This week, a major finance company, Hanover Finance, announced it is in trouble. They have decided to freeze all investor funds. This means that people who have invested money in their company cannot take it out again at the moment. The company hopes that their problems will be temporary and in the future they will be able to pay back all investors’ money. But investors are worried.
This is the second finance company this week to announce it is in trouble. At the beginning of last year, there were 49 finance companies in New Zealand but now 26 of them have collapsed or frozen their investments. These are not banks. They do not give the same financial protection as banks and many people have lost money. In total, $3 billion has been lost or frozen. Many of these companies offered high interest rates which means there was more risk with the investment. However, Hanover Finance seemed to be a safe company. It has experienced owners and was the third largest finance company in New Zealand with assets at over $1 billion. They have two related companies and 16,000 investors in total, with $554 million invested. Six months ago, they announced a profit of $17 million before tax.
The problems for Hanover Finance have come mostly from problems in the property market. They lent money to developers of expensive resorts in Queenstown, Taupo and an apartment block in Auckland, but these properties are not selling. This means the developers are in trouble and are late in paying back the money they borrowed.
Investors have also lost confidence in finance companies and are choosing to invest their money in other ways, maybe in banks. The global economy is also affecting money markets. Companies have to pay more to borrow money from overseas. High oil prices, high food prices, and problems in property markets in many countries have all contributed to global economic difficulties.
Vocabulary
invest / investors / investments, developers, finance / financial, freeze / frozen, collapsed, risk, assets, resorts, global, lend / lent, borrow, economy / economic |