Fingers burnt, Hanover tries its hand in Oz

By Deborah Hill Cone

Friday 12th March 2004

Despite getting caught up in a get-rich-quick scandal across the Tasman, finance company Hanover Group is scouting for expansion and a new source of deposits in Australia.

The fast-growing company, which has rapidly racked up a loan book of $1 billion, has had its fingers burnt across the ditch through its subsidiary AFD's association with controversial promoter Henry Kaye but is pushing ahead with an ambitious new expansion plan there anyway.

"The Kaye drama has been a pain in the neck but as a business it goes okay," Hanover's 50% shareholder Mark Hotchin said.

AFD (Australian Finance Direct) is a subsidiary of Australian Finance Holdings, wholly owned by Elders Finance, whose parent company is Hanover Group.

AFD lent up to $A15,000 to wannabe property tycoons to pay the exorbitant fees for Mr Kaye's get-rich-quick seminars (The National Business Review, Dec 5, 2003.)

When Mr Kaye's empire collapsed in November with his companies National Investment Institute and the Empower Group being placed in receivership, Hanover maintained it would still get the loans paid back from the individuals who had taken them out and the experience had not put it off the Australian market.

"We're still profitable, we just wish we had not entered into some of those loans," Hotchin said.

Hanover is now following fellow second-tier company Bridgecorp, which has taken its finance products to Australia.

"We want to build another Hanover in Australia," Hotchin said.

Hanover, through subsidiaries including Elders Finance, FAI and United, has been at the forefront of the explosive growth in finance company lending, which grew by $2 billion to $9.3 billion last year, fuelled by a buoyant property market.

KPMG's financial institution survey shows Elders' assets increased by 63% last year.

Mum and dad investors were attracted by interest rates at least a percentage point higher than High Street banks were offering with the mushrooming number of advertisements in daily papers reflecting the booming market in this type of non-bank lending.

The dramatic growth in funds to the largely unregulated non-bank finance market has raised concerns about disclosure, particularly of related party lending, with the Securities Commission last month (NBR, February 13) moving to launch a review of the area.

Hotchin said the market was much bigger and the banks in Australia had the same risk profile, where they did not like going beyond 60% exposure.

"That creates big lending opportunities and the security is as good if not better than at home," Hotchin said.

Speculation he was following partner Eric Watson and stepping back from being involved in the company were unfounded.

"At the moment I'm in Australia working on our strategy over here. I'm reasonably hands-on I'm in contact with the office all day every day," Hotchin said.

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