South Canterbury Finance

So, a $1.55billion taxpayer funded bailout? I know where I would rather that money got spent *cough*CBD Rail Tunnel*cough*

http://www.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=10669824

Agree or disagree? What are the wider economic consequences if SCF was to go bankrupt?

But he's such a nice old man!


But really, the consequences would be pretty huge. Would put a massive dent in the South Island economy, lots of farms in particular would probably collapse, and you should know what they are worth to the national economy.

I always said the Govt guarantee would come back to bite us....
SCF should be killed
as Hickey says its a zombie - which is a good analogy to use on biggie
kill it now before it infects others

the GFC continues folks, those tentacles pop up everywhere huh again just like I said. Dubai, Greece, Ireland, Canterbury.... it wont stop for a few more years yet.

The bailout should be an investment by the government thereby gaining a share in the business.
Providing the business trades out (whole point of the bailout in first place) than through the govt NZ public has a stake in business and earns gets a return on it as a result.

Assuming there is a return to be made and the whole thing doesn't keep going tits up, which it will.

Just one word is the flaw in your cunning plan.

We've seen exactly this situation occur with all the other finance companies as they go insolvent - "Oh please , give us some more money and we'll fix it all up so you can get your investment back later...."
and we all know whats happened to most of them.

If the government wants to throw large sums of cash at it they're better off offering to protect local investors up to a certain point. Such as returning 50c in every $ invested up to $100k for locals, trouble is though that sort of thing sets precidents for future company failures and the Bridgecorp investors would be up in arms.

wouldn't want to be in the govts shoes this week - for no matter what they decide it won't be a popular decision...

potentially another financial burden for the young.... drink up while you can kids!

Yeah I agree the sum shouldn't be the entire principle let alone the interest as well - it means theres no cost of risk which is the whole idea of interest.

Have they actually made a decision?

Nope.

not yet, probably put it off to see if SCF can raise the funds they claim could happen

the govt should never have included the finance companies in the scheme - benefit of hindsight I guess

Yeah, it meant investors could keep throwing money into the outfit, without care since they could rely on govt backing.


On the one hand, I'd like to let them fail. Free market, dug their own hole and all that (financing dairy conversions that were always going to be unprofitable for example), but I think the wider consequences are too big.

the govt guarantee is 100% and up to 1 million per individual
dunno waht you're on about with offereing 50% the govt has already guaranteed 100% and it cant back down (well I guess it could but it wont)

no benefit of hindsight bob_d
australia never guaranteed anything but the trading banks and neither does USA or UK.

too big to fail - the biggest con financiers have ever managed yet
debt must be repaid or written off either way someone is poorer , either now or later.
Japan lost 20 years by not biting the bullet. they have zombie banks festering on, hampering new growth (by being unable to lend)
lets not go there.

Sorry I thought they were just going to pump a bunch of cash in the hope the company stayed afloat rather than insuring the investments (are they doing both?). But yeah my sentiments are exact like bob's in that guaranteeing the entire principle is too much as there needs to be consequences for making a bad investment in the first place. A guarantee of 50% means that those that have thrown their life savings in aren't left penniless without creating a free hit scenario, whereas the 100k was merely an arbitrary figure that I tought would cover all the ma and pa investors without returning huge sums to large investors.

Was bob's query about guaranateeing the interest right as well? Because I whole heartedly agree with him that that is ridiculous.

Govt could bail them out but theres nothing stopping scf defaulting again in the future meaning we still have to pay out that Government Guarantee anyway.

Best to let it go into statutory management and sell the asetts off over time.
Interrelated loans dosnt look good either. Future investigations will see if allan hubbard is actually allan hubbard/bernie madoff.

I dont think he has intentionally ripped anyone off - I just think he is incompetent when it comes to running such a large business.

Sometimes a business is better as an ongoing entity than sold-for-assets, this if often the case of finance companies if they can keep short term liquidity.

could it be there's a get out of gaol clause the govt could enact to protect the public purse?

and did whaleoil find it?

http://whaleoil.gotcha.co.nz/2010/08/30/perhaps-some-people-should-take-some-time-to-educate-themselves/

Please don't feed the whale :/

i'm sorry I'm not fond of his work but does he have a point?

bated breath til scf announcement that will surprise some at 9:30 moby d

Oh yeah he does have a point bob_d... though I thought this would be obvious/known to the public at large?

This clause was mentioned in the media when the guarantee was proposed as it is there to prevent paying out to shoddy investments gone wrong eg. a repeat of the last 5 years of 'finance companies' performances.

11 mins to go.

except John Key re-iterated the guarantee y'day.
they will be aware of the weasel clause so I would imagine he wouldnt have done that if they intended to invoke their 'out'

receivership it is

I'm not racist but...

differing opinions ain't nothing like racism jono... thats freedom mate

No it was just the way you pphrased that reminded me of the old disclaimer to start a sentence:

- I don't agree with this guy but...
- I'm not racist but...
- I'm not a conspiracy nut but...

wow Jono - maybe go back and re-examine your thinking here.

whats interesting now is the accusations flying at people who invested in SCF knowing full well it would fail but knew their money was safe due to taxpayer backing.

theft ?
fraud?
immoral?

how do biggies feel about this.
I would never do it not only because of the immorality of it but also because of the sort of risk that the whaleoil blogger raised.

if this is true peat I'd be disgusted... but not surprised by some peoples actions

cynical fucks

its very true bob. analysts look for these sort of 'arbitrage opportunities' all the time.
it was widely recognised after the govt g'tee came in that lots of finance companies were very very risky (and rewarding investors for that risk by paying higher rates than safe trading banks) but that by having the tax payer backing that risk was mitigated
so why wouldnt a rational business person invest all their money in SCF as opposed to Kiwibank or Westpac who were paying lower returns

investing all their money would have been stupid for a rational business person I'd have thought

It would be but goverment guarantees make it a free hit.

well if we want to go into portfolio theory I can email you my latest 30 page work

but the point is that when you analyse investments from a risk vs reward perspective and (by having a gvt g'tee) the risk is zero then the reward can theoretically be infinite on the basis that you borrow to the max and invest in the risk-free (but high paying) investment

should not our govt have closed this means of investment off?

The old "privatise the profits, nationalise the losses" scam. Great work if you can find it


Certainly immoral action going on, certainly stuff against the spirit, if not the word of the law. As for the set up where people have supposedly been borrowing against their property in order to reinvest in SCF? Well that's just plain moronic.

To much of a risk for them considering they can't be expected to know exacty what they have in their investment portfolios.

thing is its not moronic - for a profit motivated person the guarantee makes it rational !!

it would appear that of the 1.6 billion "More than a third were 'rate chasing' government guarantee investors who jumped in after October 2008 to get hold of the 'free money' returns of over 8% that were guaranteed by the government"

the govt has paid out this 1.6 billion already today (so as to minimize ongoing interest payments)
your country just got a whole lot poorer

"While the Government has paid out $1.7 billion this morning its net loss after the company's assets are sold are likely to be about $600 million Prime Minister John Key said yesterday."

I hope we get to find out in future just how accurate this statement is.

*sigh* no money to pay teachers or doctors, but plenty to help out greedy profiteers. I fuckin hate white people.

We're all $400 poorer! yay!

@DavidSlack To summarise: those of us who thought dairy farming in Canterbury at those prices was dopey will reimburse those who didn't.

also the time value of money will impact the recovery... most of the investments are in illiquid farms of course so it will take ages to recoup.

....dairy farm sales at a recent all time low

South Canterbury owns a third of Dairy Holdings, which is New Zealand's largest dairy farm company with 72 farms that produce more than 1% of Fonterra's supply

(and dont say 1% isnt much - we're talking Fonterra which is 1/4 of all NZ exports)

On top of the fact that a lot of those farms in that area never really stood a shit show of being truly profitable as dairy farms anyway. See the whole e-can/water debatable.

You are right t0 worry about the rich white people!

Not only have they been forced (FORCED I tells ya!) to get the taxpayer to socialise any losses in SCF, but Rodney has given them Auckland to help ease the trauma of not losing their millions. Oh, woe is the lot of rich white people!

wonder if anyone will thank the tax payer for their support in these trying times

Free market neo-liberals love to crow about the demise of the nation state and rise of globalised capitalism. Yet who do they turn to to save the day when their avarice and greed hits the fan...

http://www.interest.co.nz/news/allan-hubbard-attacks-statutory-management-move-savage-deeply-hurtful-attack-helped-bring-down-scf

"Following today’s announcement that South Canterbury Finance (SCF) is to be placed in receivership, majority shareholder in the company, Allan Hubbard, said he is firmly of the view that if he had not been removed from the board of the company, and subsequently placed in statutory management, he could have helped to save the business."


Jeeeesus.

are anti white people suggesting that greed is a white person trait or the yellow/browns/blacks dont have any money to invest?

yes I wonder how exposed Tainui is to all this

I also wonder what underpinned those plans for factory farms in McKenzie Basin - cheap, under-valued water? SCF? lack of environmental impact cost accounting?

We're talking about investors in a South Canterbury finance company. Pretty confident that demographic will be overwhelmingly honkey

South Canterbury Finance (SCF) ramped up its risky real estate loans after it signed up to the Government's scheme that protected its investors' money, the company's chief executive Sandy Maier said tonight.

http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=10670213

Tell them to go fuck themselves and we keep our money imo.

I agree. Was never meant for that. Absolute bullshit.

What an absolute fucking crock.



Where the fuck does the risk in investing go if you never lose anything. Why are we bailing these fuckers out ?

http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=10670273&ref=rss

*anger*

politics

*shrugs shoulders*

lol @ the bleeting lefties - labour set the original terms guys. And its not $405 per person once the assets are realised.

Better that than a fire sale with all our assets going off shore into speculators for next to nothing.

labour did set the terms and national were involved... now wtf allowed SCTF into the scheme and then into the extened (by national) scheme



http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=10670273

I am sure the govt isn't spinning the value we'll get back on that bailout.... these things always go the way of the initial predictions...

and yep its great to see the assets remain in NZ hands....



http://www.stuff.co.nz/dominion-post/national/4084190/Govt-intends-to-sell-off-South-Canterbury-Finance





I will give Hubbard this - unlike them other finance company dicks he actually put his own money into the company to try and keep it going whereas others just took took took...

$150 million of his money. Govt in April didn't even wait for due diligence too.

O'Sullivan's hot onto it today
http://www.nzherald.co.nz/opinion/news/article.cfm?c_id=466&objectid=10670240

South Canterbury National representative backs a firm without proper auditing. No surprises there.

of some comfort to Biggies ? heheh
South Canterbury Finance's investments include almost $2 million in four prime Auckland bars and nightclubs - on which it lost about $1.5 million.

To those claiming corporate welfare - you do realise that all the shareholders have lost their money. Its the investors and indirectly borrowers who were protected not any corporate directly.

The more that comes out from this the worse the (complete lack of) management looks. Whatever Hubbard may once have been, he has lost it. Hopefully he will shut the fuck up and try to retain some dignity.

any old biggie could have told them it was a lousy investment :/

from the horse's mouth:

From Stuff:
http://www.stuff.co.nz/national/politics/4094682/Bollard-tells-of-rush-on-100-bills
~
The book also reveals how the outgoing Labour Government was stampeded by Australia into announcing the guarantee scheme during the 2008 election campaign.

The prime minister, Helen Clark, had intended to signal the scheme was being considered but shortly before she was due to speak, Australian prime minister Kevin Rudd called her to say he was about to launch a comprehensive guarantee.

Amid fears of a flood of cash across the Tasman, Miss Clark's speech was hastily rewritten in the "Green Room" behind the stage at Auckland Town Hall. Twenty minutes later she announced the scheme would start here immediately.

It has been criticised this week for exposing taxpayers to the bill for SCF, because it encouraged depositors to put money into shaky finance companies offering high interest rates, which in turn lent on risky property deals.

Dr Bollard said officials working on the scheme knew it would be distortionary, and lead to "adverse incentives and there would be room for institutions and individuals to game it".

"It was the least bad option," he said. "We also knew we might be forced into it and we were forced into it. We can blame the Australians, they blame the British, the British blame the Irish and the Irish blame the Icelandics. It's a connected world."

Former finance minister Michael Cullen confirmed this week that there had been a rush to put the scheme in place. He indicated attempts to check the rumour with his opposite number Wayne Swan had drawn a blank – suggesting even he had not known of Mr Rudd's plan.
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Dr Bollard said he had pushed for smaller lenders, including finance companies like South Canterbury, to pay a risk-weighted fee for the guarantee. But Dr Cullen feared they could not afford the relatively high premiums and in the end only the big banks were charged a fee on deposits above $5 billion – though smaller institutions were later charged a fee to cover new deposits.

Though the Reserve Bank disagreed with its final shape, Dr Bollard defended its coverage of the whole sector. "If none of them were allowed in they would have all gone under the next day ... I think I can just about say that. People would have taken their money out and put it into a guaranteed scheme. If we had allowed some of them in but not others, the ones we didn't allow in would have had the kiss of death."

He said a tighter guarantee scheme, to cover some companies from October, was "really a tough-love scheme. If you have to be in it, you have to pay".

~

from their other story today:

But the deposit guarantee scheme doesn't deserve their ire. It has worked as it was supposed to. The real problem is that it was forced to operate in an imperfect system.

The failure of successive governments to clean up a cowboy finance sector should be the real target of taxpayer fury.

I suspect there's a lot of truth in this, its easy to say now SCF should have been shut out, etc.

But would that have been popular with the public? A lot of people would have seen it as interference becasue govt was "stopping people from getting high rates of return from reputable (sic) companies"

"Poor management should never be condoned, as it is by Allan Hubbard's more vocal supporters, because it destroys wealth, reduces employment and transfers ownership from New Zealand to overseas interests."
- Gaynor

there's your answer

I dont know anyone who doesnt think there should be more sensible rules around finance companies and in particular who they can lend to. I view the non mainstream lenders as nothing but parasites. There is a need for them because without access to money people go to loan sharks which is even worse but there should be a serious shake up of the way they operate.... and a shift in NZers addiction to borrowing.

I agree, but some of it is hindsight isn't it? When things were good the finance companies were heros. NZ's generally have very poor financial literacy. I even worked on a research project for a finance company doing depth interviews with investors - they were comfortable middle class professionals, and virtually none of them had a clue about how to establish the credibility of a company. Probably the most frequent method was "reputation" of the principle, which as Hubbard has shown is entirely spurious.

we're not talking about personal finance here....its about property development (which while currently hated, is in fact a necessary aspect of the economy) and has always largely been handled by finance (mezzanine) companies not the large trading banks for whom it is too risky.
There has been very few developments lately we will suffer from this in time.

I dont see those places as parasites though. I was making a statement on the general industry of non bank finance.

OneHappy - reputation is ok, past/current performance is the best indicator of future but yes some people became star struck for lack of a better word.

I guess this will quickly be forgotten given the events over the weekend..

not if the govt decide not to help the uninsured of CHCH it won't

comments from PM
"So the net cost to the crown for the entire scheme is somewhere in the order of NZ$300-NZ$400 million – or maybe NZ$100 per person."
"When you put that in the context of what the world was facing two years ago, I think that was NZ$100 that was worth investing for both the health of the New Zealand economy and the fact that without that retail deposit guarantee scheme, our funds would have fled offshore to the Australian scheme."
"The one thing that was just plain down-right dumb was the way the scheme was established," Key said.
"They didn’t charge fees to small players, aka the finance companies, but they did the better credit quality commercial banks. We changed that when we extended the scheme, but the crazy thing was the South Canterburies of the world went into the scheme and didn’t pay virtually anything for it. In fact the only fees they paid were when we extended the scheme."

well if the uninsured won't help themselves....

oh wait, (I anticipate your return), uninsured people are poor people right?

BUT

isn't the lesson learnt from the sub-prime crisis (which led to all this SCF thing) that poor people shouldn't own homes?

I await the story of a typical middle class family who due to redundancy/hard times and the lose of income let their insurance lapse and are now fucked

the thing we learnt from the sub prime crisis is finance people will make a buck off anyone and damn the consequences

No. It's that nanny state will always come to the party if there's enough votes in it.

or politicans will never miss a photo op and care little about where they spend the public purse as long as it gives them the chance of future employ

govt skirming during question time today - what does Cullen know....

not cullen you dolt, cunliffe



http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=10672231

*hearsay alert* Seems there's more to come on this. Seems there's a reason he has so many supporters. He well and truly looked after his friends, at others expense.

Who is 'he'?

hubbard? who else?

ohhhh, interesting. there's sleeze inside canterbury

I'm still waiting for the govt to explain itself...

....

http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=10680492

Bear in mind its the oppositions job to question everything. From what it looks like he doesnt have any information at all just fishing.

Given the complexity of the many hundred entities involved a sale would have taken months if not years to organise and then likely still find itself in court. Better to do what they did imo. It provided stability continuity and not a fire sale.

I am more than aware what the role of opposition is Bob (I wish they did too) and I still believe strongly there is so much to this entire affair being kept quiet, (for now)

as for todays story, it merely adds to Fran O'Sullivans piece of late sept

http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=10676751

Im not sure its being kept quiet so much as its an unknown. Chances are there are going to be some serious civil if not criminal proceedings after this so keeping quiet is avoiding defamation cases. Also it is such a complex situation with a national(or regional) interest at stake, not selling it off shore seems fairly safe in my opinion. At the very least, the money that the bidders think they can make could be taken by the govt without shafting the little guys and putting more farms in the hands of foreigners.

I think your take on this is out of habitual dislike of anything govt/authority/the man rather than an actual position on facts. Same with the articles posted, its just questioning/ fishing to sell papers - no papers sell when you say good job govt. People like to hear bad news about something or another.

Listen to the supposedly right winger suggesting we keep nationalised control of a finance company.... or at least manage it through the govt.

Key himself (in one of the many links i've posted) said they were looking at offshore buyers... this was poost bailout and at odds with the previous we won't... we're bailing them out so as to not etc... ie par for the course floppery

yes its a copmplex situation - but I am asking the simple question of WHY - why was SCF ushered into the scheme, why was due diligence not done, why won't the govt answer these and many other pressing questions...

the selling off of etc doesn't concern me so much if its done in a clear and transparent manner - so lets rephrase that, I am very concerned as the entire fisaco has not been clear nor transaparant and there are questions the NZ Public deserve to be answered

I know everyones moved on and the stories had its 30 seconds, much better to focus on an unsolved murder from 40 years ago and the rantings of Ian Whishart but I for one am still not convinced we the tax payer needed to stump up for SCF woes and the decision makers have been woeful in their lack of reasoned reasons

as for your charactisation of me... :rolling eyes and finger to you sir emoticon:

First Bolger piping up about how actually Kiwirail IS better off in Crown ownership, now this?!?!?! CATS AND DOGS LIVING TOGETHER!

Ian Wishart's rantings make some sense

That they make sense to you is not at ALL surprising to me.

they make some sense to one of the tec's on the Crewe case too so I'm in good company

Ross M. You Rant no less

for you NR

http://fundypost.blogspot.com/2010/10/second-that-emotion.html

http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=10680746