Investor withdrawal hurt SCF
Wealthy investors pulling money out of South Canterbury Finance (SCF) to get below new limits for the Government's deposit guarantee scheme appear to have compounded the woes of the Timaru-based finance company.
From October 12 the limit on the amount protected by a revised scheme will be $250,000, down from the present limit of $1 million for each investor.
Trustee Executors regional manager Yogesh Mody said "many investors" with deposits above the $250,000 limit in SCF had been "rearranging" their investments to get below that figure ahead of the deadline, media reported today.
"In some ways, this contributed to one of the core problems the company had been facing -- the lack of confidence by investors to reinvest or invest larger sums this year, notwithstanding the extended government guarantee."
SCF collapsed on Tuesday triggering a $1.6 billion payment to 35,000 depositors, and more to other lenders, which the Government will now try to retrieve from the sale of a business comprising $900 million performing loans, toxic loans and investments in Scales Corp, Helicopter Line and Dairy Holdings.
Meanwhile, The New Zealand Herald reported a source had seen SCF chief executive Sandy Maier on a flight on Tuesday evening leafing through a document which was identified as an "agreement for sale and purchase to sell South Canterbury Finance Ltd to Permanent Investments Ltd".
The newspaper said the document indicated a sale price of $2.65 a share, which was equivalent to $1.57b -- more than the amount Mr Maier yesterday said the company might fetch as a going concern.
Permanent was registered with the Companies Office in early August.
Mr Maier declined to discuss the document, saying he was bound by confidentiality.
The Herald reported businessman Duncan Saville, a former protege of corporate raider Sir Ron Brierley, had emerged as the frontrunner to buy SCF.
Mr Saville was said to be one of the three parties shortlisted as possible buyers of SCF before it went into receivership.
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Comments and questions8
What were the progress of working toward The "October 12" deadline?
A bad wokman always blame his tools!
"In some ways, this contributed to one of the core problems the company had been facing -- the lack of confidence by investors to reinvest or invest larger sums this year, notwithstanding the extended government guarantee."
Lack of confidence is a SYMPTOM, not a cause of SCF's problems. SCF's problem was that its equity position was exhausted while the trustee granted waivers and waiver extensions for breaches that the company had basically no chance to remedy. Although the directors have the most to answer for, the trustee has a lot to answer for as well.
What kills these companies is not investors reinvesting, but the essential greed to fuels investment in them in the first place. I just hope that all those property investors take a complete bath.
Of course the investors would need to reaarange their holdings to protect themselves.
It is absolute nonsense to raise this as in any way contributing to the failure.
AH should have sold SCF at age 70,and played around with his many other toys.
Instead,there was a horrendous lack of governance due to appointment of a management team which lent absolutely flamboyantly and recklessly.
We went through a thought pattern in the 90's where if you worked for a bank and you were over 45,your head was chopped off becayse you were perceives as not being in the mould as a salesperson.
And so we had McLeod and his contemporaries who were sales drive,motivated by commission driven remuneration.
That is how a car salesman or real estate salesman is remunerated.
The attraction of property investment is that you do not pay any tax on the increase in value.
As long as this distortion remains,people will invest in property.
Red Dog The Pirate Guy.
You are right. I spent 40 years in the Banking game. Hit 45 and unless we adopted the sales culture rather than being a "Banker" to our client(s) you were knee capped. The Bank's brought in non bankers as sales managers or recruited new business "managers" from the ranks of product sales people. No governance, no care, no responsibility, Lauchie Mc Leod was one of these "expert bankers" or supersalesman we called them. I survived by using my credit skills in turnaround management, risk averse , yes! for good reason.
It's pretty hard to do an accurate due diligence on any assets, and by focusing on slow and steady organic growth you end up with the right staff, the right lending customers and you know what you're getting."
South Canterbury's strength was in its diversified business by region and across sectors including rural, plant and equipment and business lending, as well as consumer and property.
Bosworth did not expect too much more disruption in the finance company sector, and no more large failures on the horizon.
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