet Internet banking has had a bad press recently, primarily due to concerns about the security of accessing your bank accounts over the public Internet. Stories abound of hackers stealing account or card details and going on exotic shopping sprees, with the unsuspecting customer left to chase their bank for the money they lost. These fears have contributed to many people switching back to phone banking, for fear of becoming a victim of identity theft.
Many fears of Internet banking are unfounded, however. The most common way fraudsters get account details is not by hacking the bank, but instead by sending out scattershot spam to millions of people telling them to click a link and enter their account details for some reason, in the hope that a few will. Theres always someone who knows little enough about how the web works to enter their details into an untrusted website, not even realising anything happened until the fraudsters drain their bank account.
Very basic education can stop this threat in its tracks, however, and make your Internet banking experience almost 100% safe. The easiest piece of advice is not to click any link in an email that claims to be from your bank: instead, use your web browser and type in the address of the banks website yourself. Also, when you are asked for your account details and password, make sure to look at the address bar in your web browser, to check that you are looking at your banks website and not an impostor.
If youre still scared, remember that Internet banking fraud makes up a tiny percentage of all bank fraud. Youre much more likely to become a victim when you hand your credit card over in a restaurant than you are when you bank online. Just like any other kind of fraud, your bank should cover you for any money you lose, but its really very unlikely that it will ever happen.
How Your Clients Can Benefit From Online Banking
These days, customer service representatives have got it easy. Why? Because computers are taking over their responsibilities. More and more, people are using home computers for everyday tasks, from ordering gifts and groceries to making appointments and dates to booking movie and travel tickets. It is no wonder then that online banking is becoming increasingly popular. Even smaller banks are recognizing the benefits of online services.
There are numerous perks to online banking. For example:
- Say goodbye long lines! Instead, customers can manage accounts on their own time from the comfort of their own home.
- No need for customers to worry about organizing bank statements or filing canceled checks! They can list their latest transactions online in a tidy manner.
- No more waiting for payments to clear or statements to come in the mail. All accounts are continually updated online.
Still not sold on the idea?
How about if your customers could pay all their utility bills and credit card bills without ever leaving their home or buying a stamp? What if they could set up automatic payments that would be sent out on a pre-arranged date?
All your customers need to do is carve out a little bit of time (probably no more than thirty minutes) to get their information online. Then, before they know it, they are paying bills with just the click of a mouse. In a flash, they have done away stamps, envelopes, and trips to the post office. Whats more, they have created a valuable online record of all their payments that they can access at any time of any day.
Be prepared for your clients to ask for help when they are setting up their online banking system. Most bank branches have financial officers who are delighted to walk clients through this initial process. They will assist in setting up accounts, listing the addresses, amounts of payments, dates of payments etc. And trust us, after customers log on to do their banking for the first time, they will be hooked. It really is that easy and convenient.
But besides convenience, online banking offers some perks that one cant get the old-fashioned way. Lets say you have a customer who wants to create a budget for the next three years. Online banking programs can do this! And, down the line, if a customer wishes to tweak a budget, all they have to do is log on and type in the changes.
One thing to keep in mind is that banking customers will probably have questions about the safety of online banking systems. It will be the banks job to calm these concerns and explain that the information is encrypted and no one else can access the individual accounts.
And if all of this is not enough, customers will also be pleased to know that they will save money by banking online because they will not have to buy stamps or envelopes or any more paper checks!
Online banking is a win-win situation. Banks can attract new customers by offering new electronic options, and customers will be instantly pleased with the results. Today, people want to feel in control of their money. By offering clients an online banking system, you are also offering them a much needed sense of power and peace.
UK Finance and Auditing Regulatory bodies
The role of the regulatory bodies in the UK Financial dealings is very important. We cannot neglect their role in UK Finance. There are many regulatory bodies for UK Finance and Auditing. Some of them are mentioned here.
A non-governmental independent organization called the Financial Services Authority (FSA) is available in the UK. This UK Finance company is funded by the financial services industry. The policies, plans, and rules of the UK Finance company are transparent and open. It is funded by the companies that it regulates. The website of this organization has information for consumers on their rights and regulation. It also gives information on the financial products available. The financial services industry in the UK is regulated by FSA. They have enforcement powers and investigative powers. They have the power to regulate deposit taking, Insurance investments, and Mortgage lending and general insurance advice.
Financial Ombudsman Service is another organization the helps the customers to solve any UK Finance disputes with the financial firms in UK. Complaints about Banking services, credits cards, endowment policies, health and private medical insurance, mortgages, motor insurance, and National Savings & Investments can be done with the assistance of Financial Ombudsman Service. They also help you on complaints about savings plan and accounts, stocks and shares, and travel insurance. For more details on the types of coverage that is done by them you can visit their website. Before you approach them for resolving the issues it is better you complaint to the concerned organization first. If the problem is not solved by the organization then you can approach the Financial Ombudsman Service for assistance.
The public trust office is another regulatory body related to UK Finance that helps people to control their money and property. The audit commission is another independent regulatory body that is responsible for monitoring whether the public money is spent economically and efficiently. Effective spending is monitored in government services, housing and health services. Fire and rescue services and criminal justice services are also monitored for spending of the UK Finance. The audit commission works closely with the Deputy Prime Ministers office, Department of Health and the National Assembly for Wales. They aim is to achieve excellence in their work. They support local democracy and public accountability. You can reach this office in Millbank tower, Millbank, London. Visit their website for the latest news and events.
Bona Vacantia is an organization that is responsible for administering the estates of person who die without any heirs. The assets of companies and trusts that have failed are also collected by the Bona Vacantia. They also provide assistance to companies and estates. This division does these works with cost effective casework. This work is done within the legislative and legal constraints. They work in business like manner. The dealing is mostly open and informative all through the case.
The National Audit Office is another regulatory body that monitors the public spending on behalf of the Parliament. This office is lead by the Comptroller and Auditor General. The taxpayer is saved by their work.