The Labour party is calling on Finance Minister Bill English to resign over the government's handling of South Canterbury Finance last year, saying bids for the failed company's loan book should not have been turned away as government moved to put SCF into receivership.
Cunliffe's comments followed news yesterday that the government's accounts would take another NZ$300 million hit from the downward revaluation of South Canterbury Finance related party loans. Gross losses from SCF would now be in the region of NZ$1.1 billion, Prime Minister John Key said yesterday.
South Canterbury was placed in receivership in August 2010 owing 35,000 investors NZ$1.6 billion. On top of that, government paid NZ$175 million to SCF's leading creditor Torchlight so that the Crown would be first in line for proceeds from the receivership of the company.
Prime Minister John Key reiterated to journalists this morning that government would be worse off in terms of losses sustained from the collapse if it had accepted any of the bids it had on the table, due to provisions that government would underwrite losses that arose.
The bids Key referred to included this one from Sydney-based businessman Duncan Saville, which did not offer any cash up-front. meant the Crown carried any downside risks, and was not eligible for any upside risks from the loan book.
'English should resign'
Labour Finance spokesman David Cunliffe this morning made the call for English's resignation, saying the National Party's mishandling of South Canterbury Finance was a disaster of epic proportions.
“Bill English and company turned down recapitalisation offers that would have limited taxpayer costs for SCF to around NZ$500 million,” Cunliffe said.
“Instead National insisted on throwing it into receivership. National has grossly mishandled the issue. Losses have already reached NZ$1.2 billion and are still climbing,” he said.
“The extra NZ$700 million lost to the taxpayer is in effect roughly equivalent to all the new money John Key has just cut out of this year’s budget.
“It just doesn’t stack up. Reputable bidders like the New Zealand Super Fund, Ngāi Tahu and a major international investment bank were turned away. Assets were left to rot in receivership, and it’s no surprise their value collapsed," Cunliffe said.
However, Labour leader Phil Goff this morning would not say whether Labour would return to bids made for SCF's loan book from private bidders last year. See Goff's comments in the video above.
'For goodness sake'
Prime Minister Key said Cunliffe's comments lacked any economic sense.
“Just listening to David Cunliffe to me it sounds like a leadership bid, not serious economic policy," Key told journalists this morning in Parliament.
"I mean, for goodness sake, if you go and have a look at the bid that was put up by the investors he’s talking about, clearly if he’s relying on them he must be relying on they tell one thing in public and another thing in private," he said.
"What I can tell you is, as late as yesterday, we asked Treasury again, no deal we were ever presented came anywhere near being better than what we’ve actually done."
The reason the government was in this position was because Labour signed up to a deposit guarantee scheme toward the end of 2008.
"South Canterbury Finance had massive loans, those loans went broke, there were inter-party and related party loans. The receivers have now discovered they were worth a lot less than they were, and every bid we heard from any consortium that came to the government always had a provision that said, because they were unable to quantify the loses, then the government had to underwrite all of those losses," Key said.
"So frankly David Cunliffe doesn’t know what he’s talking about," he said.
The losses sustained by government if it accepted such a bid would have been worse than from the action government took, based on Treasury advice the government received from Treasury last night.
“The situation is there were big unknowns when we took over that book. As we know, the SFO (Serious Fraud Office) have been investigating both Hubbard Funds Management and Aorangi Securities, they’re, as I understand it, progressing, but it’s been a very complex web of financial transactions," Key said.
"In the end, what we’ve discovered is that a lot of those transactions don’t stack up, there’s no value in them," he said.
Treasury were monitoring South Canterbury Finance for 18 months before its collapse.
“But it’s taken a long, long time to get an understanding of that position. It’s been very complex, there’s been bad record keeping [by the company]. Even now, they’re still struggling to come to terms with some of the loans that were made,” Key said.
“The reality is the government doesn’t want to be the owner of a failed finance company. I’ve got a lot better things to do with hundreds and hundreds of millions of dollars of taxpayer funds than try and go through a receivership of a finance company. If there was a decent bid out there, we’d take it," he said.
"But the bids were, ‘we’ll take any upside, you wear all the downside, we can’t quantify it.’ And by the way, there was no cash up-front, you [government] have to fund the entire transaction.
Well, didn’t sound like a very good deal," Key said.
See the release from Labour finance spokesman David Cunliffe:
National’s mishandling of the South Canterbury Finance collapse is a disaster of epic proportions and Finance Minister Bill English must resign, says Labour’s Finance spokesperson David Cunliffe.
“Bill English and company turned down recapitalisation offers that would have limited taxpayer costs for SCF to around $500 million,” David Cunliffe said.
“Instead National insisted on throwing it into receivership. National has grossly mishandled the issue.
“Losses have already reached $1.2 billion and are still climbing,” David Cunliffe said. “The extra $700 million lost to the taxpayer is in effect roughly equivalent to all the new money John Key has just cut out of this year’s budget.
“It just doesn’t stack up. Reputable bidders like the New Zealand Super Fund, Ngāi Tahu and a major international investment bank were turned away. Assets were left to rot in receivership, and it’s no surprise their value collapsed.
“I said this would happen six months ago, and I’m sorry to say it’s come to pass,” David Cunliffe said.
“Bill English must resign immediately, or release all the offer documents and advice he has so far withheld.”
(Updates with background, video, links, Key's comments, Goff line)