Prime Minister John Key yesterday released a revised cost estimate for the government's retail deposit guarantee scheme – while criticising the scheme's initial design.
He also confirmed that moves have been made to sell South Canterbury off.
Mr Key told media at his post-Cabinet press conference yesterday that the net cost of the retail deposit guarantee scheme to taxpayers is now considered to be about $300-$400m.
He broke the figures down as follows:
- no more than $900m to cover all the companies covered in the retail deposit scheme;
- $100m saved by the Crown's move to buy out South Canterbury depositors;
- a combined $400-$500m in fees paid by companies to be part of the retail deposit scheme and wholesale funding guarantee facility.
Mr Key said yesterday that the Crown had largely collected on the $200-$250m in fees from retail deposit scheme participants.
Once an additional $200-$250m from wholesale guarantee participants is collected, this will take the net combined cost of the schemes down to $300-$400m.
No claims were made on the wholesale guarantee scheme, which expired on 30 April.
Mr Key was scathing in his criticism of the original retail deposit scheme’s fee structure.
“The one thing that was just plain downright dumb was the way the scheme was established, in that they didn’t charge fees to smaller players aka the finance companies, but they did for the commercial banks.”
"We changed that when we extended the scheme, but the crazy thing was that the South Canterburys of the world went into the scheme and didn't pay virtually anything for it."
The scheme was initially free for those with deposits under $5 billion while those with over $5 billion were charged 10 basis points per annum on their deposits.
Within the week, the RBNZ and Treasury tweaked the scheme to charge smaller companies a fee based on cumulative deposit book growth and credit rating.
NBR reported in April that South Canterbury would have paid about $2.25m per month to be part of the extended scheme from October.
Mr Key said that, given acute risks to the financial and banking system in late 2008, the government is satisfied that establishing and maintaining the guarantee scheme was the right move.
A collapse in confidence and a flight of funds to overseas deposit guarantee schemes would have left the taxpayer with a significantly higher bill, he said.
Looking for buyers
Mr Key said that the total - but partially recoverable - cost of buying out South Canterbury depositors remains at $1.6b-$1.7b, plus a $175m loan to debt investors with ‘prior charges’, including Torchlight.
The net loss from the buy-out is expected to fall to between $500-$600m once assets and the loan are recovered. The exact figure will depend on whether South Canterbury can be sold as a going concern.
Mr Key confirmed that, from yesterday, South Canterbury’s receivers are calling for expressions of interest from buyers.
“We would prefer that the assets be sold as a going concern although we have an open mind about the shape that any bids might take,” he said.
Nina Fowler
Tue, 07 Sep 2010