Feeling the pulse of the financial sector

The growing concern about New Zealand’s debentures market has been highlighted in the Bank of New Zealand economics’ team’s monthly survey.

Friday, September 16th 2005, 7:05AM

by Rob Hosking

The survey of all economic sectors includes feedback from financial investment and insurance respondents.

Financial planners reported “surprising amounts of money around” and “most (if not all) going offshore.” However there is growing concern about “a lot of extreme ugliness on the debenture front as finance companies look to roll their books with deposits drying up.”

Bank of New Zealand chief economist Tony Alexander says the debentures market is getting tight. “It must be getting hard now going by the front page advertising. That would, at least partly reflect the recent reports about some pretty hefty exposure to the property sector by those investments.”

Last week the issue hit the headlines with the ASB Group Investments warning some of the investments in that market are riskier than they look.

That may also be linked to the reports of increased money going offshore, he says. “Many people have built up quite a bit of wealth from investments and are looking to diversify.”

Insurance brokers covered by the survey are less optimistic, reporting a softening market and “a struggle to maintain the same gross income.

In sharp contrast, the survey reports an extremely buoyant investment banking market, with private equity and specialist forestry funds driving a high level of merger and acquisition activity.

The survey reports an “unprecedented level of money from investors globally and searching for opportunities. Australia and New Zealand are seen as a very active M&A market with some of the private equity funds diverting resources from Asia to this market.

Deals are therefore fully priced and this is encouraging sales of businesses, giving companies the opportunity to rationalise their portfolio of businesses and focus on their core businesses.

“Bankers are very aggressive in providing financing, and most deals are being completed,” Alexander says.