Backgrounder
Why is National guaranteeing FAI Finance?
25/02/09 13:28
A taxpayer guarantee for a finance company owned by Hanover has Wigram’s Progressive MP Jim Anderton puzzled. The government has given a Crown guarantee to FAI Finance - wholly owned by Hanover and, through a network of companies, by Mark Hotchin and Eric Watson.
“The absolutely top policy guidelines specified by Treasury for considering a Crown guarantee are ‘the maintenance of public confidence in New Zealand’s financial system; and maintaining the confidence of general public depositors in New Zealand financial institutions.’ It is not clear how a guarantee for Hanover companies fits that guideline,” Jim Anderton said.
The Treasury says factors that should be taken into account in giving a guarantee include the size of the entity and related party exposure, the business practice of the entity, the ‘good character’ and business acumen of the entity and “The track record of the entity.”
Last year Hanover froze over half a billion of investors money and investors approved a recovery plan in December.
In June last year, the latest date recorded in its prospectus issued this month, FAI had assets in loans worth a total of $28,582,000, at an average interest rate of 21.63%. This sum included $15,119,000 due in 2-5 years. Investors had $18,542,000 in FAI at an average interest rate of 9.9%. Among those entitled to their money back, $6,468,000 was on call, $7,514,000 due in 6-12 months, and $382,000 due in more than two years.
The Crown receives a fee for the guarantee, which could be worth as little as $28,000 a year.
Jim Anderton said a Crown guarantee to Hanover is a strange response to the financial crisis.
“The point of the guarantee is to prevent the entire deposit base of New Zealand fleeing. But there is still room for non-guaranteed businesses that should be able to charge an interest rate reflecting their risk. Hanover is the sort of company that the market can make its own decisions about.
“Mr Hotchin and Mr Watson appear to be affluent men and it is hard to see why they shouldn’t give the guarantee from their own resources instead of those of the Crown.”
Who owns FAI Finance?
Companies Office records, 24 February 2009
FAI Finance
Directors: Mark Hotchin
Greg Muir
Shares: 15,766,588 - all held by Hanover Finance
Hanover Finance
Directors: Mark Hotchin
Greg Muir
Shares: 71,651-596
Hanover Capital
Directors: Mark Hotchin
Greg Muir
Shares: 5,000,000 all owned by Hanover Financial Services
Hanover Financial Services
Directors: Mark Hotchin
Greg Muir
Shares: 13,303,620 all owned by Hanover Group.
Hanover Group
Directors: Mark Flay
Mark Hotchin
Greg Muir
Eric Watson
Shares: 207,327,000 all owned by Hanover Group Holdings
Hanover Group Holdings
Directors: Mark Flay
Mark Hotchin
Eric Watson
Shares: 87,871,057
Of these:
Hotchin Investments
Directors: Mark Hotchin
Dwayne McGorman
Shares: 39,500,000 all owned by Hotchin Trustee Ltd
Hotchin Trustee Ltd
Directors: John Radley
Tony Thomas
Shares: 1000, all owned by the directors (= trustees).
Forefront Investments
Directors: Leslie Archer
Mark Flay
Eric Watson
Shares: 596,933;
Of these:
Peak NZ
Directors: Bruce Armitage
Don Stanway
Eric Watson
Shares: 100, all owned by Foreshore Investments
Foreshore Investments
Directors: Leslie Archer
Mark Flay
Shares: 100, all owned by Cire Trust
Cire Trust
Directors: Mark Flay
Eric Watson
Shares: 100, all owned by Eric Watson.
FAI’s loans/deposits
FAI Prospectus 7, registered 9 February 2009.
At 20 June 2008, FAI had assets in loans worth a total of $28,582,000, at an average interest rate of 21.63%.
This sum included $15,119,000 due in 2-5 years.
At the same date it had deposit liabilities (i.e. Money that investors have invested in FAI securities) 0f $18,542,000, at an average interest rate of 9.9%.
This included 6,468,000 on call, $7,514,000 due in 6-12 months, and $382,000 due in more than two years.
“The absolutely top policy guidelines specified by Treasury for considering a Crown guarantee are ‘the maintenance of public confidence in New Zealand’s financial system; and maintaining the confidence of general public depositors in New Zealand financial institutions.’ It is not clear how a guarantee for Hanover companies fits that guideline,” Jim Anderton said.
The Treasury says factors that should be taken into account in giving a guarantee include the size of the entity and related party exposure, the business practice of the entity, the ‘good character’ and business acumen of the entity and “The track record of the entity.”
Last year Hanover froze over half a billion of investors money and investors approved a recovery plan in December.
In June last year, the latest date recorded in its prospectus issued this month, FAI had assets in loans worth a total of $28,582,000, at an average interest rate of 21.63%. This sum included $15,119,000 due in 2-5 years. Investors had $18,542,000 in FAI at an average interest rate of 9.9%. Among those entitled to their money back, $6,468,000 was on call, $7,514,000 due in 6-12 months, and $382,000 due in more than two years.
The Crown receives a fee for the guarantee, which could be worth as little as $28,000 a year.
Jim Anderton said a Crown guarantee to Hanover is a strange response to the financial crisis.
“The point of the guarantee is to prevent the entire deposit base of New Zealand fleeing. But there is still room for non-guaranteed businesses that should be able to charge an interest rate reflecting their risk. Hanover is the sort of company that the market can make its own decisions about.
“Mr Hotchin and Mr Watson appear to be affluent men and it is hard to see why they shouldn’t give the guarantee from their own resources instead of those of the Crown.”
Who owns FAI Finance?
Companies Office records, 24 February 2009
FAI Finance
Directors: Mark Hotchin
Greg Muir
Shares: 15,766,588 - all held by Hanover Finance
Hanover Finance
Directors: Mark Hotchin
Greg Muir
Shares: 71,651-596
- 37,835,596 held by Hanover Financial Services
- 33,815,000 held by Hanover Capital
Hanover Capital
Directors: Mark Hotchin
Greg Muir
Shares: 5,000,000 all owned by Hanover Financial Services
Hanover Financial Services
Directors: Mark Hotchin
Greg Muir
Shares: 13,303,620 all owned by Hanover Group.
Hanover Group
Directors: Mark Flay
Mark Hotchin
Greg Muir
Eric Watson
Shares: 207,327,000 all owned by Hanover Group Holdings
Hanover Group Holdings
Directors: Mark Flay
Mark Hotchin
Eric Watson
Shares: 87,871,057
Of these:
- 77,279,174 owned by Hotchin Investments.
- 10,591,883 owned by Forefront Investments.
Hotchin Investments
Directors: Mark Hotchin
Dwayne McGorman
Shares: 39,500,000 all owned by Hotchin Trustee Ltd
Hotchin Trustee Ltd
Directors: John Radley
Tony Thomas
Shares: 1000, all owned by the directors (= trustees).
Forefront Investments
Directors: Leslie Archer
Mark Flay
Eric Watson
Shares: 596,933;
Of these:
- 5000 owned by Eric Watson
- 591,933 owned by Peak NZ
Peak NZ
Directors: Bruce Armitage
Don Stanway
Eric Watson
Shares: 100, all owned by Foreshore Investments
Foreshore Investments
Directors: Leslie Archer
Mark Flay
Shares: 100, all owned by Cire Trust
Cire Trust
Directors: Mark Flay
Eric Watson
Shares: 100, all owned by Eric Watson.
FAI’s loans/deposits
FAI Prospectus 7, registered 9 February 2009.
At 20 June 2008, FAI had assets in loans worth a total of $28,582,000, at an average interest rate of 21.63%.
This sum included $15,119,000 due in 2-5 years.
At the same date it had deposit liabilities (i.e. Money that investors have invested in FAI securities) 0f $18,542,000, at an average interest rate of 9.9%.
This included 6,468,000 on call, $7,514,000 due in 6-12 months, and $382,000 due in more than two years.
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Sentencing Bill won’t reduce crime.
18/02/09 13:38
The promise to significantly reduce violent crime won’t be kept, because the Sentencing and Parole Reform Bill introduced to parliament today won’t make the difference promised, Wigram MP Jim Anderton says.
He told Parliament the Government would be accountable if there were more violent killings after Government Ministers announced ‘Under this Bill there will be no more William Bells.’
“Ministers responsible for this Bill know it will not deliver the results they have promised,” Jim Anderton said.
The Bill’s Explanatory Note says any impact on prison numbers from this Bill “will not be felt for at least 10 years.” When the government announced it was getting tough with criminals it didn’t say that ‘getting tough’ meant doing nothing for ten years and a total of 70 extra prison beds after twenty years.
“New Zealand has a serious problem with violent crime. A recent survey showed only 43% of New Zealanders feel completely satisfied about their security and safety in their own home. New Zealanders are sick of crime and want to see criminals punished. That’s why when my colleague Matt Robson was corrections minister he started building more prisons than any corrections minister in history. So I support putting violent offenders away and my party helped put the prisons in place to do it.
“But this Bill does nothing to reduce violence. It doesn’t lock anyone up until they have already committed a serious violent offence. It doesn’t prevent crime.
“If you want to reduce crime, the solutions are much more complex. It starts with reducing at risk behaviour, it continues to getting tough with young hoons on their way to a life of crime. And it includes addressing the major risk factors in prisons, like alcohol and illiteracy - because when over 90 per cent of criminals have an alcohol or drug problem, then you aren’t going to rehabilitate them and turn them away from a life of crime unless you fix those.
“We owe it to New Zealanders to get tough on crime. This bill does not. This Bill will lead to perverse results. This Bill will not deliver National’s promise to significantly reduce crime.”
Background: Alternatives to the Sentencing Bill
International evidence shows that changing the rate of imprisonment doesn't affect the crime rate. For example, Finland cut the number of crimes punishable by imprisonment. The prison population fell. The crime rate didn't change. Some states of the US went the other way and put offenders away for much longer terms. The prison population began growing enormously. The crime rate didn't change.
The point is that the likelihood of going to prison doesn't seem to affect whether or not offenders go out and commit crimes. So if we want to reduce crime, then there must be something else we can do to keep the public safe.
Young people who are at risk of becoming serious adult offenders are recognisable with increasing certainty as newborns, as school entrants, as young offenders and as early adult offenders.
Each of the main risk factors increases the probability of anti-social behaviour by four to ten times. The key risk factors are where the mother is:
- Young;
- Has little education;
- Is from a disadvantaged family where she received little care or attention;
- Is substance dependent;
- Is socially isolated; and
- Has a number of male partners.
This background doesn't condemn a child to adult offending. But it increases the risk. If all of these factors appear together, the risk increases many hundreds of times.
So the first step is to reduce the number of highest risk births.
We can do that by working with young women who fit the profile and who are in the social welfare and justice systems.
They need sexual health services - teaching them about contraception and avoiding exploitation. Teaching young women about the advantages of delaying child bearing until they are settled, mature and suitable support is available. The cost for each intervention is as little as about $500. The benefit to cost ratio has been assessed as fifty to one.
We need to back that up with more support for high-risk new mothers.
Family Start programmes are a good example of the sort of assistance that can be provided. Each intervention costs about $3000. The benefit to cost ratio is assessed at twenty-five to one.
And then we can move to children as they enter school.
Teachers have long been able to identify many of the school entrants that they believe will end up as adult offenders. For example an intervention for a five year old who is aggressive and defiant is estimated to cost about $5000-$10,000 per case with a success rate of 70%. The same behaviour at the age of 25 years costs $30-40,000 and has a success rate of only 20%.
Earliest possible intervention works best and costs less.
Children who are at risk of progressing to serious adult offending get easier to identify between the ages of ten and fifteen.
That is when they begin their offending career. The single most powerful indicator of a trajectory to serious adult offending is early repeat offending as a child.
The obvious risk factors include failure at school, substance abuse, deviant friends and a family that has problems - poor supervision, criminal parents and child abuse.
The remedies that work are fairly simple:
- Re-entry to school, with some incentive for doing well;
- Better parenting
- A complete ban on alcohol and drug use
- New social activities and friends.
Working with these kids to prevent them moving on to serious adult offending would mean intervention with about two thousand kids a year, at a cost of about $7-15,000 each.
If one in four of them moves on to a lifetime of offending without the intervention, and one in three interventions actually work, then the benefit-cost ratio is about 36-1.
We want to increase use of Day Reporting Centres.
They give the kids job skills and life skills; and help to place them in jobs;
More than half of the teenagers who enter the adult justice system are re-convicted within one year of ending their sentence. About 80 or 90% are re-convicted within five years.
Dangerous teenage offenders who commit violent and sexual offences would still go to prison. For the others an offence will still result in the appropriate penalty.
Attendance at Day Reporting Centres would be compulsory five days a week for six months, and might be accompanied by night curfews and electronic monitoring. The units cost about $10-20,000 per offender to run, with a benefit to cost return of 37-1.
Corrections Department research indicates the measures in this package could eventually reduce imprisonable offending by around 17% a year.
The earlier you intervene, the more effective the result, but the harder it is to work out where the intervention is needed. The preventive measures we support are not quick fixes, but they are effective. They will take enormous co-ordination across a number of government agencies - Corrections, health, CYFS, education and others.
He told Parliament the Government would be accountable if there were more violent killings after Government Ministers announced ‘Under this Bill there will be no more William Bells.’
“Ministers responsible for this Bill know it will not deliver the results they have promised,” Jim Anderton said.
The Bill’s Explanatory Note says any impact on prison numbers from this Bill “will not be felt for at least 10 years.” When the government announced it was getting tough with criminals it didn’t say that ‘getting tough’ meant doing nothing for ten years and a total of 70 extra prison beds after twenty years.
“New Zealand has a serious problem with violent crime. A recent survey showed only 43% of New Zealanders feel completely satisfied about their security and safety in their own home. New Zealanders are sick of crime and want to see criminals punished. That’s why when my colleague Matt Robson was corrections minister he started building more prisons than any corrections minister in history. So I support putting violent offenders away and my party helped put the prisons in place to do it.
“But this Bill does nothing to reduce violence. It doesn’t lock anyone up until they have already committed a serious violent offence. It doesn’t prevent crime.
“If you want to reduce crime, the solutions are much more complex. It starts with reducing at risk behaviour, it continues to getting tough with young hoons on their way to a life of crime. And it includes addressing the major risk factors in prisons, like alcohol and illiteracy - because when over 90 per cent of criminals have an alcohol or drug problem, then you aren’t going to rehabilitate them and turn them away from a life of crime unless you fix those.
“We owe it to New Zealanders to get tough on crime. This bill does not. This Bill will lead to perverse results. This Bill will not deliver National’s promise to significantly reduce crime.”
Background: Alternatives to the Sentencing Bill
International evidence shows that changing the rate of imprisonment doesn't affect the crime rate. For example, Finland cut the number of crimes punishable by imprisonment. The prison population fell. The crime rate didn't change. Some states of the US went the other way and put offenders away for much longer terms. The prison population began growing enormously. The crime rate didn't change.
The point is that the likelihood of going to prison doesn't seem to affect whether or not offenders go out and commit crimes. So if we want to reduce crime, then there must be something else we can do to keep the public safe.
Young people who are at risk of becoming serious adult offenders are recognisable with increasing certainty as newborns, as school entrants, as young offenders and as early adult offenders.
Each of the main risk factors increases the probability of anti-social behaviour by four to ten times. The key risk factors are where the mother is:
- Young;
- Has little education;
- Is from a disadvantaged family where she received little care or attention;
- Is substance dependent;
- Is socially isolated; and
- Has a number of male partners.
This background doesn't condemn a child to adult offending. But it increases the risk. If all of these factors appear together, the risk increases many hundreds of times.
So the first step is to reduce the number of highest risk births.
We can do that by working with young women who fit the profile and who are in the social welfare and justice systems.
They need sexual health services - teaching them about contraception and avoiding exploitation. Teaching young women about the advantages of delaying child bearing until they are settled, mature and suitable support is available. The cost for each intervention is as little as about $500. The benefit to cost ratio has been assessed as fifty to one.
We need to back that up with more support for high-risk new mothers.
Family Start programmes are a good example of the sort of assistance that can be provided. Each intervention costs about $3000. The benefit to cost ratio is assessed at twenty-five to one.
And then we can move to children as they enter school.
Teachers have long been able to identify many of the school entrants that they believe will end up as adult offenders. For example an intervention for a five year old who is aggressive and defiant is estimated to cost about $5000-$10,000 per case with a success rate of 70%. The same behaviour at the age of 25 years costs $30-40,000 and has a success rate of only 20%.
Earliest possible intervention works best and costs less.
Children who are at risk of progressing to serious adult offending get easier to identify between the ages of ten and fifteen.
That is when they begin their offending career. The single most powerful indicator of a trajectory to serious adult offending is early repeat offending as a child.
The obvious risk factors include failure at school, substance abuse, deviant friends and a family that has problems - poor supervision, criminal parents and child abuse.
The remedies that work are fairly simple:
- Re-entry to school, with some incentive for doing well;
- Better parenting
- A complete ban on alcohol and drug use
- New social activities and friends.
Working with these kids to prevent them moving on to serious adult offending would mean intervention with about two thousand kids a year, at a cost of about $7-15,000 each.
If one in four of them moves on to a lifetime of offending without the intervention, and one in three interventions actually work, then the benefit-cost ratio is about 36-1.
We want to increase use of Day Reporting Centres.
They give the kids job skills and life skills; and help to place them in jobs;
More than half of the teenagers who enter the adult justice system are re-convicted within one year of ending their sentence. About 80 or 90% are re-convicted within five years.
Dangerous teenage offenders who commit violent and sexual offences would still go to prison. For the others an offence will still result in the appropriate penalty.
Attendance at Day Reporting Centres would be compulsory five days a week for six months, and might be accompanied by night curfews and electronic monitoring. The units cost about $10-20,000 per offender to run, with a benefit to cost return of 37-1.
Corrections Department research indicates the measures in this package could eventually reduce imprisonable offending by around 17% a year.
The earlier you intervene, the more effective the result, but the harder it is to work out where the intervention is needed. The preventive measures we support are not quick fixes, but they are effective. They will take enormous co-ordination across a number of government agencies - Corrections, health, CYFS, education and others.