Are you HIGH RISK, BANK RELIANT?

[dandan]

Risk comes form not knowing what you’re doing (Warren buffet)
Have many of our main banks recently come to believe that they don’t know what they’re doing and are therefore afraid to lend?
Roger Kerr at interest.co.nz has an interesting article today.

http://www.interest.co.nz/ratesblog/index.php/2009/03/05/opinion-corporates-dont-trust-banks-to-lend-again-for-a-long-time/

It appears some of our biggest corporate borrowers, Contact Energy and Fonterra have lost confidence in our banks ability to lend money. Theses corporates need to lower their risk profile to achieve future growth. Perhaps they have became careless and far too Bank Reliant in the past.
They now wish to entertain their Appetite for a more conservative, risk adverse financial strategy and may look to the finance companies.
Are our banks in the process of shutting down (laying off staff, lowering lending levels, increasing lending criteria towards standstill point)?
Is this the beginning of a new age for Finance Companies?

[donna]

Great questions - the recession flushes out bad practices and poor performers so it will continue to be an interesting period of watch and learn I feel.

Cheers,

Donna

[tpr2]

or perhaps the banks don't have the funds to be able to lend to those corporates or perhaps those corporates are not good risks at the levels the banks want to lend at.'

Fonterra had to pay 4.5% above the OCR to get their funds.
Contact is going to be even higher.

Certainly raising funds through bonds reduces the risk to the corporates but raises the risk for mum and dad investors.

It is certainly a great market to be a finance company right now.... well a real finance company not one of these "I lend to developers" and only have 2 clients finance companies.

[roseneath_rat]

I very much doubt it is now a new age of finance companies. With main banks feeling liquidity pressures (availability of offshore funds for lending at reasonable cost) finance companies will be even worse. I hear some smaller banks in the US (more akin to our finance companies) are having to pay 13% above the funds rate to attract money.

More conservatism and lower risk strategy is exactly what the banks should be doing, but certainly not to the degree where things are at a standstill.

I agree that there is a big risk in being too heavily 'bank reliant.' Times like these really emphasise my favourite "Golden Rule of Finance" - Whoever has the gold, makes the rules. That should appeal to the 'gold bugs' out there but in my case it just refers to liquid assets.

[tpr2]

The new age of finance companies I am talking about RR will not be what NZ has been used to but something new.

Many years ago if you wanted bridging finance or short term specualtive funds to complete a project you went to your solicitor who organised it for you through his "bugger I fogrot what they called them" basically a trust account of investors funds.

The lending was short term and needed a reasonable exit strategy. Rates were high but when you have no other options this old saying comes to mind "beggars can't be choosers"