Taxpayers could be paying as much as $178 million to bail out a failed
finance company owned by one of New Zealand's wealthiest families.

The family of the late Peter Spencer are the backers of Equitable Mortgages which went into receivership on Friday.

Calling in the receivers triggered a bailout under the Government's retail deposit guarantee scheme, set up to protect investors after a wave of finance company collapses.

Taxpayers have already paid $1.8 billion under the scheme, and the figure could reach $2 billion because of the Equitable Mortgages receivership.

Standard & Poor's yesterday lowered its credit rating on the business which it described as a "core subsidiaries of the New Zealand Equitable group, which is wholly owned by the Spencer family".

A previous report that John Spencer was connected with Equitable was incorrect.

Equitable Mortgages appointed Deloitte receivers on Friday after its board said the business was no longer viable.

The business has about $32 million in cash, a net carrying value of
$188 million of mortgage property loans, debenture liabilities of $191 million and book equity of $31 million.

Equitable Mortgages' chief executive, Peter Thomas, said making the
move now meant the Crown might be able to recover all of the $178 million guaranteed under the scheme, meaning no taxpayer money would be used.

The failure of South Canterbury Finance in August resulted in the Government paying about $1.6 billion to cover investor deposits.

By the end of last month, the retail deposit guarantee scheme had paid out $1.8 billion.

Mr Thomas said the decision to call in receivers was made when the company realised the economic climate was unlikely to improve in the
next three to five years.

"We're entirely sorry," he said.

Credit rating agency Standard & Poor's also noted the Government's liability.

"Although Equitable Mortgages has indicated its preference to execute
an orderly wind down of the group's activities without the appointment
of a receiver, such an appointment could not be avoided due to requirements under the extended Crown guarantee scheme, to which Equitable is a party," it said.

"The appointment of a receiver will trigger a default under EML's
debenture trust deed.

"The decision to place the ratings on CreditWatch with negative implications reflects our view that EML could fail to meet its obligations if all debenture investors needed to be repaid quickly as a result of the default," the rating agency said.

It said Equitable had confirmed that it had enough cash to meet its
obligations until about May next year, "without accounting for any funds that may be generated from any repayments on outstanding mortgages within its loan portfolio".

But a heavy discount on its mortgage portfolio "could result in a shortfall in funds needed to fully satisfy all future obligations".

Last month it was announced that Auditor-General Lyn Provost would review the guarantee scheme.

Finance Minister Bill English said the audit would include an
assessment of how efficiently the Treasury had identified and
monitored risks to the Crown posed by financial institutions covered by
the scheme, including South Canterbury Finance.

Correction and apology

In a previous version of this article we said that the Spencer family
headed by John Spencer are backers of Equitable Mortgages Limited. That is not correct.

Neither John Spencer nor his immediate family or entities connected with them has any involvement or association with Equitable Mortgages.

The family of the late Peter Spencer is associated with Equitable Mortgages. We regret the error, which was made in editing, and apologise to John Spencer for any distress caused.