Allan Hubbard – TV3 Interview 22 September

Tv3 had an interview with Allan Hubbard on 60 minutes last night. Good PR for Hubbard, but little in the way of probing analysis.

SCF:Cunliffe, is he getting closer to the light?

Today we had another round in the gladiatorial contest between Bill English, Finance Minister and David Cunliffe, his Labour Shadow. Well we would have, but Mr English was not there, so that nice Mr Joyce came up to bat for him as substitute. Mr Cunliffe’s attempt to hold the question over until Mr english was available was denied by The Speaker.

The prime thrust of David Cunliffe’s focus for today was:–

Hon DAVID CUNLIFFE (Labour—New Lynn) to the Minister of Finance: Did Treasury evaluate the net effect on South Canterbury Finance’s position of the February 2010 acquisition of Helicopters (NZ) Ltd and Scales Corporation shares, including the effect of the transaction on the recoverability or impairment of South Canterbury Finance’s $75 million loan to its parent company, Southbury Group Ltd?

Now I think we may be getting to some meat on the bone, so to speak. Yet, will there be sufficient gnawing to bring out the marrow (new information)

The video is here:-

To my mind the approach to the question answer was interesting. The response was around how Treasury took the view that the question they were interested in was that if there was no impact on the position of SCF vis-a-vis Treasury. this leaves open whether in fact there were impacts on others.

Mr Cunliffe became somewhat frustrated by the straight bat presented by Mr Joyce, worthy of Geoff Boycott stonewalling in his heyday, at least as far as frustrating Mr Cunliffe was concerned. this perhaps led to the effective closing down by The Speaker of the issue today.

At the end I am not sure that Mr Cunliffe was on the right track re timeline. He might have been better focusing on the transaction re the acquisition of Scales and Helicopters NZ. Others have pointed out that as part of that deal SCF passed cash to Southbury.This at a time when SCF needed to raise cash.

Given the reference to valuation reports in the responses to the questions from Mr Cunliffe, it is to be hoped that these reports will be amongst those released in due course pursuant to Mr English’s undertaking of yesterday.

Anyway we have another round to look forward to at the next question time, when perhaps more information may come to light.

SCF:David Cunliffe continues to seek enlightenment

As I suspected David Cunliffe has embarked upon the ritual of using Question Time to raise a series of questions re SCF, no doubt hoping that the constant drip, drip approach will over time wear down his opponent and/or gain him a breakthrough – if of course there is one to be had. Plus of course trying to cause the Government pain and distress.

Today’s skirmish in the struggle between Cunliffe and Bill English can be seen here:-

Today was about when the view was reached that SCF would fail and whether statutory management as an option was explored.

Russel Norman of the Greens joined in as a player today.

My initial thoughts, based on a first viewing and reading of the material follow.

This extract was an interesting exchange:

Hon David Cunliffe: Approximately how much extra taxpayer liability would the Government have avoided if it had intervened in June 2009, and what was the rationale for incurring the additional taxpayer liability after that date?

Hon BILL ENGLISH: The first point I make is that even as late as early 2010 no one really had a good grip on the assets or liabilities of South Canterbury Finance. In fact it became clear, with KordaMentha’s involvement, that the Government had a better idea of that than the company itself did, until Mr Maier came on the job. The kind of calculation that the member is postulating never really occurred. The Government’s approach was, knowing that there was potentially a very large liability, to make sure the company had every opportunity to succeed so that there was no taxpayer liability. We made decisions along the way that did not, in our view, increase the taxpayer’s liability, yet gave the company the best opportunity to succeed. In the end the company did not succeed.

I find the comment about the Government having a better idea than the company of the position, quite fascinating. It suggests at the very least that governance was severely lacking. It calls into question the quality of fundamental business processes and basic internal control, when one hears/reads:-

Hon BILL ENGLISH: The first point I make is that even as late as early 2010 no one really had a good grip on the assets or liabilities of South Canterbury Finance.

Indeed, one might wonder just what the board of directors was doing to fulfil its stewardship role, if Bill English’s statement is correct. How long had that been the case is a question that also comes to my mind.

The statements made today, certainly seem to lend support to the comments I expressed the other day, some of which are below:-

To me, and in my opinion based on reading the article and other prior ones, plus other media comment, it reveals a pattern of:-

1. Lax or lacking governance

2. Poor internal control in certain areas

3 Dominance of process by one person, which is normally seen as a control weakness and business risk

4 Business processes inadequate for the scale of operation undertaken

5 Management weakness, as it could be inferred that to an extent lending operations were the province of individual fiefdoms, especially given Mr Maier’s comment on Lending Officer control.

The points above leading to a personal view that business risk was being incurred which was capable of being reduced and or avoided.

These thoughts are to my mind borne out by the comprehensive revision of past financial statements by Ernst & Young after their appointment – plus the fact that they queried whether SCF was a ‘going concern‘. It would be fascinating to know what was contained in any post audit letter on suggestions for improvement.

I tend to wonder about the role of the board of directors in all this. Just what reports and information were they receiving?

Russel Norman’s exchange with Bill English did bring out a couple of interesting points:-

Dr Russel Norman: Given the level of what we could only describe as fundamental uncertainty concerning some of the basic facts—that is, about whether the level of risky borrowing increased after the guarantee—why will the Minister not support having some kind of select committee inquiry or public inquiry into the events surrounding South Canterbury Finance’s failure, given the amount of public money involved?

Hon BILL ENGLISH: In the end that is a matter for the select committee. The Government will, when we have the time and the resource, issue all the documents related to the scheme that we can. That will give the member, along with anyone else, the opportunity to scrutinise all the relevant information and decide which further questions need to be answered

This seems to suggest that whilst at this time Government is not proposing to hold an inquiry, a mistake in my view, as I think a wide-ranging inquiry performed by appropriately qualified persons outside the political process into the whole finance company mess not just SCF would be best, there is nothing to stop an appropriate Select Committee undertaking an inquiry. However, as we saw with US Congressional Hearings into the Gulf of Mexico oil spill such inquiries tend to be more of a political grandstanding opportunity than a reasoned and objective look at the facts. Hopefully, any inquiry by a select committee in NZ would not degenerate into a partisan mud-slinging contest.

It was heartening as well that Bill English is on record regarding the making available of all information, albeit with a caveat which might cause restrictions on availability in due course.

I look forward with interest to the next instalment . Watch this space as they say!

More on the Bank of Allan

Rebecca Macfie, Listener writer and author of two previous articles on Allan Hubbard – A South Canterbury Tale and Counting the Cost has  another article on the Bank of Allan in the new issue of The Listener, not on line as yet.

This article entitled – A law unto himself – has the lead in:-

Allan Hubbard thought only he could save South Canterbury Finance, but insiders had been challenging him for years. Rebecca Macfie looks at what was really going on.

Interestingly as the Hubbard saga has progressed the tone of Macfie’s articles has become more questioning of the Hubbard myth.

Macfie’s article leads me to think that Hubbard ran SCF very much as a personal fiefdom. These comments in the article certainly seem to suggest so:-

extract #1 Rebecca Macfie - NZ Listener 18 - 24 Sept 2010

This relates to 2004 after the departure of his partner Mr Rolleston. Now why would the controlling shareholder and key director come in and open all the mail? It defies logic, especially given that SCF was not a small operation by then.

Then Ms Macfie reveals later in the article:-

extract #2 - Rebecca Macfie - NZ Listener 18-24 September 2010

So as late as the end of 2009 Hubbard was controlling loans and accounting for them in a ledger he kept personally. This seems to somewhat contradict an impression put about by Mr Hubbard’s supporters that all the problems were down to someone else. Though at this time we do not know whether the Hubbard ‘hard ledger’ was where all the ‘good loans’ were.

Hardly sound governance I would suggest, nor normal business practice. The term ‘hard ledger’ suggest to me that it was hand written. Furthermore, questions arise in my mind as to how it was integrated into the enterprise’s overall books of account and whether best practice internal control was exercised. I wonder what the auditors made of this practice?

Then Ms Macfie turns her attention to the question of Aorangi Securities, on which the statutory managers have had quite a lot to say. So has Mr Hubbard who refutes their statements. Yet, Ms Macfie writes:-

extract #3 - Rebecca Macfie - NZ Listener 18-24 September 2010

This seems to be in conflict with much that has been said by Hubbard in more recent times.

The article repays reading.

Some Thoughts:-

To me, and in my opinion based on reading the article and other prior ones, plus other media comment, it reveals a pattern of:-

1. Lax or lacking governance

2. Poor internal control in certain areas

3 Dominance of process by one person, which is normally seen as a control weakness and business risk

4 Business processes inadequate for the scale of operation undertaken

5 Management weakness, as it could be inferred that to an extent lending operations were the province of indvidual fiefdoms, especially given Mr Maier’s comment on Lending Officer control.

The points above leading to a personal view that business risk was being incurred which was capable of being reduced and or avoided.

These thoughts are to my mind borne out by the comprehensive revision of past financial statements by Ernst & Young after their appointment – plus the fact that they queried whether SCF was a ‘going concern‘. It would be fascinating to know what was contained in any post audit letter on suggestions for improvement.

It would be fascinating as well to know what KordaMentha had been reporting to Treasury in respect of the way in which SCF had conducted business.

I tend to wonder about the role of the board of directors in all this. Just what reports and information were they receiving? After all as Cadbury stated in 1992 (Sir Adrian Cadbury’s seminal report on corporate governance in the UK):-

Corporate governance is the system by which companies are directed and controlled. Boards of directors are responsible for the governance of their companies.  The shareholders’ role in governance is to appoint the directors and the auditors and to satisfy themselves that an appropriate governance structure is in place.  The responsibilities of the board include setting the company’s strategic aims, providing the leadership to put them into effect, supervising the management of the business and reporting to shareholders on their stewardship. The board’s actions are subject to laws, regulations and the shareholders in general meeting.

It has been axiomatic for some time, I believe, that this means ensuring that there is an appropriate level of information for the supervisory role to be effectively performed. In addition that management must have put in place the processes which are appropriate to enable informed decision making to take place. Such processes would not, I suggest, include the chairman opening the mail and keeping a hand written loan book, which it would appear he kept very much under his close personal control.

In my view, there is much to suggest that Corporate Governance as defined by Cadbury was not as rigourous as it should have been.

I suspect that there is much more to emerge as to how SCF conducted business and how decisions were made.

Sandy Maier discusses the SCF receivership

Sandy Maier, CEO of South Canterbury Finance, in NZ Herald video talking about the receivership

He has some interesting comments on what happened. Useful comments on both the good and bad bits of the group.

Some Thoughts on SCF

Today I have been trying to absorb all the material that has become available. It keeps increasing all the time.

This affair is going to run and run as they say.

Recriminations all over the place.

I will be posting on SCF, but it will take some time to work out what I want to say.

Also it appears that some are rushing to get their viewpoint out there.

SCF Receivership – Some Initial Thoughts

Have not had time to assimilate all the comment, let alone conjecture flying about re SCF, but Bernard Hickey offers some commentary on what he thinks it means for the conomy in particular the dairy industry in the South Island.

His written piece is here.

I suspect argument over whether this would have happened if Allan Hubbard had stayed in charge is going to rage for a while. Hubbard appears to be stoking the fires a bit on this issue . Further, I suspect that some will for whatever reason see the demise of SCF as some sort of’ big end of town’ plot. Look forward to a raft of conspiracy theories.

Given my thoughts the other day on whether the government would grasp the political nettle on this issue, it is good to see that they have not attempted to prop the company up. Though there will no doubt be a lot of squeals of indignation from those who were investors in other failed finance companies.

Some (Initial) Thoughts:-

1.More importantly as the carcass is picked over I hope that an examination will be made so as to establish just what did go wrong.

2.It will be interesting to see what direction the receivers take and how agressive they are in collecting the debts due to SCF

3.Will there be a knock-on effect as other lenders to SCF borrowers, who may rank more highly as regards security seek to protect their position creating a spiral of receiverships and liquidations

4.Trustees Executors Ltd have called in the receivers at SCF request, but given that the NZ Government have paid some $1.7 billion over, who will actually be calling the shots in the receivership

5. Hubbard interests control or have loans it appears to some 90+ dairy farms, a number of which, it is speculated, are relatively highly geared conversions. If these have to be sold up :-

a) What will be the receivers attitude (and indeed the governments) if the highest bids are opportunistic ones from overseas investors, eg China?; when some $1.7 billion of taxpayer money has been used to recompense SCF depositors and NZ is borrowing $250 million from overseas lenders each week.

b) Will the majority of taxpayers be prepared to see lower bids from NZ interests accepted and thus effectively subsidised?;

c) Will they want the government to minimise the loss of taxpayer money?

More Thoughts on SCF

Bernard Hickey in his daily commentary says that Cabinet is reviewing possible rescue of SCF. Hickey’s published commentary includes this:-

The option understood to be before the government is for the government to buy South Canterbury’s bad loans, the so-called bad bank, which would allow the new owners to recapitalise the ‘good bank’.

BusinessDay reports that Sydney based investor Duncan Saville, who is Infratil’s largest investor and is involved with potential Allied Nationwide rescuer Resimac, was the bidder behind the recapitalisation plan before the government.

However, Allan Hubbard told Patrick Smellie at Business Desk the Treasury had recommended the government not go ahead with such a ‘bad bank’ purchase. Finance Minister Bill English was cagey in an interview on TVNZ’s Q&A on Sunday, as was Prime Minister John Key on TVNZ’s Breakfast this morning.

There is coverage as well in the NZ Herald on SCF and on the SFO investigation. Audio reports as well at Morning Report where an analysts sees bailout unlikely  and comments by SCF CEO Sandy Maier who says bids are on table but no government deal, plus this Mike Hosking piece at  Newstalk ZB. Kiwiblog comments here.

Some Thoughts:-

1.Presently the situation is unclear, perhaps we will know more at the end of today.

2. Reading various reports it would appear the position as to the contents of the PWC report is unclear.

3. The SFO is expected to indicate the direction it will go in this week.

4. Whatever happens many people will be upset/disappointed by the decisions taken

Pressure on government to save SCF increases

There is an NZPA story on the NZ Herald website which would appear to lend some credence to the Greg Ninness story in today’s Sunday Star Times, which I commented on earlier today. A major source would appear to be Allan Hubbard, who appeared as well with similar news on the TV3 evening news.

Bill English on TVNZ’s Q&A this morning confirmed SCF would be discussed at Monday’s Cabinet meeting.

Pressure would appear to be mounting on the Key government.

Federated Farmers has now, according to the NZPA article referenced above, started to exert some pressure:-

The $2 billion company has widespread investments in the South Island’s economy and is a lifeline for many farmers.

Federated Farmers president Don Nicolson said the impact of a collapse would be severe.

“The cascade of a meltdown will not only be felt inside the farm gate but outside the farm gate through the investors and the communities of the region,” he said.

Further, Labour spokesperson on commerce and South Island MP Lianne Dalziel has commented that the government is not responding to questions she has raised. Ms Dalziel has suggested as well that some of the terms of the Deposit Guarantee Scheme have been changed:-

“I was told the Government does not comment on individual entities participating in the Retail Deposit Guarantee Scheme,” she said.

“Although investors have the comfort of the government guarantee, the Government seems to have changed some of the rules of eligibility behind the scenes and the protection may not be there for some who think they can rely on it.”

Exactly what the import, if any, of that comment remains to be seen.

Clearly though pressure for resolution is mounting.

Furthermore, the Hubbard camp would appear to have gone on the front foot in recent days in PR terms.

SCF: The case for putting it down

David Hillary takes a hard look at SCF and the case or non-case for a bailout.

He comes to the conclusion that there is no rational reason to bail SCF out.

Rather than précis David’s very lucid post, read it in full. The time taken is well worth it.

As David concludes his eloquent post:-

Come on John Key and Bill English and Treasury boffins: be brave, do what’s right and clean this fiasco up without any further delay!