90 seconds at 9 am with BNZ

90 seconds at 9 am with BNZ: The day after the collapse; 'No fire sale'; NZ dollar falls

1st Sep 10, 8:54am by Bernard Hickey

Bernard Hickey details the key news overnight in 90 seconds at 9 am in association with the Bank of New Zealand, including news the day after the financial collapse that brought the global financial crisis home to New Zealand.

South Canterbury Finance's receivership yesterday is proportionally bigger for the New Zealand economy than Lehman Bros' collapse was for the US economy. SCF's lending equates to 0.8% of New Zealand GDP, while Lehman's was worth 0.5% of US GDP.

Now the government will spend NZ$1.6 billion or around NZ$400 per taxpayer to refund the investments of debenture holders and bond holders in South Canterbury Finance.

There are winners. Torchlight Funds will immediately be repaid NZ$150 million and many bond speculators who bought bonds cheaply in the hope of being repaid will get all their money back. The government expects to eventually get back around NZ$1 billion of the money it has spent. Taxpayers will be the losers here.

Now the fallout begins. The New Zealand dollar has already lost around 1 USc and a government sale of new Treasury bills failed partially yesterday.

Receivers for South Canterbury will now look to call in loans and sell assets such as Scales Corp, HNZ and a third share of Dairy Holdings.

Finance Minister Bill English has reassured investors and the rural South Island econony that there would not be fire sales.

Meanwhile, overnight the Nikkei fell 3.5% on disappointment over a Bank of Japan attempt to pull down the Yen with fresh quantitative easing.

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32 Comments

by David George | 1st Sep 10, 9:08am 1283288919

It turns out that SCF was climbing into property loans since they got the g'tee.

How dumb can you get? Don't they read interest.co?

by Wolly | 1st Sep 10, 9:22am 1283289729

Details KD...give us the details!

by David George | 1st Sep 10, 12:46pm 1283301975

From todays Herald Wolly

"Despite its reputation for being a South Island-focused rural lender, SCF was exposed to what turned out to be particularly bad deals all over New Zealand, in Australia and even Fiji.

It was exposure about which the usually amiable chief executive Sandy Maier admitted he was worried sick.

He complained about property, admitting that type of lending was to his regret and said it was a diversion from the traditional core business"

The article gives some detail of SCF's property exposure and the remarkable fund raising drive ($1.25Billion) earlier this year. With a deeply impaired loan book this wouldn't have been possible without the G'tee. To be fair, however, most of this was to fund roll-overs not new loans.

http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=10670235

by Wolly | 1st Sep 10, 9:30am 1283290221

This is a crisis that has given the govt the gateway to pumping the market, winning votes and keeping the banks safe as. Next up will come the spring residential cheap mortgage offers with Kiwibank foreign borrowing underwritten by taxpayers and no doubt a heap of this injected cash finding its way into the big banks and out again via their credit sausage machines. The taxpayers are funding the bubble that sees them with seriously unaffordable property and not a chance in hell of saving a bloody thing.

by Christov | 1st Sep 10, 9:44am 1283291052

that is unavoidable Anon.....I was not looking forward to Govt bailout either... but there you go uh..

No doubt it will put the economy internal under pressure...... but as they keep telling us

....But for the greater good..!

by Christov | 1st Sep 10, 9:40am 1283290835

yes it is.

by Christov | 1st Sep 10, 9:34am 1283290485

While the Govt may be seen to have done The Right Thing.....effectivley they have acted in a manner to vacuum the settling dust Cleanse the surfaces...sanitise the situation as it were...and lock it down.

But they forgot the air freshener....................and in no way does their exuberant eagerness to encompass and erase...................smell of roses.

The question remains who (as in entity) was exposed that would have warranted this level of lock down.

Hope their are still some good investigative Journo's not copping the Egyptian backhand.

Oh the stink is....................................palpable.

by Wolly | 1st Sep 10, 9:47am 1283291222

Richard, what a load of rubbish from you...why else do you think it's called "hot money"...think about it! If it were more expensive, Bolly would not have needed the CFR....doh.

by Jandel | 1st Sep 10, 9:49am 1283291360

Bernard can you work out how much George Kerr cost the taxpayer? It seems he lent SCF $100m but gets back $150m. That is an incredible interest rate or fee arrangement given the low risks he faced from his priority security.

I can't beleive the government agreed to that deal - why didn't they put the money in themselves?

by andyh | 1st Sep 10, 9:52am 1283291535

I believe Marac's parent PGC also will have done very well out of the deal - didnt they stump up some of the Torchlight cash? $15m or so sticks in my mind..........

by andyh | 1st Sep 10, 9:59am 1283291994

Some more information on the links:

http://www.stuff.co.nz/business/industries/3856930/PGC-shines-spotlight…

So between them Kerr, Torchlight and PGC will be feeling rather smug I imagine; but why did they get $150m back if the initial loan was only $100m? Unless they originally negotiated one hell of a sweet deal..........

by Christov | 1st Sep 10, 10:08am 1283292524

And that's why we are set to become the Financial hub of the South Pacific AndyH.....

Because the taxpayer unwittingly underwrites every sweet deal....

And the same question arises to every sticky situation .....In whose interest..?

Mom and Pop ......? my arse

P.S. Bernard don't forget to add the new debt to each taxpayer Household debt ratio plus projected interest as they (for the most part) are in hock to the eyeballs or just flat broke.

by ruru | 1st Sep 10, 9:50am 1283291437

@Bernard: Do we ever get to see a list of who is paid out and how much for SCF? I'm particularly interested in bond pay-outs, and when the bonds were bought. What was the trading like late last week and over the weekend, given that either English or Key (sorry can't remember which) yesterday said they knew by the weekend that SCF was a dead duck.

by Christov | 1st Sep 10, 9:59am 1283291986

Spot on Ruru......and Bernard on breakfast came across in a very supportive manner of Govt. handling of the matter............. so I don't foresee any hard questions coming there.

In his (Bernards) defence he appeared to be reacting more to Hubbo's lack of self awareness as to his share of responsibility.

In fact it was the talking head Corrin Dann that broached it with English... but was expertly fobbed and left it at that.

This smells..reaaaaaaaaaaaaal bad.

by Christov | 1st Sep 10, 10:35am 1283294147

Yep ...I got me a need to know .....so I want an itemised account..... or I don't see any real or imaginary reason why I should pay this.

by Bernard Hickey | 1st Sep 10, 1:27pm 1283304475

Good question

We'll do some digging

cheers

Bernard

by Anon annoy anono | 1st Sep 10, 1:38pm 1283305117

Bernard - It would be really good if you could do some work in understanding how Justice French's judgement in respect of interest payments relating to Mascot paid to when GG was paid out influenced treasurys decision to widen the guarantee and go wiht quick payout options. http://www.nzherald.co.nz/finance-companies-in-freefall/news/article.cfm?c_id=1501786&objectid=10670225

As I read it - under the existing deed there is no time limit to when a claim could be made, and Treasury could not initiate the claim. Therefore if you were on a really good interest rate - say 8 or 10% you could just sit on it for a couple of years and be paid out by the government when you chose to claim - an uncapped liability to the government. No wonder they expanded the payout - just to reduce the cost to us.

by Kate | 1st Sep 10, 1:53pm 1283306037

But, if they (the Government) can amend the terms of the deed to payout previously ineligible depositors - then could they not have amended the deed to also fix a claims timeframe?

by Christov | 1st Sep 10, 10:01am 1283292083

Hah we just avoided a downgrade by S and P.....how bloody convenient.

by ruru | 1st Sep 10, 10:15am 1283292924

Bernard: If I can't swear in a wholesome way (and you've no idea how difficult it is to keep my posts pure), how can the likes of The Real Ant above defile us with fin porn? Gross. Cut it off now. Yours Lorena Bobbitt

by Philly | 1st Sep 10, 11:52am 1283298757

..."agreed to operate in a prudent manner" !!! Mate!! Maa-aaate!!

It was like giving an alcoholic the keys to the pub! Just read this & weep:

http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=10670235

they went on a spree of property lending, largely unsecured. The govt's lack of due diligence & monitoring of this seems to border on clinical incompetence.

by Kate | 1st Sep 10, 1:44pm 1283305446

A charge of "clinical incompetance" would have to start with the assumption that our government (and its non-elected advisors) are honest but stupid. But, look at our own Finance Minister, rorting the taxpayer for personal gain. If you were an official - with bosses like that - how would you play your cards?

by Longpockets | 1st Sep 10, 10:59am 1283295547

Bernard,

"Now the government will spend NZ$1.6 billion or around NZ$400 per taxpayer to refund the investments of debenture holders and bond holders in South Canterbury Finance."

Actually that's $400 for everyone in NZ. It will be considerably more for each taxpayer! That's $2000 for my household, or about 2 months of my income tax!!

by Blair Rogers | 1st Sep 10, 11:17am 1283296623

By the look of all the pictures of the "Mum and Dad' investors that have been bailed out. The real term to use should be 'Granddad and Grandma' Investors.

More loading up of debt on Gen X/Y/future generations to pay for Boomer folly.

Euthanasia will be voted in over the next 20 years.

by Christov | 1st Sep 10, 12:14pm 1283300072

And you'll be 20 years closer to execution......... don't you cry now...... be a man ..... it'll only hurt a ..........................lot.......... I hope.

by Kunst | 1st Sep 10, 2:45pm 1283309114

The situation in NZ is so desperate, in a few years time one cannot even burn down the house and claim insurance, because even insurance companies have no money left.

by Wolly | 1st Sep 10, 2:52pm 1283309540

Well I'll be a ..............how do they justify this:

"Scaffolders, automotive technicians, ship's masters, ship's officers and forest scientists will now find it easier to get a New Zealand work permit after their occupations were added to the list of skill shortages here. Changes to Immigration New Zealand's Immediate Skill Shortage List (ISSL) and Long Term Skill Shortage List (LTSSL) were announced today and come into effect on September 8" Marl Express

Help me out here...don't we have a rather large number of people on the dole. How the hell can there be a shortage of Scaffolders when the building sector is standing still?.......where are all the extra ships?

by David George | 1st Sep 10, 3:36pm 1283312175

Wolly "Help me out here.."

Sorry mate, I can't figure it out either.

Scaffolders? You could train some one - a builders labourer say- to do this job in about the same time it takes to fill in the immigration form.

"Forest Scientists", WTF, is that code for Indian taxi driver?

by powerdownkiwi | 1st Sep 10, 3:48pm 1283312939

I had a mate who travelled weekly to Australia.

When leaving, he'd put 'brain surgeon' on the form.

When returning, 'labourer'.

We used to chuckle.....

Was neurosurgeon already on the list?

by David George | 1st Sep 10, 3:28pm 1283311725

Gonzalo Lira's debate heats up, answers his critics.

"in a termite-riddled house, no one can predict when the house will collapse—but we all know deep in our bones that it will collapse. So the second you hear a creak in the plankings, what do you do? You run for the exits.

I have no idea when that Shazaam moment will happen: Tomorrow, next month, next year. But it will occur—because everybody knows that Treasury debt cannot be repaid. So it’s not a question of if—the damage has been done, and is irreparable. It’s now just a question of when."

http://www.zerohedge.com/article/guest-post-termite-riddled-house-treasury-bonds

by jfal013 | 1st Sep 10, 4:16pm 1283314570

Let's compare WaMu rather than Lehman, as Lehman didn't get an FDIC bailout or an equivalent to our GG scheme.

WaWu is/ was the US' biggest savings bank, according to Washington Mutual Inc.'s 2007 SEC filing, the holding company held assets valued at $327.9 billion.^[11]

http://en.wikipedia.org/wiki/Washington_Mutual

So, roughly 0.27% of USA GDP.

Hanover is/ was our Lehman, at 0.2% of NZ GDP.

Apples with similar bred apples!

Is using taxpayers money in a receivership really a bailout?

Also the US has two main banking sectors (outside of the FED), saving & loans (public) and investment banks.

Our finance companies use deposits like a savings & loan bank but invest in more speculative assets like an investment bank in the States.

by Wolly | 2nd Sep 10, 8:46am 1283373982

Hey it's the only possible thread OK...

"Here comes the Tsunami: These are the expected regulations soon to smash headlong into Barry Obama land...... " Disallow cash withdrawals from banks beyond a certain amount, say US$1,000 per day; 2) Disallow cash transactions up to a certain amount, say US$10,000 for certain transactions; 3) Transactions (investments) for metals (gold and silver) will be restricted; 4) Worst-case scenario – the confiscation of gold AS HAPPENED IN WORLD WAR II. 5) Imposition of capital controls etc.; 6) Legislations that will compel most daily commercial transactions to be conducted through Debit and or Credit Cards; 7) Legislations to make it a criminal offence for any contraventions of the above".

http://www.marketoracle.co.uk/Article22354.html