NZ Tax Payers Bail Out SCF With $1.7 Bn

The press is buzzing with the news that the NZ government has bailed out investors in South Canterbury Finance to the sum of $1.7 billion to cover their losses, about $150 million more than was needed.

The company collapsed after a bid to re-capitalise failed.

“South Canterbury Finance is majority owned by 82-year old millionaire Allan Hubbard, who has had other investment interests and his personal finances placed under statutory management while he is investigated by the Serious Fraud Office.” source Reuters

The company owed more than 35,000 depositors and debenture holders about $1.7 billion. Of that about $1.5 billion is covered by the government’s deposit guarantee scheme.

According to a NZ Herald report

“South Canterbury has $1.2 billion in retail deposits and a further $350 million in other securities that are covered by the Government’s Retail Deposit Guarantee.

However Treasury this morning said it had already paid $1.7 billion to Trustees Executors and when an up-to-date register of investors was available, the Crown and the Trustee would arrange prompt payment to everyone on that list.

Presently around 200,000 New Zealand savers have NZ$6.3 billion frozen in 59 dead or dying ‘Zombie’ finance companies and investment trustsThe New Zealand economy feels a lot like a ‘Zombie Nation’ that wants to keep extending the loans and pretending that eventually everything will eventually go back to normal.” said  Bernard Hickey, writing for The NZ Herald, August 2010.

Before the collapse of SCF, five companies have called upon the government’s Retail Deposit Guarantee scheme since it was introduced in October 2008. For one of those companies – Vision Securities Ltd – the receivers, Rod Pardington and David Levin of Deloitte, expect distributions from any cash recovered to be “significantly less than the payments made to eligible investors under the Crown retail deposit guarantee scheme. Vision, which specialised in financing retirement villages, was sent to the receivers in April, owing 958 investors some $28.4 million.

At the end of April of this year the Treasury estimated $880 million for the net cost of all defaults under the bank guarantee scheme, in mid July 2010 that was increased to $887 million. In retrospect that seems to have been a gross under- estimate, given the amount guaranteed at SCF.  The previous company to be put into receivership was finance company Rockforte Finance in early May, which had deposits of just NZ$3.2 million.

For more about economics in New Zealand see:  NZ Facts and Stats – Economics and Demographics

For more about SCF see: Banks Turn off Cash Tap for South Canterbury, Auditor Warns About ‘Going Concern’ Status (1 October 2009) in Interest.co.nz