Editorial: Receivership right path for South Canty
5:30 AM Wednesday Sep 1, 2010
Photo / Sarah Ivey
In the end, South Canterbury Finance was not, as some had predicted, too big to fail.
The Government, quite correctly, resisted the temptation to support the recapitalisation of the country's second-biggest finance company, consigning it to receivership.
But South Canterbury Finance was too big to die a normal commercial death.
Too many of its 35,000 investors would have been out of pocket and too much of the South Island economy would have shuddered.
That has triggered a response aimed, in the words of Finance Minister Bill English, at achieving "minimal disruption".
The Government has paid out $1.6 billion under its Retail Deposit Guarantee Scheme to cover investor losses.
It has also loaned the receiver $175 million to allow it to repay all of South Canterbury Finance's prior ranking debts.
This leaves the Government in control of the receivership, and negates the need for a fire sale of assets. Mr English said he was confident of recovering the bulk of the Government's outlay.
That may be extremely optimistic given the parlous state of much of South Canterbury Finance's loan book. The final net cost is likely to involve a sizeable slice of the $900 million provision set aside to cover the guarantee scheme.
There was, however, no point in keeping South Canterbury Finance afloat. Bad governance and loan practices have destroyed a once strong brand.
It has survived this long only because its inclusion in the guarantee scheme spurred an influx of investment. Collapse would have been inevitable when this expires at the end of next year.
South Canterbury Finance is the eighth finance company to benefit from the scheme, which was initiated during the dying days of the previous Government. The others pale in comparison, and doubts about its well-being explain the steady climb in Government provisioning.
Reasonable questions can be asked about whether finance companies should ever have been allowed to join banks in the scheme. The risks were always palpable, given that several had already collapsed. Either way, the taxpayer is now paying a heavy price.
More specifically, the Key Government needs to explain why it was so quick to give South Canterbury Finance its original guarantee or, most pertinently, an extension in April. At that time, it had not seen audited accounts.
Nor would the company provide detailed information about the state of its property loans. There was every reason for concern.
The guarantee was extended, however, and South Canterbury Finance used it to market an appeal for recapitalisation funds, and to advertise interest rates of up to 8 per cent on terms until the end of the scheme.
All this did was avert failure at that point. It seems that if the Government did not then know the full extent of the mismanagement at South Canterbury Finance, it was well aware of the fallout from a collapse.
The rescue of its investors now is particularly irritating to those who lost money in finance companies that missed out on the guarantee scheme. They have reason to feel unfairly treated.
In essence, they are the victims of bad timing and the relative unimportance to the wider economy of their investment choice. Ironically, some of these companies may have been in better shape than South Canterbury Finance. So severe is its plight that the Government is right to believe best value can be extracted from receivership.
Investors in other finance companies could have saved themselves much anguish if they had insisted on the same course. Their failure to do so has made the shake-out of the sector messier than it needed to be.
In the case of South Canterbury Finance, it is politicians who have made mistakes along the way. Only at the death is a sense of order apparent.
The editorial assessment here is totally lacking.
So what if 35,000 investors lost money. This would not destabilize the other 1 million South Islanders particularly much.
This bailout was to protect wealthy farmers who predominantly vote for Bill and John, there is no other legitimate explanation.
Financial investment is gambling admit IT and wear the losses because you never share the wins.
No country could handle this.we saw a similar thing in the US with their banks. What we don't want here is that "american' attitude for some to be paid "bonuses" on top of the fact that these same people had just rorted and created havoc for others.
In these times you have to be disciplined and that means that sometimes you just can't be the "nice guy".We see another side to this in the current industrial actions affecting our hospitals.the primary reason these people are in their jobs is to make people better not to fill their "pockets".
If it's about their "pockets" then I would not renew their contracts and yes let them go overseas. Its not what being a NZer is about.
I personally have not lost money in this way but for those of us sitting on the sidelines watching one disaster after another, the collapse of a sizable portion of the NZ financial sector has been an education.
So too has the government's response to it all, and I include the response of National and Labour governments here. I am not a 'mum ad dad investor' but would like Bill English in particular to get onto a more usable phrase, which does actually speak to the realities of small investors who have lost money.
Most of the small investors would have been dads - perhaps it would have been better if mum's had made the investments. Many would have seen at a glance how dodgy some so-called sure-thing finance companies were!