Efficiency key to offering the best money deal

Press, 5 July 1983, Page 27

Efficiency key to offering the best money deal

THE AIM of Broadbank Corporation Limited is to offer attractive deals to clients through an aggressive corporate marketing structure and centralised financial central.

The Company Chairman, Mr lan Small, is not shy in making clear that this is the aim of the financial intermediary which was born out of the merger of Broadbank Finance Ltd and Broadbank Corporation Ltd, “The finance market represents probably the most competitive business sector in New Zealand,” he said, “We believe that with a central treasury for the two organisations that previously existed we are in a position to give the

best deal possible to clients. “If we don’t benefit clients we won’t get business - it’s as simple as that.” Mr Small said the new corporation wanted to be “an efficient leader. “Under the merged company we will be funding through one source and this will take away a lot of administration costs. We will have a more efficient lending and funding operation. “We had found that as separate organisation we were in many instances competing

with the same clients both for their money and in lending. That simply did not make sense. “Now we will have basically one prospectus and as Broadbank has been a market leader in mechanisation, the benefits of this combined with a central treasury and a more dominant marketing structure will allow for greater efficiencies.” Mr Small said he did not see much prospect of the merged group being granted a trading bank licence, although it offered banking-style services. “In the end the people who determine whether we are a bank or not will be the Minister of Finance and the Reserve Bank.” Mr Small said because of the increasing sophistication and integration within the New Zealand finance industry it was only the most efficient organisations which would win out in the finish. “The fact is we do not want the overheads of the trading banks. We aim to keep our infrastructure simple and overheads low. We want to continue to be as innovative as possible, while at the same time being conservative.” Mr Small cited Broadbank’s new trust deed as an example of what he called “conservative innovation” “The deed is based on criteria accepted in international banking practice and provides protection for investors by various means.”

These included: constituting a security in favour of an independent trustee; preserving shareholders’ funds at a minimum of $4O million; limiting the Company’s exposure to losses where the risk with any one customer cannot exceed 15 per cent of shareholders’ funds; protecting liquidity in that no more than 50 per cent of shareholders’ funds can be invested in real estate or shares.

In each prospectus Broadbank would publish what the maximum permitted gearing was and this would be kept within prudent limits acceptable to the market. “If we do not do this then we cannot expect the support of our depositors,” he said. “This is the first time in New Zealand that a trust deed of this nature has been adopted tyy any financial institution. “The new deed gives security to all depositors with the Company, large and small, whether they previously deposited funds with Broadlands Finance Ltd, the consumer finance arm, or Broadbank Corporation Ltd, the merchant bank.

“But the important thing is the way the Company conducts its business and the matching of deposits with lending, not the trust deed. The fact is’we have 120,000 deposits with us now and 100,000 loans on file.

“The average loan is below $4OOO and it would take a significant number of those people with the average loan to refuse payment for this to severely affect the Company.”

Mr Small said that while the trust deed suggested on the surface that the Corporation was limited in its lending to any one client to 15 per cent of shareholders’ funds - currently that 15 per cent represented $6,300,0CX) - it may lend more to substantial clients according to “house limits”. However, loans approaching

this size were made only to very large companies and institutions. If it did lend more to a company, perhaps up to its current maximum of $l5 million, it must insure the lending risk above the $6.3 million figure with an overseas bank. The funding of the loan would be done in New Zealand and was the responsibility of Broadbank. But if the company to whom the loan had been made defaulted, Broadbank’s risk was limited to the 15 per cent of shareholders’ funds and the overseas bank paid up the remainder in New Zealand dollars.

Under the arrangements Broadbank had made, any eventual payout to the overseas bank, as a result of funds coming in from the defaulting company, would be made in New Zealand dollars also. “Our aim is to be out in the market place competing hard,” said Mr Small. “We believe that under the new arrangements Broadbank Corporation will be able to offer as good or a better deal than our competition. “The merger should prove beneficial for our existing clients and those who are attracted to us by what we have to offer.”