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Distressed asset unit to manage failed finance company loans

Thursday 27th October 2011

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The government will set up a company to manage the distressed assets in the failed finance companies that called on the Crown’s retail deposit guarantee.

Finance Minister Bill English said the receiverships of South Canterbury Finance, Allied Nationwide Finance, Vision Securities, Mascot Finance, Mutual Finance and Rockforte Finance had reached a stage where all of the assets that can easily be sold have been.

The new unit will manage some $350 million of assets and save the government about $13 million over two years in cheaper management costs.

“Bringing these companies together will create economies of scale, allow the use of specialists in distressed assets across all six firms, reduce monitoring costs, and give the Crown greater control over the sales process,” English said in a statement.

The cost of setting up the company will be about $800,000.

The government has received about $523 million from the recoveries, most of which has come from SCF. Combined with the residual $350 million in distressed assets, that still leaves a shortfall of about $1.13 billion on the $2 billion of taxpayer support extended under the deposit guarantee scheme.

The news comes after the latest SCF receivers report showed the failed lender repaid $345 million to the government, having recovered some $262.6 million from loan book realisations in the six months ended Aug. 31. In the prior six month period it clawed back $238.7 million in repayments.

It paid the government back a further $50 million this month.

SCF contributed $209 million of the repayment to the government, while other entities in the group also made payments: Face Finance repaid $85 million, Helicopters NZ netted $43 million and the sale of investments held by Hornchurch led to an $8 million repayment, the report said.

In August, Japanese investment bank Nomura Holdings bought $123 million of loans from SCF for an undisclosed price. A stake in Scales Corp has also been sold for $44 million, along with $100 million of Face Finance loans for an undisclosed price.

Receivers Kerryn Down and William Black of McGrathNicol say the sale process for the firm’s last major asset, a one-third stake in Dairy Holdings, is progressing.

The lender, which was owned by the now-deceased Timaru businessman Allan Hubbard, called on the guarantee last year when it failed to attract a buyer, prompting the government to pay $1.78 billion to pay out all other creditors.

The forecast net cost of that call has ballooned from the initial $400 million to $500 million.

The Treasury’s handling of the guarantee received a pass mark in an Auditor General’s report earlier this month, though Lyn Provost said the government department could have taken a more hands-on role in trying to prevent failures and minimise the cost to taxpayers.

The Serious Fraud Office has yet to decide on whether it will pursue prosecution over SCF’s failure, and is looking at a handful of the lender’s transactions.

The white-collar crime investigator charged SCF owner Hubbard with 50 counts of fraud in relation to his investment vehicles Aorangi Securities and Hubbard Managed Funds, though it later dropped its prosecution after Hubbard’s death.

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