Editorials on SCF

The Herald:

In the end, South Canterbury Finance was not, as some had predicted, too big to fail.

The Government, quite correctly, resisted the temptation to support the recapitalisation of the country’s second-biggest finance company, consigning it to receivership. …

There was, however, no point in keeping South Canterbury Finance afloat. Bad governance and loan practices have destroyed a once strong brand.

The Press:

South Canterbury Finance’s decision to call in the receivers yesterday had an inevitability about it. …

But the investor repayments, and the fact that the receivership process means there will be no fire sale of assets or fast call-in of loans, should limit the economic, and perhaps political, fallout. This might otherwise have been more serious at a time when the economy is still fragile, a strong reason for the Government to act.

The Dom Post:

The failure of South Canterbury Finance is a tragedy – for founder Allan Hubbard, for South Island businesses and for taxpayers who must now make good the deposit guarantee made by the last government.

Mr Hubbard, 82, is no Mark Hotchin or Rod Petricevic. There are no multimillion-dollar mansions, flash cars or luxury yachts lurking in his cupboards. He lives in a modest Timaru bungalow and drives an ageing Volkswagen Beetle.

However, the $1.6 billion SCF owes investors is roughly three times the amount Mr Hotchin’s Hanover and Petricevic’s Bridgecorp each owed investors when they collapsed. …

It is time for the loyal band of letter-writing supporters who believe Mr Hubbard can do no wrong to bite their tongues. Their hero is decent, generous and well-intentioned. Earlier this year he put family assets worth more than $150m into SCF in an attempt to shore up its balance sheet. Those assets have now been lost.

The interim report of the statutory managers appointed to run his affairs, plus those of other companies and charities associated with him and his wife, Jean, suggests the acumen that made him the South Island’s richest man has deserted him. …

Many will wonder why the last government ever agreed to guarantee the deposits of investors who went looking for higher interest rates in finance companies. The answer is that both Labour and National, then in Opposition, considered the guarantee the lesser of two evils. Better payouts than the total collapse of the financial system. They may have been right, but the payouts announced yesterday still stick in the craw. This is not what we pay taxes for.

The Dom Post is on the money. It is easy in hindsight to say that one should not have had the guarantee scheme, but in late 2008 the wordl financial system was on the brink of possible collapse, and pretty much every OECD country did much the same as a stability measure.

The ODT:

But with SCF’s investors largely covered by the guarantee scheme, the Government chose to see it go into receivership at least in part so that it could have some degree of control over the impact of the company’s failure on the core South Island economy – and so the fallout could be managed, as far as possible, in an orderly manner.

SCF may be regarded as the biggest single South Island casualty of the recession, and without the greatest care by the receivers and the principal debtor – the taxpayer – the long-term consequences may be a chief cause of slowing the economic recovery.

Everyone in the South will hope that prospect can be avoided.

On the brighter side, some sensible reduction of rural land prices may eventually result from this failure, just as it appears to be occurring in the urban property market once the speculative bubble burst.

None of the four editorials are saying the Government should have stepped in to stop receivership, which is what some were urging.