Treasury points to Allied Nationwide problems

A draft report, commissioned by Treasury, raises concerns about the liquidity, capitalisation and provisioning for bad debts of Allied Nationwide Finance.

The finance company, which has lent heavily to property investors and developers, has been a big drag on its listed parent Allied Farmers, which this month wrote down its value from $56.3 million to $35m.

The report was prepared by a "third party" for Treasury, which Allied Nationwide Finance's chief executive John Mallon said had commissioned reports on the state of several finance companies covered by its deposit guarantee scheme. It was delivered to Allied Nationwide Finance on October 1 and Mallon said the board was considering its contents.

A carefully worded statement in the prospectus, which says the board is "satisfied the financial statements continue to be appropriate", suggests differences of opinion on the state of the firm between its board and the report's author.

Mallon conceded the liquidity and capital position of the company has been eroded but the firm been making use of a securitisation programme to raise funds to pay out debenture holders who want their money back, a facility it inherited when it bought troubled Speirs Finance in September last year. It has taken some clever footwork for the finance company to remain within its trust deed pledge to "maintain a capital ratio such that total liabilities of the Charging Group do not exceed 90% of total tangible assets".

It just squeaked in on June 30 with 89.9%, a number that would have blown out had it not been for a capital injection of $3.9m from its parent and a deal whereby Allied Farmers said it would make good losses on some loans, allowing them to be treated as unimpaired – an arrangement Mallon said was similar to schemes employed by Marac and South Canterbury Finance.

Excluding the loans sold into the securitisation programme, Allied Nationwide Finance had total assets of $252.7m compared to $218m of debentures and call deposits.

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