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.