It’s not north saving south, urban paying rural

The government’s honouring the Deposit Guarantee Scheme which will return funds to people who lent money to South Canterbury Finance has unleashed a nasty stream of north vs south, urban vs rural vitriol.

It’s not supported by the facts and it may be partially fuelled by a failure to differentiate between depositors and borrowers.

The people who are getting their money back are the  depositors, the ones who invested funds in SCF. They came from all around New Zealand and overseas.

Timaru District Mayor Janie Annear said the guarantee had provided relief nationwide not just South Canterbury.

“South Canterbury Finance is a business which is much wider that just South Canterbury. The Government’s prompt response has minimised the impact of New Zealand’s shaky post-recession recovery.

“All investors, irrespective of where they live, will be pleased that the Government guarantee scheme has worked as promised.”

SCF chief executive Sandy Maier said only about a quarter of the investors were from South Canterbury and the rest of the country had benefited from the scheme.

“`Fifty five per cent [of the investors] are spread through the South Island, and around 40 per cent in the North Island and the rest in Australia and Fiji.

“Undoubtedly this has been a massive decision for the Government to pay the guarantee out and it will have let a lot of people, including those in South Canterbury, breathe easier. I am hugely thankful as well.”

If one group is likely to be under-represented among investors it is farmers. They don’t usually have much cash to  spare and if they do they generally put it back into their farms.

Then there’s the borrowers. They’re the ones who got loans from SCF. They too came from all over New Zealand and in an ODT interview  CEO Sandy Maier said:

South Canterbury was largely caught out by increasing its lending to property developers during boom time.

Many of those debts were never repaid, and it ended up booking losses of about $200 million.

Property development isn’t usually f arming. It’s much more likely to have been urban than rural and some of it was in the North Island, including Auckland.

In an interview with Interest.co.nz Maier said:

Speaking to interest.co.nz after SCF’s receivership was announced yesterday, Maier said he still believed the best value in SCF was as one. This includes its “Bad Bank” which holds about NZ$700 million worth of loans, and its “Good Bank” which holds about NZ$900 million of small ticket rural lending. Then there’s Helicopters NZ, a 79.7% stake in Scales Corporation and 33% stake in Dairy Holdings which were tipped in by owner Allan Hubbard earlier this year.

If the small ticket rural lending is in the “Good Bank” those borrowers are paying their interest and are expected to be able to pay back what they’ve borrowed when their loans fall due.

The 33% stake in Dairy Holdings  is one of the assets which will be sold to help recoup some of the money the government is putting in to the company.

If farms are among the businesses with loans which turn sour the farmers will be treated like other debtors. Finance companies are always lenders of last resort . If the farms have to be sold the farmers will almost certainly lose any equity they had. 

Taxpayers should be grateful the campaign to prevent land sales to foreign owners hasn’t yet gained much traction because limiting sales to New Zealanders will depress the price and reduce the amount the receivers get back.

SCF was a victim of its own success as money poured in it moved from its traditional lending to more risky ventures.

South Island farmers weren’t  responsible for bad decisions made by the company and none will be getting anything from the taxpayer  unless they had deposits with the company. In that case they’ll be treated the same way as all other depositors.

This isn’t a case of the north saving the south, urban people paying for rural mistakes.

 It’s a business failure which won’t be quite as serious for the wider economy as it might have been. Depositors all over New Zealand and overseas will get their money back and an orderly sale of assets will realise more than the firesale which would have resulted had the company been left to fall over.

12 Responses to It’s not north saving south, urban paying rural

  1. Adolf Fiinkensein says:

    At last some measured and calm commentary. Unlike the crap being spouted today by my friend Whaleoil.

    Like

  2. Tired Farmer says:

    Great to be able to agree with you re HP’s post Adolf.

    Like

  3. Adolf Fiinkensein says:

    More importantly still in the bigger picture which the shouters from all sides conveniently ignore is the question:-

    What would have happened to our economy if there had NOT been a retail deposit guarantee?

    Or the question:-

    What would have been the effect of allowing receivers to move in in April 2010 BEFORE the current CEO had taken one last shot a a recapitalization?

    All I can say is ‘Thank God we had English and Key at the helm and not Roger Douglas.’

    Like

  4. homepaddock says:

    Very good quesitons, Adolf.

    Like

  5. gravedodger says:

    Cameron Slater proposed yesterday that “they”, “sell the South Island” and priced it at a sale figure that returned $10 000 000 to each citizen. Now that is absolute bollocks but would be interested in some figures, say:
    Total wealth generated in SI from minerals, primary produce, tourism, electricity, manufacturing,and fishing as proportions.
    Total costs of welfare for each island.
    Costs of treaty settlements per island.
    Infrastructure costs allocated per island
    Courts, justice, police and prison costs.
    And so on
    This idea has merit and on proposed out come after we get the albatross that is big government NZ off our shoulders, we look at federating with Australia (their federal parliament has provision for a NZ presence) or The U S and get on with our knitting.

    Like

  6. Adolf Fiinkensein says:

    What you guys down there in Iceland lack is your very own version of Western Australia’s ex premier Sir Charles Court who made his political career by reminding West Australians daily that WESTERN Australia produced 40% of the nation’s total taxation revenue with just 10% of the population.

    Did you notice the emphasis? Maybe you could start by ceasing to call it the South Island and always talk about the SOUTH Island.

    Like

  7. scrubone says:

    Yea, I just don’t get what all the fuss is all about.

    There is certainly an issue of acting irresponsibly once the guarantee came into place, but it’s need was unquestionable. It’s almost one of those things where it’s existence meant it was not needed.

    The government hasn’t “bailed out” the company – it’s finished, kaput. Once this is all over, it will not exist – certainly not in anything like it’s current form in any case. Hubbard isn’t running off with millions of investors money – he’s broke.

    Finally, I wonder how much has been paid to the govt? Companies paid to be in the scheme, is it possible that even with this failure it still might be profitable?

    Like

  8. homepaddock says:

    GD – I’m not sure who’d come out on top with those numbers and it doesn’t matter anyway – inter-island rivalry for fun is fine but there’s nothing to be gained for either island, or NZ as a whole, from turning it into something serious.

    Adolf – we prefer the Mainland 🙂

    Scrubone – Institutions which entered the scheme had to pay into it, but I think more has now been paid out than went in.

    Like

  9. poneke says:

    Why am I not surprised that people who sneeringly described the railways as “the train set” after it was rescued from its looting by the friends of the present government are now cheering at this naked theft of $1.7 billion in taxpayers’ money by the rural South Island rump of the National Party?

    This is an utter and monstrous criminal fraud and you are all cheering it.

    Jesus wept.

    Like

  10. bobux says:

    This is an utter and monstrous criminal fraud

    What??

    Who committed the fraud? The former Labour government that created the guarantee scheme. The National government that continued it? SCF for loaning money to people who couldn’t pay it back? The borrowers for failing to meet their obligations? The depositors who handed over money to SCF?

    Who exactly are you accusing?

    by the rural South Island rump of the National Party

    Err, according to Ele’s link, just 55% of depositors are from the South Island. We have no idea of how many of them are rural. Or how many of them belong to the National Party.

    I’m far from cheering the exercise of the guarantee, but think that Labour had little choice other than to put the scheme in place, and National little choice but to stick with it.

    The criticism of Cullen is largely misplaced. Once Australia launched a guarantee scheme, the stakes were too high for NZ not to respond quickly. The scheme was rushed out because of that, rather than because of the election campaign.

    Like

  11. Adolf Fiinkensein says:

    The fees paid to the gummint by institutions amount to $232mil over two years. Add on a bit of interest and you have a $250 mil offset.

    Like

  12. bobux says:

    True, Adolph.

    But that money overwhelmingly came from the major trading banks. Bet they aren’t too happy about bailing out investors in poorly-run finance companies.

    I think some serious scrutiny is going to fall on the previous management of SCF, including but not limited to Saint Hubbard of Timaru himself. As a layman, it looks as if they diversified in recent years into fields well outside their core expertise in rural lending, and have screwed up mightily.

    The news today that they had funded several upmarket Auckland watering holes is probably just the beginning.

    Like

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