Will there be a guy at Geneva's meeting?

Hi Phil

I have just returned from the Geneva meeting - the ghouls will be disappointed as the resolutions passed easily. There were no "fireworks" - in fact to say the meeting was positively disposed to the company Directors and management is a gross understatement.

I expressed disappointment during questions that the press were not invited. However I do not see what right or privilege the Consumers Institue has to even ask to be represented - it is a private profit-seeking business who grandstands headlines in many cases to show how important they are.

The company did provide some updated general balance sheet information that they asked to remain confidential - however I can say it showed the company has continued to be profitable, and that there was a clear surplus of assets over liabilities. Brendan Gibson of Ferrier Hodgson in replying to specific questions said the loan book was very good quality (compared with others he had seen).

I asked 2 questions about the BOS facility. The first was what were the original terms of the facility and how could those terms be changed. The answer was that it was a 3 year evergreen facility - but with a credit rating covenant. We learn something every day. From now on I will be asking all companies the terms of their backup facilities - to have it become callable upon an adverse event seems to me to defeat the purpose of a backup facility.

That neatly led on to a second question expressed elsewhere by the greek chorus - what was to stop all the cash being husbanded during the moratorium being used to pay out BOS at the end of April 2007 leaving the other secured investors high and dry. I got an immediate response from both Trustee and an Executive Director that that definitely "would not happen". If funding has not been confirmed approaching the end of the moratorium, the company will be placed in receivership. Now no-one present hoped that would happen, but that was a pretty important piece of information.

Its a pity that sort of information hasn't been disclosed earlier.

Andrew Dinsdale of KPMG has made a good point about the availability of up-to-date financial information to investors (and the commentators). It seems lawyers are telling companies that they can't release any information unless it is audited etc. A comment from a lady from the Securities Commission at the weekend seemed to indicate that that wasn't the correct interpretation of the Securities legislation. My bush lawyer's view is providing that sort of information is not an "advertisement". Geneva does not have a current prospectus and can't seek new funds - so how could it advertise in the first place.

However how do we ever get to challenge the view of a Company's legal adviser - essentially they can make whatever ex cathedra statements they like. Who is in a position to take them on? When are they ever called upon to defend their position amongst their peers?

I reckon almost everyone at the meeting wished the Geneva current and future shareholders, Directors and management well as they face the next 6 months. On a number of occasions there was spontaneous applause for speakers who wished the company well. The announcement of the passing of the resolutions was greeted with strong applause.

It was a pity the public critics of the company (including several advisers who never supported the company and who could only have been showing an interest in order to publicise themselves) were not present to see what the Geneva investors thought. And it was a crying shame the media were not in the tent to see events unfold.

It is a pity I was not aware of the media etc restriction earlier. As an out-of-towner I was able to nominate a proxy to attend and could have chosen an interested financial spectator/reporter.
It is also probably a bad sign that among all the investors/shareholders that are permitted there is not a financial consultant or business journalist to be found!

Hi Phil

I guess Murray would like to provide us all with a recent Geneva Finance non confidential balance sheet that has been audited by someone who has a large public liability insurance policy, that is up to date, and can be veriifed by a third party?

In plain engllish what is "a 3 year evergreen facility - but with a credit rating convenant"? I suspect that means if BOS finds out that the credit rating falls below some rating figure that we may not know about then there is no more credit available from BOS.

Murray - even if the Consumers Institute in your opinion, is grandstanding, would it not have been fair to have them go to Geneva Finance's meeting? Maybe as a proxy on behalf of a "now poor investor" who can no longer afford to travel.

If Brendan says the loan book is very good quality compared to others he has seen - what does that really say about the quality of the loan book - is it really bad or not?

At the last rugby match I went to there was occasional spontaneous applause for the losing team - who played poorly. I am still trying to understand all of your story Murray.


Geoff Birss
Investor

Hi Murray

It was a pleasure to read a well balanced report of the Geneva meeting.
As a retired advisor who as you are aware never supported debenture investing I am gratified that there is at least one professional out there doing his job and seeking solutions. In my opinion the media and a number of self serving advisors / legal eagles could have done more to help Joe Public recover hard earned savings rather than afford blame and shame on all and sundry.
All the best.
Peter Jones

Vote update

I knew the vote in favour of the moaratorium was high but did not appreciate just how high. 86% of the debenture holders voted and 99% were in favour! The vote by the other two unsecured classes was unanimous.

Some commentators/critics asserted that the result was a foregone conclusion because BOS could carry a 50% majority by itself. That is actually not correct - by my calc, BOS had about 39% of the votes on the debentures. So tell me how please how 39% can be a majority in an 86% turnout? It sure helps, but they were helped in this case by about another 45% of voters.

Response to Neil Birss

Are you the same Neil Birss who was reported by SST as an investor who invested $235,000 in Five Star Consumer Finance including $100,000 in the period leading up to their receivership? If you are and if the receiver is right, you are only going to get back between $61K and 94K of your investmetn overtime. I sympathise with your loss - none of us likes to lose cold hard cash. I could understand your grief and anger in that outcome, but would beg you not to transfer that grief into a completely jaundiced view about everything about all finance companies.

No, everything is not kosher in the sector, but equally everything is not rotten. Some advisers may have given bad advice (some stories I have heard would appear to lead to open and shut negligence claims) but it's a non sequitur to abstract therefore that all advisers are crooked. You will get headlines with your views as the media appears to be a big cheer-leader for a "bloody outcome"

I stand firm on my view about the Comsumers Institute. I do not see what right they have to demand representation at any meeting on any subject they choose. They are a subscription service - so it is even arguable that their subscribers have mandated them to speak on any issue - do they referendum their members on issues? Or does the leadership just assert a right and plow on? (I have a subscription but can't recall them asking my view on anything so that they can promote the majority view of us all). Actually their questions were not bad, but believe it or not, others of we investors were perfectly capable of understanding the issues and asking the same questions ourselves.

To make it perfectly clear, I am not opposed to the Consumers Institute per se. I am just opposed to them claiming to represent investors in a particular issuer who couldn't themselves attend the meeting nor find anyone to give their proxy..

Re up-to-date audited information, it seems that lawyers are advising companies what information that they can and cannot disclose, based on their individual interpretations of the Securities legislation. This interpretation may be far too conservative. Frankly as an investor I got enough unaudited financial information at the meeting (albeit confidential) to satisfy me. Granted my conclusion was that management could be trusted in the information that they were providing. You may have concluded differently.

Audited accounts would have given me more data to analyse but audited information is normally published 3 to 4 months after the effective date; and the audit is correct only at that date - not the next day and certainly not 4 months later. read an auditor's report carefully if you distrust that information.

And one last question, were you an investor in Geneva yourself, or is your concern only for others? If the former no doubt you voted against the moratorium and were in the very small minority (and our now hostage to teh significant majority); if the latter surely the outcome of the vote means that we the actual investors did not share your concerns. So you should rest easy in that event.

Apologies to Neil Birss for error in my previous blog. I should have said Geoff Birss.

Hi Phil

My earlier reply to Murray was a “little tongue in cheek” but there are some serious issues that Murray has raised in reply to my comments. The Consumer’s Institute has an editor who presumably decides what matters they wish to investigate and write on – do not consumers purchase investment products? I am a subscriber to a newspaper and other journals – I have never been asked in advance if I approve of the topic for an article that is about to be written. It is I guess true that bad news sells more newspapers. But then I am not too keen reading good news only – is that what they read in Cuba – good news only?

Murray

I am not transferring my anger and grief to all finance companies or all financial advisors. There are at least 60 finance companies, I can only name some and only 10 or so have run into serious problems – actually the failure rate does seem high. But there will be some good ones. You indicate that you are an investor in Geneva Finance, just like me. Have you received commissions from that company?

You have said yourself that all is not kosher in the sector – I agree. So how can these problems be fixed? One obvious way is to publicise the news (it may be bad news but ...) so we all know what is going on, keeping things secret helps who?

How many finance companies have failed due to media coverage, how many due to poor governance and management or a lack of regulation and outside scrutiny?

An audit of Geneva Finance’s recent management accounts would not have taken 3 to 4 months. Limited audits can be carried out very quickly. I would just have preferred someone outside of the company to have had a look at the information – and for them to say they think it is OK subject to the normal provisos. I would also have preferred that the voting returns sent direct to the company were scrutinized by someone else – that would not have been hard to arrange – but as you imply 99% is impressive.

The Reserve Bank now appears to consider that more than annual audits of finance companies is required – I agree with that. They also suggest that finance company failures in part have been due to asset quality, connected lending and credit management issues. It also appears to others that in a few minor cases there may be more serious issues that will have to be dealt with.

I do not consider I am a hostage of a significant majority – possibly I am a hostage of the shareholders and management – I hope they treat me well and the company does well in its recovery. The company information I received suggested that receivership would adversely affect investors and that the moratorium should be agreed to. I initially assumed when I read this, perhaps incorrectly, that the investors referred to were the company shareholders.

Yes finance companies have been very profitable recently for the shareholders – that is why so many have been set up. There are other issues I suggest that are more important to a public debenture holder than company profitability – for example interest payments and return of their i.o.u. in full.

It seems easy to set up a finance company with limited real capital under current rules? “Secured” debenture stock” means different things to different people I guess. Maybe the term should be dropped from some of the advertising.



Geoff Birss