What I said, what I meant

September 5, 2010

In the Bloggerheads spot on Q&A this morning I said:

It’s not a taxpayer bail out. It’s not north saving  south, urban paying rural.

People who lent to and borrowed from South Canterbury Finance came from all over the country. Only those covered by the Deposit Guarantee scheme will get their money back.

Receivership will enable an orderly sale of assets to minimise the eventual cost and damage to the wider economy.

 The government made the right decision over a business that went badly wrong.

 When I said it’s not a tax payer bailout I meant that the company wasn’t being bailed out.

But the depositors are and the taxpayer will end up paying under the Deposit Guarantee Scheme.

Fees – taken from the big banks not finance companies – will cover some of the cost. The return on the sale of the company assets – as a whole or n pieces – will recoup a lot of money but no-one is expecting that to cover all that’s owing.

John Armstrong asks:

Was it fair that finance companies were included when the scheme was rushed into existence in October 2008 during the darkest hours of the global banking crisis and the last days of the Labour Administration?

Was it fair that finance companies still afloat then got protection while investors in those that had already crashed got nothing? Was it fair that some people had subsequently invested money in finance companies to exploit the Government guarantee?

Possibly not to the first question and definitely not to the second.

The exposure of flaws in the deposit guarantee scheme provoked demands they be called to account for failing to rectify them. . . .

While much has been made of the approval of that extension, it is essentially irrelevant. The Government was obliged to pay out the $1.6 billion to depositors because South Canterbury Finance is still covered by the original two-year scheme which has run from October 2008.

The Crown could have withdrawn its guarantee earlier if it considered there was misconduct on the part of the company or a material change in its financial position for the worse.

But the Government would still have had to pay out investors after the company inevitably defaulted as a result of the guarantee being withdrawn. Some money would have been saved. However, the Government gambled on the appointment of restructuring guru Sandy Maier as chief executive to get large portions of the company back on a sound footing. The gamble failed. But it was surely worth a go.

The simple truth is that once South Canterbury Finance was under the umbrella of the deposit guarantee scheme, the taxpayer liability was there for as long as the scheme was in place.

There are grounds for arguing the scheme has been in place too long. But that is from the benefit of hindsight.

. . . Both main parties – Labour in setting up the scheme and National this week in seeking to minimise both the cost to the taxpayer and the economic fallout – have sought to act in the national interest.

Yet, no one – apart from those who creamed it on the back of the Government guarantee – is happy. The Government is the convenient whipping boy.

It is and that’s why people accusing National of acting in the interests of supporters is tosh.

People who get their money back not only come from all around New Zealand they’ll have a variety of political persuasions and they are far fewer in number than the rest of the populace who are aggrieved. 

There are far more votes to be lost than gained from this.

But when you’re in government you don’t get to pick your fights. You have to deal with what comes up and make decisions based on the best information available.

Sometimes that will be politically popular, much of the time it won’t and this one definitely isn’t.


HP on TV

September 4, 2010

Q&A’s bloggerhead slot aims to give two different positions on the issue of the week.

Tomorrow it’s Keith Ng from Public Address, chosen because he’s young, urban and financially literate and me because I’m not so young, rural and . . . ?

The media release says:

On Q + A this Sunday:                                                                                                         

Paul Holmes interviews former South Canterbury Finance Chief Executive Sandy Maier about what went wrong and what chance taxpayers have of recovering the losses.

South Canterbury Finance’s collapse has its origins in the global financial crisis. Reserve Bank Governor Alan Bollard joins Guyon Espiner to talk about his new book, Crisis: One Central Bank Governor & the Global Financial Collapse and his battle to save our finance sector during the worldwide meltdown. Was the deposit guarantee scheme that saved SCF this week well conceived? Did anyone see this coming? And what does he really think of the government’s efforts to counter the crisis?

Paul and Martin Sneddon talk rugby.  One year from RWC kick-off, are we ready? Or are the critics right to be sceptical?

Dr Therese Arseneau is joined on the panel by 2025 Taskforce head, the former Reserve Bank Governor and National Party leader, Dr Don Brash and Waitakere mayor Bob Harvey, who’s soon to take over development of the Auckland waterfront.

@ Bloggerheads, are Keith Ng from Public Address and Ele Ludemann from Homepaddock.

Q + A is broadcast live 9-10am Sunday on TV ONE and repeated at 9.10pm on Sunday nights and 10.10am and 2.10pm on Mondays on TVNZ 7. 

 (TVNZ 7 screens on Freeview Channel 7 and Sky TV Channel 97)


It’s not north saving south, urban paying rural

September 2, 2010

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.


%d bloggers like this: