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SCF an update:More damage than the likes of Hanover

30/08/2010

Bernard Hickey on TVNZ’s Breakfast this morning discussing the situation as then known. Hickey looks at possible impact on dairy industry especially land values.

This impact with potential knock on effects on commercial bank portfolios may well be a key issue exercising the minds of government ministers.

This afternoon SFO confirms that probe to continue.

Russel Norman gets into the game as well saying government should do as other countries did during the global financial crisis and takeover SFC. He swipes at Labour and National on free trade at the same time. SCF if not one previously has now become a political football.

Yet still Hubbard has supporters who believe he did no wrong.

Liam Dann, Herald business editor says Hubbard owes NZ an apology and his supporters are parochial and misguided. Dann argues as well that by allowing SCF to renew membership in the Deposit Guarantee scheme the government had some months ago effectively decided that SCF was ‘Too Big To Fail’.

Dann writes:-

By that point (Hubbard leaving SCF board) the Government had already effectively decided the company was too big to fail. That is the only sane reason it could have been allowed it to stay in the government guarantee scheme when it was extended.

So Hubbard’s debenture holders were given the luxury of a state guarantee – despite the fact that some of the lending this company did was every bit as convoluted and risky as that of other failed finance companies.

A point it seems many do not grasp. This problem is compounded as Dann notes because:-

When it is euphemistically said that South Canterbury failed to “stick to its knitting” it is the bad bank that people are talking about. That is also the bit that no white-knight investor wants to touch – so it threatens to sink the whole company. To put it in context, it is a bigger failure in its own right than Hanover.

The irony is that because South Canterbury is also a major lender to many productive agricultural businesses it is in danger doing far more damage to the national economy than the likes of Hanover ever could.

More damage than the likes of Hanover ever could.A shocking but to Adam’s mind appropriate statement.

This whole affair merits a full scale Commission of Inquiry into the parts played by regulators, investors, financial advisers, Hubbard et al. Indeed usefully an inquiry into the whole sorry mess that has been the finance company disaster that has swept New Zealand.

One Comment
  1. Adolf Fiinkensein permalink
    30/08/2010 17:47

    Forgive me for saying so but some of this commentary is unmitigated and unsubstantiated crap. Do you actually have the faintest idea how much debt is carried in the SI rural sector by SCF, SBS, Rabo, BNZ, Westpac and ANZ?

    There are no figures produced to indicate how many farms are exposed. Even if they are, they are not going to be sold off the day after tomorrow. They will continue to produce but some of the adventurous owners might find life a bit difficult for a while.

    From all accounts this outfit has been a dog for a long time and I wouldn’t be surprised if already it has forfeited its rights to any guarantee either by way of initial nondisclosure of material information of failure to adhere to the ongoing conditions of the scheme.

    What all parties need right now is a little less of the querulous and ill informed hyperbole which has been flying about today.

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