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Bill English says govt moves to take pressure off SCF receiver to force quick asset sales
Finance Minister Bill English wants to avoid fire sales.
By Alex Tarrant
Finance Minister Bill English has downplayed any impact from South Canterbury Finance's receivership on the wider economy or on New Zealand's sovereign credit rating.
English argued the government had taken decisive action to control the receivership and pay back investors quickly to avoid disruption or any fire sale of dairy farming assets.
Meanwhile, he took a shot at the inadequate infrastructure at the finance company for handling the rapid growth it underwent in recent years.
English also said he hoped to "hear a bit more" from depositors and the community of Timaru and South Canterbury in terms of acknowledgement to taxpayers, who had forked out NZ$600 million for a "business that's actually gone broke".
(Update 7 adds sections 'All that's done is (hopefully) done' and 'Taxpayers deserve acknowledgement'.)
"There is no rush to realise the value of the assets is some kind of fire sale," English said.
Related Topics
He told a news conference in Wellington the receivership and the subsequent immediate repayment of NZ$1.775 billion to investors and South Canterbury's lead creditor would not affect the nation's credit rating.
For Standard and Poor's announcement on New Zealand's sovereign credit rating see here.
New Zealand's debt issuance program would not have to be changed, he said.
English said the government had deliberately moved to take control of South Canterbury by ensuring the receiver would immediately repay prior ranking creditors, including George Kerr's Torchlight. The government loaned the receiver NZ$175 million to ensure prior ranked creditors were taken out. The government is also repaying NZ$1.6 billion to 35,000 investors.
Torchlight contributed NZ$15 million towards a NZ$100 million loan it arranged for SCF earlier this year. The loan ranks ahead of SCF’s debenture holders under the finance company's trust deed and means Torchlight has a prior charge on up to NZ$151 million or 7.2% of SCF's assets.
The government also aimed to take control to ensure the pressure was off the receiver to make quick asset sales, English said.
"As a result of the receivership, the Government is moving swiftly to repay the money owed to South Canterbury depositors under the Crown Retail Deposit Guarantee. We are also taking other steps to reduce the cost to taxpayers and minimise disruption to the wider economy," English said.
Steps the Government had taken included:
* The Crown has nominated the Trustee as the eligible creditor under the terms of the guarantee and will pay the Trustee NZ$1.6 billion in full today. This will ensure depositors and stockholders are paid promptly without the need to apply to anyone.
* The Crown will today make a loan to the receiver of NZ$175 million, which allows it to repay all of South Canterbury Finance's prior ranking debts. Once this transaction is completed it will put the Crown in a position of control, as the first-ranked creditor in the receivership, so we can ensure an orderly and well-managed receivership process.
'Minimum disruption to economy'
"Ensuring all depositors in South Canterbury Finance get their deposits back as quickly as possible will ensure a minimum of disruption to the economy," he said.
English said he expected depositors to be repaid "hopefully" within a month.
"While this will incur an upfront cost, it will ultimately reduce the cost to taxpayers by about $100 million by ensuring the Crown is not liable for interest payments after the date of settlement.
"Furthermore, being in control of the receivership process takes the pressure off the receiver to quickly sell any assets. This ensures the Crown can get the best deal for taxpayers. Businesses that owe money, or are owned by South Canterbury, can continue to operate and there will be a minimum of disruption to both the local and national economy," he said.
"The up front cost to the Crown of repaying South Canterbury's depositors is about NZ$1.6 billion, but we would expect to recover the bulk of that as the receiver sells the assets over time. The final expected net cost to the Crown is already provided for in the Crown Accounts within the overall provision of about NZ$900 million for all companies covered by the scheme."
'Related party loans'
English told the news conference the net cost to the crown was likely to be around NZ$600 million after loans were recovered, however he noted that there could be some unpleasant discoveries once the bad loans were examined more closely.
"In the bad book, you might find there's a number of related party loans in there. There’s a real tangle there between the bad book and him (Allan Hubbard)," English said.
He also revealed that Korda Mentha had been advising the government on South Canterbury since mid 2009.
'Could still be sold'
69 Comments
Wow, I'm impressed - someone
Wow, I'm impressed - someone has thought through how to handle this very very well!
Probably one of the few
Probably one of the few things that they've impressed me with to be honest.
Good on National - it had to
Good on National - it had to be sorted
Hubbard needs to say he is sorry to us taxpayers
Good on National? Are you
Good on National? Are you high? It's National that wrongly gave SCF and other risky finance companies the guarantee in the first palce. They had absolutely no right to do that with our money. Why should we be guaranteeing 8% returns to people too lazy to do due diligence before investing in these shoddy companies?
It's actually fallen under
It's actually fallen under the Labour constructed original guarantee scheme
Chris, you could get 10%
Chris, you could get 10% government guaranteed for a while there.
Essentially for a retail investor this was a risk free investment. Awesome, cheers for that taxpayers.
Oh really? So it wasn't under
Oh really? So it wasn't under the National cabinet that Treasury offered the guarantee to second rate finance companies just months ago? Idiot.
yes, but if they hadn't
yes, but if they hadn't extended the guarantee then SCF would have failed before the orginal guarantee expired in October 2010 and the govt would have been liable for $1m rather than $250k per investor and more stringent terms. It's people that you that don't do research of your own and we end up with clowns like labour in charge.
Hi guys, the extended
Hi guys, the extended guarantee came under National in August last year
http://www.treasury.govt.nz/economy/guarantee/retail/extension
The original guarantee was under Labour, but had National's full support.
Cheers
Alex
You are WAY out of touch
You are WAY out of touch there Chris. Maybe you would prefer to have seen a rush on the banks/finance companies, liquidity scuked from the system, and the national economy brought to its knees. Good on National.
I have no problem in
I have no problem in guaranteeing well capitalised banks. Am I worried about a run on second tier finance companies who shouldn't be in business anyway? No.
@Alex Tarrant: Please ask S+P
@Alex Tarrant: Please ask S+P for their view.
Standard and Poor's have
Standard and Poor's have downgraded SCF to D for default.
"SCF's 'CC/C' ratings—prior to being lowered to ‘D’—highlighted that there was a strong possibility SCF could default on its obligations. The 'CC/C' ratings recognized a material weakening of SCF's liquidity and cash position such that SCF was in danger of running out of cash. The rating also recognized the lack of progress in recapitalization efforts heading toward the covenant breach waiver deadline of Aug. 31, 2010. Standard & Poor's noted in its release dated Aug. 20, 2010, that the lack of progress in recapitalization had compromised SCF's business viability. Although Standard & Poor's acknowledged that recapitalization and restructuring efforts were being progressed, no rating benefit from these efforts was ever factored into the rating."
cheers
Bernard
That's it ...............I'm
That's it ...............I'm starting up a ratings agency........ and I'll do everything to thwart my competitors by rating.........before....... disastrous events occur ....... brilliant..!
And I'll jazz up the terms a bit...like er............T for terminal..!.... followed by ....W for who..?
G fer gurgler
G fer gurgler
Thanks Bernard, that was a
Thanks Bernard, that was a comprehensive answer! My error in not being specific: what S+P thinks about the NZ economy now. Though I suppose it would be churlish to alert them.
yep like it now got to fit it
yep like it now got to fit it between t and w.............. Cheers Ruru
Ruru You're asking the right
Ruru
You're asking the right questions. Here's the S&P view on the NZ sovereign rating. They don't think the SCF collapse will change much.
Here's our story
http://www.interest.co.nz/news/standard-and-poors-says-south-canterbury-...
cheers
Bernard
The downside is that all
The downside is that all depositors, not only eligable ones get paid out - and for all finco failures
don't need the fire sales
don't need the fire sales that's for sure - and gives time to sort out the OIC...
Bernie Hubbard has played the
Bernie Hubbard has played the good folk in Timaru for years. The government should recover this with a direct tax on anyone living in Timaru. I'm sick of our good hard earned Auckland money helping out all these Southern people and farmers. It's about time they have lots of toll roads in South Canterbury. What can we all learn from this, don't trust those one eyed southerners, especially the old ones.
Ha ha you'll be waiting a
Ha ha you'll be waiting a long time if you expect southerners to self reflect and actually be honest about the situation. Much easier to blame everyone else and expect tax payers to pick up the tab
Righto Aucklander, Mark.
Righto Aucklander, Mark. Never mind the fact the South Island is forced to subsidise New Zealand's beneficiary problem, most of whom live in South Auckland. Or the fact that our petrol taxes, which we pay more of given the extra roading/travel down here for your Auckland transport screwups. Maybe we should jsut split the country in half. Good luck getting enough electricity out of Palmy to run your Telecoms etc, we'll make the most of our Hydro.
Bear in mind that Timaru is
Bear in mind that Timaru is going to be the hardest hit by all this - lost jobs, investments vaporised overnight (for those who owned preference shares in SCF) etc etc
Also bear in mind that house price bubble problem is not a Timaru one - it belongs mainly to Auckland. If it hadn't been for Auckland's over-inflated house prices SCF would have been all good. (PERHAPS!)
Soon the shenanigans in the
Soon the shenanigans in the SuperCity Auckland will put the Timaru Gang to shame..
Watch out for the next episode of "Screw the Citizens'
Democracy is like Team Work......'You get screwed by the Politicians or your Team Mates but say you are enjoying it'
Chaps and chapesses, Have
Chaps and chapesses,
Have added in a little update 2.
Cheers
Alex
Hey Alex ....i hope thats a
Hey Alex ....i hope thats a library shot of English..... because if it's not mate ..... he looks like he just got away with murder.
I didn't have a camera with
I didn't have a camera with me, so I would say library shot. Exact same seat he was in though, and suit I would say, too, so you're all pretty close to the real deal.
Anyway, we need a few smiles around here after all this...
How did that Monty Python song go? Completely gone out of my head.
LOL. Piss off and worry about
LOL. Piss off and worry about your 'Super City'
calm down boyo word has it
calm down boyo word has it Graeme Henry may run for mayor down your way..... so you don't feel too left out.
How's Robbie doing on the scoreboard........?
:) ..... but lets face it,
:) ..... but lets face it, anyone would look good coaching a team with that much talent - especially at 10 and 7.
No argument there......
No argument there...... Richie will take allcomers in the AB hall of fame
From now on all my money goes
From now on all my money goes into Auckland finance companies. They're run by honest people and never go bust. It's different in Auckland.
Mr Blobby............your not
Mr Blobby............your not listening..... put it in your mattress.... that way you may at least get a glimpse of who robbed you.
It sounds to me that the
It sounds to me that the government doesnt want too many farms hitting the market at once. Imagine in 12 mnths time, with an election looming and dairy land in meltdown. Rural nz would be in meltdown. Keep the bubble boiling.
As an aside, one of these so called conversions, just lost 80 carry overs this winter ( empty cows) as they starved and fell off hills. This bunch of nit wits then carried on and killed a tonne of calves by buying in heaps of heifers to rear, didnt have the cover for them, biffed them outdoors in the rain, where they promptly got scours and died by the score. I get sick of hearing this shite about these corporates, I long for mum and dad farmers to be able to re enter the scene.
If folk like me are halfway
If folk like me are halfway right about energy, Farmer Will, you'll get your wish.
They might have to learn about hames and swingle-trees, but. Wonder how many of us are left who could teach them?
The only way that's going to
The only way that's going to happen is when People take their Pitch Folks to Wellington!
From my reading on AH/SCF
From my reading on AH/SCF history - he/it had a great deal to do with financing various irrigation schemes in the south - thus enabling dairy conversion. It was (IMO) always a flawed vision... wrong for the environment, wrong for the stock. The mismanagement scenario you describe might just as easily be committed by any type of desperate, over-leveraged farm owner - be they corporate or mum and dad. Desperate people do stupid things.
Update 5 in now.
Update 5 in now.
How can Scales say it won't
How can Scales say it won't be affected- re Stuff.co.nz. SCF own 80 percent, Scales had 10 million profit 2009-10 they own buildings- Apple farms etc...this must be on the cards to sell. The tax payer wants there money back .. this is part of SCF assets to sell.
Update 6: English said he
Update 6:
English said he thought Allan Hubbard would be "as distressed as anybody" about the receivership today.
"It’s not something that he would have wanted, but the combination of the rapid growth growth of South Canterbury Finance, without the adequate infrastructure to run such a large organisation and a sharp downturn in market conditions, has meant he’s found himself in this position.
"As I understand it, there’s been a lot of discussion with Mr Hubbard over the last 12 months over his own affairs, the affairs of South Canterbury and what contribution he could make to sorting those out.
"I think sometimes that’s been helpful and sometimes it hasn’t."
“There’s been ample opportunity for the owners of the business to save it. Mr Hubbard himself has made considerable personal commitments, which I think have been widely respected in the community and in the financial community.
"However the options have simply run out."
Timaru spelt backwards is
Timaru spelt backwards is U-RAM-IT. I never agreed with these government guarantees from the freakin start. The government is casually throwing around 1.6Billion like its left over lunch money and there will be some hard realities over the next couple of years as they try and recover that money by getting rid of overpriced assets. If you invest and take the upside then you should take the downside as well. But SCF investors wanted all the dessert but none of the potential downside risk. Far out....
Rant over.
Holy crap, the QEII just
Holy crap, the QEII just docked in NZ...
How interesting. When the axe
How interesting. When the axe has finally fallen, all of you with your cynical comments have actually said some very positive things.
I'm saddened by the way Mr Hubbard has been backed into a corner on all fronts both:
- by supporters who have continued during his 17 years of retirement since the age of 65 to continually believe that Mr Hubbard has all the answers rather than letting a good man have a happy retirement and to put him into a position where he is still suffering corporate stress at the age of 82,
- and by his detractors who have continued to criticise a man 17 years after he should have retired and who expect an elderly man to still be up with the play in a modern technological world where "golden boys" on the stock market are known to burn out at 30 years of age.
I don't understand why everyone on all fronts expects so much of him.
Because he told us he could
Because he told us he could do it! Or rather, he didn't want to hand 'his' baby over to someone else. Like an aging sport star; the best know when it's time to go, and remain 'the best'.
Thats the trouble Mr Hubbard
Thats the trouble Mr Hubbard did hand it over a few years back to fellow directors that had banking credentials and uni degrees and smiley faces in the prospectus , they changed the lending habits that had SCF had abided by for many past years and invested in property developments all over NZ and other unwise developments, these same smiley directors got the chop a year ago and have left Mr.Hubbard to stand in it so to speak,, damn shame...
Precisely, this captures the
Precisely, this captures the current state of things. Strangely I don't see the media (this site included) beating down the door of those former directors. It was obvious when they bailed that they were a big part of the problem, interparty loans etc etc.
Foot in mouth
Foot in mouth disease!
http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=10670179
"South Canterbury Finance got itself into trouble by lending money to people who couldn't pay it back and on assets that have no value, with many of the loans now bonfire material," Prime Minister John Key said today.
Well done John...shame you had to tell the truth about the value of the assets..arrrm which assets are you on about John?
Where's Wolly on this now?
Where's Wolly on this now? He seemed adamant that the government would not allow SCF to be put into receivership, may be he'sa little too adamant and opinionated on things sometimes
Never Uzzam, I just got it
Never Uzzam, I just got it arse about face....English has bought out the South Canterbury economy and now controls the purse strings from the Beehive. The GG cash and the extra few tens of millions being thrown about, will likely pork some happy activity down Timaru way and memories will be strong come the election.
Don't expect to see National moving to flog any of the assets any time soon.
I want all the farms to hit
I want all the farms to hit the market at once. As a potential buyer that would be great.
Once again stupid behaviour will be rewarded!!
What are we teaching our kids!
That's a stupid, selfish
That's a stupid, selfish comment. Nothing like wishing misfortune on others eh.
Update 7 in there
Update 7 in there everyone.
English hoping South Cantabrians will acknowledge the taxpayer support, also remarks on the inadequate infrastructure at SCF for such rapid growth.
General gist from Key and English over last two days is they're not too impressed with how the company was run in recent years. Rapid growth without the necessary growth in infrastructure to handle it.
Going to go eat lunch now.
Soon the shenanigans in
Soon the shenanigans in the SuperCity Auckland will put the Timaru Gang to shame..
Watch out for the next episode of "Screw the Citizens'
Democracy is like Team Work......'You get screwed by the Politicians or your Team Mates but say you are enjoying it'
BE is expecting the people of
BE is expecting the people of Timaru and SC to show their gratitude............in Votes to National, of course......
Labour is too wimpish to capitalise on this blatantly political decision.
"And I would hope that the
"And I would hope that the depositors of South Canterbury, and those who are supporting the company, are grateful for the support of the New Zealand tax payer . Because without that support, Timaru and South Canterbury could have ended up NZ$600 million out of pocket."
I am a depositor from Wellington. I would like to take this opportunity to thank the tax payers and people of NZ including myself who have stumped up $400 each to pay back the money I invested in SCF with the Government Guarantee.
I am very grateful for your support.
Is that ok Bill?
Sam and some others 'I never
Sam and some others 'I never agreed with these GG's from the start'...
Just as well you weren't the govt then, once Ausy brought in GG for their financial institutions, NZ had no choice, unless you wanted a massive run on banks in NZ as the money poured out of the country to Australia.
Now there is no choice but to honour the commitment ,unless you wanted NZ to be an international pariah which nobody would have trust in ever again.
I'm no real fan of Mr rort, Bill English, but he and the PM seem to be displaying a level head, which is more than a lot of emotive clap-trap being posted by quite a few on this site.
Sandy Maier has told on
Sandy Maier has told on Campbell Live that SCF had lost nearly 700 million by investing in real estate. Who actually received these funds, and where did they spend it ? How much of it has gone overseas ? Is the Government going to track these funds ? And also are they going to investigate whether these loans were made on genuine business proposals or on inflated values/cooked-up proposals ? Is it all fraud, deliberately done to take money out ?
Who benefited ?
There should be serious investigation into these money trails.
Also, based on the experience of ALF's assets disappearing in value after taking over of Handover, what is the assurance that even the 1 Billion the government is expecting to recover in 3/4 years will not dwindle down to just 200 or 300 million ?
In some cases no one
In some cases no one benefited.
If the market value of your property goes down and you still own it, no one gets the money that the property has dropped. It just drops and the equity evaporates.
No one stole it.
That's a different scenario
That's a different scenario - if you borrowed the money to buy something then the person you purchased it off gets the money. All the money lent by SCF must have ended up somewhere.
WOW! NZ must be loaded
WOW! NZ must be loaded because we now have 'welfare' for dumbass investors! Well done Bill & John, You really know how to buy votes!
Let's ALL set up finance
Let's ALL set up finance companies! totally risk free thanks to the NZ taxpayer who seems to have bottomless pockets of borrowed funds coming in from all corners of the globe. Interest attached ofcourse but DON"T WORRY, your kids pay that, NOT YOU!
If Cactus Kate ever gives up
If Cactus Kate ever gives up law she could easily jump into journalism and stand among the best. Insighful piece here, which left me asking why there isn't an exporting business investment guarantee scheme? Anyway, enjoy:
http://asianinvasion2006.blogspot.com/2010/08/ahubb-over-hotch.html#links
(Err, apologies for living on the South Island. I'm sure we'll all get over it eventually.)
Thank you Les. If the
Thank you Les.
If the government ever guarantees to keep my salary the same as it is now, of course I would consider the switch.
An exporting guarantee scheme sounds marvellous. Prudent investing? Pffttt why bother with that?
I thought these last three
I thought these last three paragraphs were interesting:
"Asked whether it had been cynically exploiting the government guarantee, Mr Maier replied: "It might have been cynical, it might have been merely incompetent... it probably violated a lot of prudent lending criteria."
Go back to 6.3 of the DOG's and tell me that SCF in the guarantee period was run in a "proper, business like, efficient and prudent manner". It's own CEO, in the final foreign accented "fuck you" to New Zealand taxpayer has now publicly admitted it was not.
There is preference for South Islanders. Bill English is incorrect (well let us face facts - teling porkies) in this interview. The taxpayer did not have to pay SCF anymore than they would have had to for Hanover or Blue Chip. SCF took deposits for and moved $700m (or 41% of total) of their lending to more risky criteria even into the the hyper-risk of mezzanine lending. They breached the guarantee and their own CEO said so."
(Do read the whole article folks.)
Anyway, I always find NZ politics easier to understand when I think of our gubmints (either shade) as 'The County Council' of the most southern of England's 'Home Counties'. Things just seem to make a lot more sense and are not so surprising, regarding competence, connections and cronyism.
Cheers, Les.
www.mea.org.nz
Justice, are you trying to be
Justice, are you trying to be the loudest drunk in the bar? The govt had no choice in 2008 to have the GG and now it has no choice but to honour it, end of story.
CLIMATE CHANGE LIES ARE
CLIMATE CHANGE LIES ARE EXPOSED
http://www.express.co.uk/posts/view/196642/Climate-change-lies-are-exposed
As a matter of interest for
As a matter of interest for everyone saying it was greed for all finance investers when we invested in SCF ( 2007) the OCR rate was 7.5%, so all interest deposit rates even secure banks were paying out high interest, oh the good old days...
Hmm so I dont know where the
Hmm so I dont know where the farms loaned on are (that are now Govt owned until sold) but if I assume they are in Canterbury proper does this statement hold any merit:
"The Govt now owns lots of farms in Canterbury AS WELL as controls the water supply?"
Seems like the SCF move is/was part of a larger plan to my eyes.
It could be worse though couldnt it?
I mean a fire sale to Sanlu or similar seems a heck of a lot worse.
Not justifying anything just saying it could be worse.