Hanover Finance Wiki - Financial Steps

Hanover Finance was a New Zealand finance company that collapsed in 2008, becoming one of the most prominent casualties of the Global Financial Crisis in New Zealand. Its demise had significant repercussions for investors and the wider New Zealand economy. The company’s operations primarily involved borrowing money from retail investors and lending it to property developers.

Hanover Finance was formed in 2002 by Mark Hotchin and Eric Watson. It quickly grew to become one of the largest finance companies in New Zealand. The company’s business model focused on offering relatively high interest rates to attract investors, a strategy common among finance companies in the pre-GFC era. These funds were then lent to developers, often for high-risk property ventures. This model proved profitable during the booming property market of the early to mid-2000s.

However, the Global Financial Crisis exposed the vulnerabilities of Hanover Finance’s business model. As the property market cooled, developers struggled to repay their loans. This led to a significant increase in Hanover Finance’s non-performing loans. The company’s financial position deteriorated rapidly, and in July 2008, it froze repayments to investors, affecting approximately 16,000 people who had invested about $554 million.

The collapse of Hanover Finance triggered a series of events, including attempts at restructuring and debt repayment plans. A moratorium was put in place to prevent creditors from taking legal action while a potential deal with Allied Farmers was explored. Ultimately, Allied Farmers acquired Hanover Finance’s assets in December 2009 in exchange for Allied Farmers shares. This deal proved disastrous for investors, as the value of Allied Farmers shares plummeted, further eroding their investment.

The Serious Fraud Office (SFO) investigated the activities of Hanover Finance’s directors, including Mark Hotchin and Eric Watson. In 2012, criminal charges were laid against them, alleging false statements in offer documents. However, in 2015, the charges were dropped after a settlement was reached with the Financial Markets Authority (FMA). As part of the settlement, Hotchin and other directors agreed to pay $18 million towards investor compensation, without admitting liability.

The Hanover Finance saga had a lasting impact on New Zealand’s financial landscape. It highlighted the risks associated with unregulated finance companies and led to increased scrutiny of the sector. The collapse also contributed to a loss of confidence in the New Zealand financial system and prompted regulatory reforms aimed at protecting investors and preventing similar failures in the future. The events surrounding Hanover Finance continue to be a cautionary tale about the dangers of high-risk lending and the importance of robust financial regulation.