UDC deposits shrink as ANZ ownership question weighs on some investors

ANZ Bank New Zealand chief executive David Hisco

UDC Finance's deposits shrank in the latest financial year as the question mark hanging over Australia & New Zealand Banking Group's ownership of the country's biggest finance company saw a reduction in investments by external advisers.

The Auckland-based non-bank deposit taker's debenture funding shrank to $1.59 billion as at September 30 from $1.74 billion a year earlier, reducing its share of deposits among finance companies to 57% from 61% a year earlier. At the same time, UDC's loan book expanded 9.6% to $2.57 billion, helping generate a record profit of $58.3 million.

The finance company funded that credit growth by increasing its use of a $1 billion facility with parent ANZ, drawing down $595 million as at September 30 from $280 million a year earlier.

ANZ has been reviewing its ownership of the finance company this year, which triggered Standard & Poor's to downgrade UDC's credit rating to A- from AA-. NZX-listed Heartland Bank has indicated an interest in buying UDC, though the Australian Financial Review's Street Talk column last week reported ANZ was likely to announce a sale to China's HNA Group before its annual meeting on Friday.

"UDC remains an attractive and secure place to invest with a S&P rating of A- but while there's a strategic review being conducted about UDC Finance there has been a decline in investments from external advisors," an ANZ spokesman said in an emailed statement. "Reinvestment from direct investors remains high."

The finance company holds the highest credit rating among its deposit-taking peers, with Liberty the only other NBDT with an investment grade rating at BBB. UDC is currently offering 3.6% for a 12-month term deposit, sitting in the middle of the pack among other finance companies. However, longer duration terms are largely lower than UDC's peers.

UDC lifted debenture stock at call or within three months to $632 million as at Sept. 30 from $604.3 million a year earlier, while facing declines across longer terms.

Finance companies fell out of favour among investors after the collapse of the sector last decade, when an over-exposure to leveraged property development and a propensity for related-party lending triggered a domino effect among mezzanine lenders. Tighter regulation followed the collapse, which saw a clean-out of the sector, leaving a handful of firms willing to meet the requirements to keep taking deposits from the public.


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You can only imagine that Geneva, Heartland et al have a massive disruption plan ready to go when the Chinese acquisition of UDC is formally announced. Surely they will be requisitioning copies of the UDC debenture stock register and be ready with direct mail to convince them to swap over. It looks like the financial advisers are ahead of the curve on this, so good on them. All up for grabs.

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Geneva and Heartland will have investment ratings far lower than UDC under new Chinese ownership.

It's more likely Geneva and Heartland won't need as many depositors when the new UDC attacks their borrowers and their balance sheet shrinks

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Its a case of exit when there's no growth left, and you're holding loans on equipment that wont have a use for a while.

This is what happens in the boom bust cycles driven by executive bonus driven bank lending. Their Australian parents are struggling to fund there own capital requirements, where overseas investors are demanding higher returns for capital that the domestic market can't support.

There's already signs it's coming here. A phone call to John Key will confirm this.

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NBR: "UDC is currently offering 3.6% for a 12-month term deposit, sitting in the middle of the pack among other finance companies."

Meaning, the lending criteria can't be that much more stringent than that of its parent's.

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Many years back I was thinking of investing with UDC. But to my dismay while I was reading it's prospectus, I came across something well hidden away in it It went a little bit like this. In no way are the securities offered in this document guaranteed by the ANZ bank or any of it's subsidiaries. After that I thought, maybe not.

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