English defends SCF bailout
Finance Minister Bill English says the government's response to the receivership of South Canterbury Finance (SCF) made an estimated net saving to the Crown of about $100 million.
Tuesday, September 7th 2010, 3:20PM
In a ministerial statement to Parliament he says during the period of the Deposit Guarantee Scheme, the Treasury and their advisors were in close contact with SCF and once it became apparent the firm was in difficulty, there were proposals either to acquire parts of the firm or to recapitalise.
"I instructed Treasury officials to work co-operatively with the firm on these options, however all effectively amounted to a bailout by the Crown, with extra cost and risk to taxpayers."
He says at no stage would the Treasury have recommended accepting any of these proposals.
At the request of its directors, SCF was placed in receivership on August 31. English says the ultimate cause was insolvency, not lack of liquidity.
He says the government then moved promptly to ensure that depositors could be repaid swiftly.
As well as repaying $1.6 billion of remaining depositors, the government extended a loan facility of $175 million to the receivers to ensure prompt repayment of prior charge holders, and extended the guarantee to a small number of previously ineligible depositors.
"These decisions were taken for commercial reasons," says English.
"They avoided the need to pay ongoing interest that otherwise would have accrued over many months or years as investors submitted claims and also the risk that receivership might be controlled by prior charge holders, to the potential disadvantage of the Crown."
Treasury estimates that the net saving to the Crown is about $100 million as a result.
English says the government's recent moves ensure that the receivership will be conducted in an orderly fashion that minimises disruption to businesses either financed or owned by South Canterbury Finance.
The receivers have, this week, called for expressions of interest from possible buyers of SCF's assets.
He says while the Crown has had to make good its guarantee to depositors, it will recover some of the proceeds out of receivership.
English estimates that when the fees collected from the wholesale and retail guarantee schemes are included, the net cost is likely to be between $300 - $400 million.
"While this cost to taxpayers is considerable, this expenditure did help prevent the potential collapse of the financial system," he says.
"In the light of ongoing bank bailouts around the world, this net cost is the premium our economy has paid to avoid potential catastrophic losses to the taxpayer over the last 18 months."
| « What to do with your South Canterbury money | TrustPower mulls $100m retail bond offer » |
Special Offers
Commenting is closed
|
|
Printable version |
|
Email to a friend |
