Marac says balance sheet never stronger as it ditches property, eyes Heartland Bank

Marac says balance sheet never stronger as it ditches property, eyes Heartland Bank

Marac Finance’s annual profit has fallen 25% with impairment charges, dominated by the property sector, up 79%.

Marac, a subsidiary of Pyne Gould Corporation (PGC) which is in merger talks with the Canterbury Building Society and Southern Cross Building Society as they look to create a “Heartland Bank”, said net profit for the year to June fell to NZ$14.3 million from NZ$19.1 million in the previous year. Second-half profit came in at NZ$8.5 million versus NZ$12.1 million in the same period of 2009. Marac's full year figure was, however, slightly ahead of PGC's NZ$13.7 million forecast.

Marac said it had reduced its property book to NZ$147 million at June 30 from NZ$374 million a year earlier with this reduction in property exposure considerably de-risking its balance sheet and improving the quality of its earnings. Marac last year transferred NZ$175 million worth of non-performing property loans to fellow PGC owned entity Real Estate Credit Limited.

In the year to June impairment charges rose to NZ$23.8 million, contributing the bulk of PGC’s NZ$31.8 million, from NZ$13.3 million last year. Marac said NZ$10.7 million of its impairments stemmed from the property sector, NZ$7.5 million from the commercial sector, NZ$2.3 million from the consumer sector and NZ$3.3 million from other sectors.

Balance sheet 'never stronger'

Marac, which recently had the outlook on its BB+ credit rating revised to stable from negative by Standard and Poor's, said its balance sheet had never been stronger with retained earnings and a NZ$35 million capital injection from PGC. Shareholder funds rose 35% to NZ$206.5 million.

Although it's covered by the Crown retail deposit guarantee scheme and the extended Crown retail deposit guarantee scheme, Marac re-introduced non-guaranteed deposits in late January as it strives to wean both itself and investors off reliance on the Crown guarantee.

“We have been pleased with investor response and as at 30 June 2010 Marac held NZ$115 million of deposits not covered by the guarantee. We are definitely finding more investors are looking through the guarantee at the quality of the institution they are investing in,” Marac said.

Marac held NZ$829 million of retail debentures at June 30.

PGC said Marac’s consumer finance division recorded net operating income of NZ$29 million, up from NZ$20 million last year.

Marac has refocused core lending in vehicle leasing and plant and equipment finance. These operations had been boosted by a joint venture with the Automobile Association (AA), launched April 1, which saw the AA buy a 50% stake in Marac Insurance delivering a NZ$2.5 million one-off capital gain for PGC, and the NZ$70 million purchase of GMAC New Zealand’s retail motor vehicle financing book from GMAC NZ and Cari New Zealand by Marac.

Marac is also benefiting from reduced competition in the car finance market after the demise of rivals such as Western Bay Finance, National Finance 2000 and Provincial Finance, and the exit of GMAC and GE from the market.

“While the total market has contracted, Marac increased its market share as a result of strong market positioning and through key acquisitions. New lending volumes were up 33% on the previous year,” the company said.

Net operating income from Marac's commercial finance fell to NZ$22.3 million from NZ$23.5 million and property income fell to NZ$16.2 million from NZ$19.9 million. 

Meanwhile, PGC reported a NZ$22 million net profit, turning around last year's NZ$54.4 million net loss.

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Marac seem to be the poster child for the creation of the 'good bank'/bad bank' duopoly out of the mess of an over-exposed property lender.

It seems surprising that more troubled institutions, both here and oveseas, have not gone down this path. Mind you, why bother (unless forced) when global governments offer bail outs to all comers as an alternative.

  "...with impairment charges, dominated by the property sector, up 79%."...beyond ouch!

True to some extent - but then I was thinking of the UK listed banks - all of which COULD have done the same (ie good bank/bad bank off the back of large rights issues and/or bondholder haircuts) - but I guess they found it easier to suck @ the teat of the UK taxpayer.

Perhaps I should clarify my first post - I was actually lauding Marac/PGC for taking the path less trodden.

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