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Finance company FE Investments in receivership with KordaMentha appointed receiver, problems began well before COVID-19

Finance company FE Investments in receivership with KordaMentha appointed receiver, problems began well before COVID-19

Finance company FE Investments has been placed into receivership.

A note on the company's website says KordaMentha's Neale Jackson and Brendon Gibson were appointed joint receivers and managers of all of the assets and undertaking of FE Investments Limited on April 1.

"As a consequence of the receivership, all payments of principal and interest to deposit holders have been suspended," the website says.

"The Receivers will shortly write to all known deposit holders advising them of the receivership and the likely next steps. Further communication with deposit holders will likely be in May 2020, when the Receivers will provide further information about FEI and the receivership."

Jackson and Gibson say borrowers should continue to make their regular contracted payments, to the same back account.

"The Receivers will write to you [borrowers] in due course. Please contact your normal account manager at the Company should you wish to discuss the status of your borrowings."

FE Investments, a lender to small and medium sized businesses, is owned by Australian-based FE Investments Group Limited. It's licensed by the Reserve Bank of New Zealand as a non-bank deposit taker, and has a CCC credit rating from S&P Global Ratings. It holds $54.3 million of retail deposits held by 617 investors.

In a statement FE Investments Group Limited said its NZ subsidiary had been engaging with its trustee is Trustee Executors in relation to "necessary adjustments to its provision for loan losses" ahead of drafting March 2020 year financial statements.

The Aussie parent says FE investments advised the Reserve Bank and Trustees Executors on March 31 that it expected to breach its 8% capital ratio for at least 23 days while a capital raise was attempted. Trustees Executors responded on Wednesday saying the capital raising efforts had no reasonable prospect of success, and it had decided to appoint a receiver.

Interest.co.nz reported in February last year that FE Investments had breached its capital requirements under the terms of its trust deed. FE Investments financial results for the March 2019 year showed "first ranking" term deposits of $61.064 million and finance receivables of $52.002 million. 

S&P downgraded FE Investments' credit rating to CCC from B in December last year. This came after FE Investments' half-year financial results.

"Auditors raised uncertainties around the value and recoverability of material loan receivables," S&P said. "We are now factoring this information into our ratings. In our view, FE Investment Ltd may need to write down the value of large loan receivables, materially weakening its capitalization and potentially triggering liquidity challenges."  

A CCC credit rating means a company is currently vulnerable and is dependent upon favourable business, financial and economic conditions to meet its financial commitments. S&P's full report is here. And see credit ratings explained here.

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32 Comments

18
up

And so it begins...

You bet me to it. A saying about swimming and tide going out comes to mind...

Literally word-for-word what went through my mind when I finished the article.

They have been noted down as high risk of default for a while. Not surprising they are among the early casualties.

Literally word-for-word what went through my mind when I finished the article.

They've been in trouble for ages, nothing to do with current covid situation. Former owners assets will be well protected.

literally word-for-word what went through my mind when I finished the article.

CCC credit rating so how many others are in this category? The panic is going to start at the bottom and work its way up. Lets pray it doesn't make it to the letter A

Sorry Carlos, Before jumped to A/another blue team, what is the NZ ship captain said about NZ robust AML? the rest is history, even his recent trip straight to his CCP master asking NZ for exception on Capital outflow ban? ..now seems distanced to history too. Move your eggs to Rabo, non-deposit, if I were you..to OZ as well, make sure not exceeding the 250k in OZ, and below 30-50k for NZ (even this not certain yet) as I've instructed Orr to defer this April Deposit guarantee scheme due to Covids (I put 's' there, non '19' for a scientific reasons). Co-op, not too much exposure to land asset inflation industry.. rather to those, that give loan for primary produce..things you can eat/drink to sustain life.

No information about how much money they still had deposited?

Interim financial report showed 64mn of first ranking deposits.

When was that? I believe it was around 61m.

When was that? I believe it was around 61m.

Their loan book was concentrated in business lending and property development in Auckland based on their 2019 annual report.

Expect some businesses in Auckland to have cash and liquidity issues as their financier is no longer available to support them through the current economic challenges. Some businesses may go bankrupt. Jobs could be lost.

On the other side of the balance sheet, those investors who deposited their funds with FEI may find themselves needing cash from other sources, as well as the potential loss of some or all of their deposit. Perhaps they have positive cashflow investment property that they will sell.

Loan portfolio as of July 2019: 49% SME's business loans, 15% Property, 12% Finance Lease tech, 12% Residential Mortgage, 11% Vendor finance, 1% Bizcash.

A lot of mom and pop investors gonna lose money here - much lending to Property Developers involved I suspect
https://www.stuff.co.nz/business/118389773/finance-company-with-64-milli...

FE Investment's major assets: an $11m loan to Australian company Tomizone, $17m in loans to the developer of two Auckland hotel developments, and $1m of deferred tax losses.

The hotel and Tomizone loans made up a large proportion of the $66m in loans FE Investments had at the end of September.

The value of these assets was dependent on a number of factors, including the successful completion on time of the hotel developments. One was a 108-room, four-star hotel at 201 Hobson Street. The other a 176-room, four-star hotel at 29 Anzac Avenue.

only twelve years on. my how the lure of a few extra decimal points can cloud the memory. how to jog it; where to start. Provincial, Hanover, Strategic, United, Nationwide, Bridgecorp,Mascot,St Laurence, Sth Canterbury,Lombard lest we forget.

Can I add? Geneva & PRF/Pacific Retail Finance - both that with divine intervention, save me from total loss, managed to retrieve all the funds in days before receivership announcements, the Geneva? even managed to swindle some of my interest.. but usual, we must always feel lucky & appreciated.. when at least.. the whole principals back again.. that is the most you gamble this days, to expect back all what you've put in.

Aye, think between us we missed a few more, but your point underscores the base reality that the best return on capital is the return of that capital.

Not really in 2018 fraction of property investment was 28% in July 2019 fraction 15%.

Was thinking lending them some dough 2 years ago. Glad I changed my mind! Many like them might follow. Many Kiwis borrowing from these third tiers to finance their houses actually couldn't afford the loan anyway. Loan sharks and debt collectors are better investments- at least they know how to get the money back and aren't bound by red tapes.

Who fronts this company in NZ? Any of the rogues gallery that can’t stay away from finance company businesses?

Not too worry, remember SCF? - tax payers shall bail it out - FMA shall be the smooth snake oil merchant here.

To be fair, you would have to be a very unintelligent investor to be giving money to outfits like this?
Investing is about buying an asset that is going to continue to give you positive returns and without risk.
Many people say to invest in the productive sector and we now know that this isn’t always a great idea if you are buying shares.
I invest in the productive sector, but in well bought real estate in a city that is going to more than hold its value and with great returns.
There are many commentators now saying that CHRISTCHURCH is up undervalued and there is going to be major price increases when all the major building projects are completed like the Convention Centre and the big sporting venues!
These commentators know what they are talking about.

"Investing is about buying an asset that is going to continue to give you positive returns and without risk."

Can you complete the following sentence?:
A risk free asset can be transformed into a financially fatal investment by the use of excessive amounts of ....?

Investor blindness...?
Thinking JK is still PM?
A multi billion rebuild is starting and damaged house can be brought for peanuts...?
Covid is cured with epsom salts tomorrow?

A risk free asset can be transformed into a financially fatal investment by the use of excessive amounts of DEBT.

Christchurch may be a good long term investment, but growth there is slow maybe in 20 - 30 years the population increase will take up current over-capacity.

I see now the investors starting to bleet
One wrote that he had invested 100s of thousands in FE and the govt is responsible and should be bailing him out
Reminds me of SCF ,I never want to see a taxpayer bailout like that again, mind you there is a bit of that going on now
This can only get worse

FEI anticipated breaching its CAR (Capital Adequacy Rate) set by the RBNZ of 8%. They wanted 23 days to raise capital but only allowed 14 days. Breach of the CAR rate constitutes default under the 2003 Trust deed.

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Days to the General Election: 38
See Party Policies here. Party Lists here.