A private/public equity fund to help out distressed businesses could possibly be in place later this year if the recession turns deeper and nastier, a leading banker said today.
ANZ National chief executive Graham Hodges said today that work was ongoing about the fund which was floated by him and his colleagues at last week's job summit.
Mr Hodges said the devil would be in the detail, but if it did go ahead it could be in place in time for when things get really rough economically.
"I would say it is at least a month or two before you would have some sort of framework which could be agreed," Mr Hodges said.
"The issue here is that we are trying to look forward and say these are the issues that might hit us towards the second half of the year if the downturn remains very severe. (It is) not that we have a burning platform today."
After a day of intense debate in Auckland last Friday, the country's banking bosses came up with an offer of a joint fund with the Government to help financially distressed firms through short term equity injections.
The fund - if it gets off the ground - would result in the banks putting in $1 billion and the Government matching this and then the fund borrowing another $8 billion to create a $10 billion kitty to deal with companies that had good long term prospects but needed equity to survive in the short term.
The move came after Reserve Bank Governor Alan Bollard took the unusual step of publicly warning the banks that they should not underestimate the anger in the corporate sector about their behaviour.
Mr Hodges told NZPA today that there was a place in the market for an equity fund as it could offer help differently to a bank.
"This is an equity fund, not a debt fund," Mr Hodges said.
It would be intended to help out good businesses that were otherwise well set up, but found their balance sheets were geared up with too much debt.
"The banks are saying your ratios are probably full, the equity markets are saying we are not supportive of high geared companies any more. So they don't take it on or stock prices fall."
Normally the companies could repair their balance sheet by retaining earnings or doing some sort of issue into the market, but in today's choppy, volatile market it was difficult for them to do that, he said.
The fund could get them through for 18 months until their balance sheets were restored to health.
Mr Hodges said the private equity market was under-developed in New Zealand and these were "extraordinary times" with investor nervousness.
Due to these problems and anecdotal evidence that companies could find the fund useful, the fund could meet a gap in the commercial market.
"My personal view is it is better to start smaller and see whether we needed it. We haven't had a need for that yet, but what the focus of the summit was saying was `let's be prepared for the environment we might see, as opposed to reacting to what we see today'," Mr Hodges said.
There was a limit to how much banks could lend struggling businesses and an equity fund could step in.
The private/public fund would held spread the risk and also recognise that not entirely commercial decisions were being made.
"What will happen, if it does happen, it will be deemed in the interests of the country."
It would also reduce the pressure on the Government to provide direct bailouts.
"It is a mechanism where the Government can show its support, but without being in charge of making decisions case by case, it can be done by a more professional group."
