Some big winners from South Canterbury collapse
South Canterbury Finance chief executive Sandy Maier says there will have been some big winners from today’s receivership decision.
Speculators who had been buying the company’s tradable bonds at significant discounts could have made up to 30% to 40% on their punt, he said
“A lot of bets in the casino would have paid off today.”
He also described the immediate payout to debenture and bondholders as a massive infusion of equity in the market.
Mr Maier stated the amount covered under the government deposit guarantee at $2 billion (although Finance Minister Bill English said the amount was $1.6 billion). He said it included the amount owed to corporate investor George Kerr’s Torchlight with a first priority of about $100 million of the total $150 million amount that has first priority. But it also appears to include a group of unsecured depositors owed more than $100 million collectively.
The South Canterbury team had advised the government to keep the payout simple “and it looks like they’ve taken that advice on board,” Mr Maier said.
The government would now effectively become the main creditor of the company.
However, it would be able to fund the payout more cheaply at levels of about 3% rather than the 8% paid by South Canterbury “so they’ll pocket the difference of about $100 million a year.”
The losers in today’s announcement will be all shareholders including founders Alan and Jean Hubbard. Mr Maier acknowledged it would be a bad day for the Hubbards, with whom he had retained a professional working relationship.
“It’s not a good news story for Alan.”
He described South Canterbury Finance as an iconic New Zealand company with long service to the rural sector. When he took over nine months ago he was attempting to bring in new governance rules and correct a lot of problems.
The receivership would have been more negative if the company had continued with vigorous lending “but we’ve pulled back to lending on equipment and plant.”
A great deal has been achieved, he said. Since January, when South Canterbury was looking at having to repay $1 billion of maturities, that amount had been reduced to $300 million by collecting outstanding loans and repaying investors. The company would have needed between $100 million and $300 million in new equity to continue.
But a couple of things had derailed the process. Some problems turned out to be deeper that anyone could have imagined. The timing of refunds had been difficult and the statutory management of Alan and Jean Hubbard had affected confidence.
“We started the process in February to look for equity. We received some from local sources and from the Hubbards. We went on an international search with about a dozen parties whittled down to three. One was a South East Asian fund; another was a mix of international and local interests.”
But South Canterbury had an August 31 deadline from trustees and faced a “wall of maturities” in October. Mr Maier said he would not have wanted to be in a position where funds had run out and investors were not protected by the government deposit guarantee scheme.
In the end, the South Canterbury team had been unable to achieve agreement on price with the interested parties.
He told NBR that the company had about $300 million of property and would have settled for $200 million.
“We were offered $35 million. At that point you say ‘good bye’ it would have been irresponsible.”
Mr Maier said there had been a lot of speculation about a bailout from the Government but South Canterbury had never sought equity.
The deposit guarantee that had been put in place by governments around the world was simple and clear.
“It’s had a lot of unintended consequences but undoubtedly has kept South Canterbury alive. In our talks with potential buyers we had to take these things into account.”
But the business of the finance company has not “disappeared in a puff of smoke” and would continue under the receiver, he said.
The decision to call in receivers had been made yesterday even though negotiations continued into the early hours of this morning and he had kept Prime Minister John Key informed.
Since his appointment as chief executive nine months ago the $700 million of “toxic loans” had been separated into a “bad bank” with the remaining $900 million of good loans being managed as usual by a special division based in Christchurch.
There were also the three healthy subsidiaries – Helicopters NZ, Scales Corporation and Dairy Holdings.
Borrowers would continue to work them off in the usual way. Most lenders and investors were in Otago and Canterbury, particularly Timaru.
“What was there is still there. The pockets have changed.”
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Comments and questions22
Very happy as a taxpayer in this outcome (NOT!). I didn't want my money going into South Canterbury since I thought it was an inevitable failure. Having my tax money used to bail out people that chose to put money in that company to earn high interest rather than a bank is absolutely insulting, the smart bailing out the greedy. Was the government guarantee sensible? No. Was it political? Of course. I expect that the poor "ma and pop" investors that equally decided to lose their money on high return Bridgecorp, Five Star and Hanover investments could rightfully feel aggrieved in the support they got from government agencies and the fact that they weren't in the same rural farming community voting demographic as South Canterbury. Certainly, I expect that the Timaru community that has been so vocal in support of Mr. Hubbard and his associated financial entities won't be that keen on directly reaching into their pockets and helping us taxpayers that don't live in the South Island avoid having our money wasted in this fashion. Very sorry I voted National at the last election. I thought they had some commercial acumen. Just populists like everyone else. Shame on you!
I can not believe the Government Guarantee is 100%.
The exisiting qualifications should be in place, i.e. no foreginers and a limit on maximium return.
This is Totally Corrupt.
John Key must be giving some kickbacks to his offshore banker mates.
What about PGG/Torchlight as a BIG winner too. Well looked after by their past Chairman Mr Bayliss no doubt. How much did they get back from their little investment...at 14 or 15% or more , they will be drinking fine wine tonite.
The SI old boys have cracked this weak Government wide open...the new supposedly "top notch" SI directors appointed in 2009 have done nothing....seems the better the pedigree the more bad luck their gambling attracted. Perhaps the question should be asked....ring fencing Oct 2009 and forwrad what improvements did Bayliss McLauchlin and Shale add. Very Honourable like Mr Hubbard but also totally ineffective !!!
you two posters above are pathetic..end of story!
Again I ask where is Humphrey Rolleston in all of this and how much did he get out with?
Christchurch Press September 2004:
A 16-year partnership in South Canterbury Finance (SCF) between dynamic Canterbury business duo Humphry Rolleston and Allan Hubbard is over.
SCF joint owner Rolleston has unexpectedly quit the Timaru consumer finance lending company.
The Christchurch businessman and director has sold his 23 per cent stake in the Southbury Group, the owner of SCF, to the charitable trust set up by Timaru multimillionaire philanthropist Hubbard.
SCF, established in 1926, is a wholly-owned subsidiary of the Southbury Group. Rolleston said the transaction also included his share of Helicopters New Zealand -- another wholly-owned Southbury subsidiary -- and Scales Corporation. …
Agree with the sentiment here but I think the guarantee scheme itself was probably still a sensible bet, the risk of not doing it was probably higher, although it should have been limited to capital, not interest. Also, love the north vs south rivalry thing, but I live in the south island and I can assure you I am not damn happier than someone who lives in Kaitaia. I can also tell you that most people down here feel the same and don't really want to take ownership of Hubbard any more than an Aucklander wants to be associated with Petricevic
At the risk of repeating myself for the umteenth time,anyone who ever invested in Bridgecorp on their own account has rocks in their head.
Roddy Baby was down here in the 80's and he was into the corporate jet stuff and had a boy to carry higs bags.
A standing joke from way back just a crook.
Quaffing champagne at the America's cup, had a corporate yacht at which he entertained all the ticket clippers at the America's cup.
As for Hanover,who would invest with the psuedo playboy types that were running that outfit.
If you see big spenders like that,you know someone is paying for it,and so it proved.
Flash Harry stuff might impress some people,but not me.
Their name was mud around Queenstown a long time before they went under.
Hubbard lasted because he had the backing of Forbar and alot of olde money,as demonstrated by the Aorangi/HMF Funds which people entrusted to.
He had an image which appealed to conservative people.
I've worked in commerce for decades and I've seen how banking has evolved over that time.
The major banks have made lots od bad lending decisions in the last ten years,but by and large they have been to borrowers in a stronger position than what SCF lent to.
The bad loans have arisen due to performance targets set for those selling money on behalf of banks,on commission.
So when you take a finance company which is taking on loans which the major banks don't want,and you have money sellers selling on commission to all sorts of high risk borrowers,without proper governance,what do you expect ?
The large farm loans I have seen the likes of Marac and PGG Wrightson Finance make to people who would not source loans through one of the major banks,make me nervous enough about investing with them.
Instead of sleeping I did a bit of digging and found this article confirming what Humphrey Rolleston got.... the answer, as Hubbard said, is "a lot"
Hubbard writes big cheque to Rolleston
By Chris Hutching
Friday 3rd September 2004
A 22-year long partnership between millionaire Cantabrian businessmen Humphry Rolleston, 53, and Alan Hubbard, 73, ended this week when Rolleston sold his 23% stake in their holding company Southbury Group for what is understood to be a little over $40 million.
Southbury Group owns South Canterbury Finance (with asset of $735 million and equity of $62 million) and the two men had shared interests in Helicopters New Zealand, Broadway Industries and Scales Corporation.
Rumours about the separation of their interests have been rife in the Christchurch business community recently and when NBR asked about the rumours last week, Rolleston denied any personal falling out.
People close to the action suggest he may be focusing more on his relationship with one of Canterbury's younger businessman, George Gould, who has been involved in several market plays recently, including Vertex and Mike Pero Mortgages.
This week Rolleston prepared a brief statement, handed it to his secretary for distribution and left with his wife for a two-month break in southern Europe.
Timaru-based Hubbard declined to say exactly how large a cheque he wrote for Rolleston but said it was a big one.
"He won't be short of income for a while."
Hubbard said the two men first met in the 1970s when he funded a property venture that Rolleston and his then business partner Tom Kain were involved in.
"After it was over, Humphry decided he was going to go to Queensland but I suggested he stick around and we could do some things together. Over the years the growth of the business was a mutual thing.
"Recently he approached me and said he wanted to travel more and spend a bit more time with the family.
"It would have been difficult to find an outside buyer and I'm a kind of benevolent person so we just sat down and worked it out."
Hubbard said as well as a cash consideration there were a couple of "contras" where they divvied up some assets.
In their joint statement this week the pair said the transaction would allow Hubbard to expand his charitable planning programme.
The losers in today’s announcement will be all shareholders including founders Alan and Jean Hubbard. Mr Maier acknowledged it would be a bad day for the Hubbards, with whom he had retained a professional working relationship. - ITS the average Joe earning $35K a year or less having his taxes bail this company ... they are the real losers in this!! I'm sure the Hubbards have a trust fund that would make most people envious!!!
Bad loans were the main reason for its downfall, and Mr Maier revealed the high risk tactic in an interview on TV3`s Campbell Live programme.
Asked whether it had been cynically exploiting the government guarantee, Mr Maier replied: "It might have been cynical, it might have been merely incompetent... it probably violated a lot of prudent lending criteria."
He said he didn't know exactly why it had happened.
"Personal egotism, misreading, out of control... whatever it was, there's no real positive name for it," he said.
Biggest winner?
The gentleman who picked 31st August in the SCF receivership swepstake! Congratulations to him and thanks for "Saint "Allan for making it all possible.
AHseems to have missed the point 1000's of unhappy hard working tax payers are getting BS ... why why why!! Poor management of SCF and a lack of process more likely... blaming the SFO or government.. poor form. Why did you bother signing up to the GG? Let me speculate why, things where already going down hill and you knew it!! Otherwise why out tax payers at a 1.6billion dollar risk??
So Mr English wants me to say thanks for spending my money (without my permission although I would have granted it) to bail out a finance company in which I had invested in.
Can someone explain exactly was the $175m has been provided for - they mention to repay debts - are they referring to Kerr etc or general creditors - they are clearly wanting to make this a very tidy receivership enabling the business to be tidied up and made available for purchase by another party asap - maybe G Kerr will have a deal done within days??
They should erect a sign at the boundary
The reason for implementing the Government guarantee was to prevent a run on banking institutions.
But if everyone realise that Risk has been outlawed and that any bank deposits should be quickly transfered to a higher paying Finance company signed to the Government guarantee. Why would any investor put money into low yielding government bonds when the risk profile is the same at Finance companies.
New Zealanders need to stand up and simply say NO to Government intervention. We need to vote with our Tax. How is the ird going to collect if everyone who disagrees with the bailout simply don't pay tax this year.
A quick calc reveals Maddoff lost a net NZ$26M of investors money - thats NZ$84 per capita in the US. Hubbards much superior Ponzi scheme has lost $136 per capita - and that is assuming only the $600M is lost.
Add in preference shareholders and other Hubbard companies it could baloon to $1B - about $230 per capita! About 3 times Maddoff feeble effort - crowning Alan Hubbard THE NEW PONZI KING!!!!!
Will the IRD be lining up to tax those that have made speculative profits on the bonds so the rest of us get some much need tax relief.
What goes around must surely come around.
The term Ponzi should be replaced by HUBBARD scheme
Norm says : if government (or insurance) is to guarantee risk, it should be incomplete – perhaps 90c per $1 – to leave some price signal. I agree.
That tells investors they will not get 100% even in a bailout. And it would save government 10%. Now why does government not think of that. Oh yes ... buying votes with someone else's money has no limits.
Bring back Labour. they were more conservative.
Why oh why do everyone always jump to saying bring back Labour when Nats are in power or bring back Nats when Labour is in power.
If everyone actually voted for the policies that they want then we would have a government that we actually want. There are political parties that would never do such a thing like the "Libertarian" Imaging a situation where we had the Libertarians as big as Act are now and Act as big as the Nats, Now that is a country worth working in.
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