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Finance company gets bailout

Company bailouts. Image: Getty

Some things just make your blood boil. I don't begrudge people claiming their lost savings from investing with failed South Canterbury Finance. But why should my government help out a business that overindulged in risky loans when it was already obvious they were well in trouble when they joined the bailout scheme? Especially when there are plenty of other people who lost out completely through investing with other failed finance companies. Do Hanover and Blue Chip ring any bells?

South Canterbury Finance had lent heavily in Auckland's real estate and hospitality industry, the New Zealand Herald reported. Lenin Bar, Minus 5 and Dakota Bar on Princess Wharf and O'Carrolls Irish bar in Vulcan Lane received $1.9 million in loans.

All the while, the finance company glided along on its "iconic" South Island reputation with "decades long service to the rural sector", as CEO Sandy Maier described it at a recent media conference. The Auckland bars were all sold as going concerns when the businesses that owed money on them went into receivership, getting only $433,000 in loan money back.

Maier came into his job only nine months ago, in an attempt to "put things on the rails" and correct a lot of things that weren't "right". The finance company eventually called a halt to the business on September 2, stiffing the New Zealand taxpayer by $1.78 billion in the form of a bailout for bondholders and depositors. That's more than the government spends each year on ACC or the police. The payout came from the government's retail deposit guarantee scheme, established in 2008 at the height of the global economic meltdown.

Once South Canterbury Finance joined the scheme and knew they were relatively safe, they started taking more risk with investors' money. When asked whether the company had cynically exploited the government scheme, Maier admitted "it might have been cynical, it might have been merely incompetent … It probably violated a lot of prudent lending criteria." He says perhaps it was egotism or a company being out of control. "South Canterbury Finance was poorly controlled and managed for some time."

That's reassuring for everyone out there who has lost money investing in locally run companies rather than the overseas-owned banks.

User comments
I do not think the government should bail out this or any company. Will any money given to them repay the money they owe or be put into other risky investments. The government would be better off putting that money into something else like the people affected by the earthquake. The Christchurch is going through is an act of nature and not as a result of someone being too gready.
This is just the New Zealand version of the previous foreign bail outs, where nobody who is rich is allowed to lose money. Ever. The whole idea of distorting the market by not allowing bad businesses to go out of business is what's causing the growing inequalities between rich and poor. It's stifling competition, and creating a scenario where an elite group of people believe they can invest with no care whatsoever, and always win. Because the tax payers will have to pay for their mistakes. And more disturbingly, it's responsible for the rapidly growing militia's and resistance movements in the USA and Europe. Establishing and protecting an elite group of people, at the expense of everybody else leads to revolution. It always has. If they made bad loans, then they need to go out of business. End of story.
I am sick and tired of bussinessmen rorting the investors and taxpayers.they have access to the finances and know how to minipulate the system.Veary easy to do if you control the chequebook.What I can not understand why checks were not done when they signed up to the guarantee scheme.Where is the due diligence?Personally I think it is legalized theft !!

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