How wrong!
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Some interesting points, Balance ...
I would draw your attention to the fact that related party transactions are not illegal or even commercially unsound - they simply have to be declared. For example, Scales borrowed short to fund various phases of the apple harvest. This is related party but also commercially viable.
Even the situation in which, say, SCF loans Southbury amounts for purchase of investments secured by Southbury's equity stake in SCF - is not illegal, nor necessarily commercially unsound. If you analyse the banking industry - some of these "circular" practices are common.
The key failing with these structures is their sensitivity to changes in risk profiles. Once people begin to imagine the possibility of SCF equity being worthless, for example, this makes Southbury loans vulnerable (as they are secured by this equity) which further precipitates the collapse of SCF.
In these situations, like in the case of bank runs, it is imperative a rational estimate of risk be maintained and that nothing is done to destabilise the situation (or, if collapse is inevitable - rapid moves to freeze status quo and sort out a new ownership structure).
The NZ government, in dealing with the SCF did practically everything wrong.
The government guarantee for the non-bank retail deposits meant that they were going to pay the piper at the worst outcome. Treasury nervousness over this exposure lead to heightened scrutiny of SCF activities. A degree of "group think" probably emerged sustaining the view that Hubbard was conducting a Ponzi scheme or similar high risk irregularity. The regulatory and enforcement entities, that had failed so completely to prevent massive carnage in the sector up to that point, went into a state of heightened paranoia to close the "gate" on finance company failure after all the "horses" had bolted.
The move to put Hubbard into Statutory Management was profoundly stupid.
Despite the innuendo and Statutory Management mis-step, Sandy Meier managed to pull rabbit after rabbit out of the hat. The Hubbard equity assets, partitioning off the "bad bank", the assurances about the deposit rates, the stabilisation of the management team. All the right moves strategically - well communicated - with confidence.
Government, however, moved to a deeper state of panic and fear. Statutory Management of Hubbard, the insane blocking of the restructuring efforts, the sole focus on liquidation realisation of SCF assets in Treasury dialogues - meant that government lost its nerve and was moving to amplify the negative effects of the retail deposit guarantee scheme - almost unconsciously.
To be fair, none of the government people have any real commercial experience. They are usually ex-policy wonks; even those economists with commercial experience are not cut from the same cloth as experienced global central bankers. The Wellington talent gene pool is simply to small to expect leadership, at an appropriate level, to emerge from the people involved. They did what public servants do - imagine the worst and manage with a least risk path.
Of all the people in the mix - you would expect John Key to have some intuition of the deepening crisis. However, it was Power and English who called the shots. Power is probably bright but took too narrow a securities regulation focus; English had the wider focus but did not see the crisis mechanism brewing - together, they presided over a disaster. It is probably no coincidence that the key stumbling points of the crisis occur when Key is out of the country.
In the final analysis - the SCF collapse is a massive NZ government "own goal". They alone took the key steps to destroy the securitisation value of the SCF equity - despite heroic efforts, outside government, to promote stability. This destruction of value will end up as the difference between the SCF recovery value and the retail bond guarantee value.
Of course, any screw up of this magnitude, in the NZ government public sector, needs to have a scape goat. The Treasury mandarins who failed to understand the brewing crisis mechanism and recommended or supported the most foolish response to it are now looking to the SFO to nail Allan Hubbard to their cross. The spin doctors are working overtime to create an appropriate moral background to distract and divert the fearsome force of public opinion well away from the real issues and well away from election time consciousness.
So, this will finally play out in the High Court of Timaru - a quiet regional backwater, perhaps. Well away from the untarnished reputations of those Wellington bureaucrats who failed at practically every step along this unfortunate path to disaster.
Anyone heard of Kerry Grass?
http://business.scoop.co.nz/2011/06/...%93-a-hubbard/
Seems big on opinion and short on fact
She has an impressive set of credentials - if you read her report to the end. In particular, her NEU experience stands out - this is the only investigative unit of government to respond to the collapse of the finance sector with distinction.
Her report is excellent. An excellent chronology and a coherent interpretation of events. I note you can get a copy from the Stand by Hubbard team.Quote:
Originally Posted by Regulatory Review - Kerry Grass
Totally incompetent rubbish from a has-been gun-for-hire. Not one single sentence on Hubbard's lending practices and related party transactions.
Excerpt : "Prior to the SFO investigation and statutory management, SCF’s principal, Allan Hubbard, held a reputation of high trust amongst the investment community. Their trust was well placed."
Trust well placed? 50 criminal charges with more likely to come?
Yes I had. Had also looked her and her company up on line.
You ever tried yoga?
"The Companies Office enquiries started and concluded within three weeks. It appears to have been rushed and I suspect that the allegations in the report were substantiated with innuendos and misinformation."
"The impact of statutory management on share value was demonstrated in 2001 when Air New Zealand’s share price fell by 40% in one day after media speculation that statutory managers might be appointed."
"Hubbard’s business acumen was built on integrity – not greed. An illustration of this is the operations of the TeTua Charitable Trust. Through that entity he provided loans with an interest-free period of up to 5-years."
"Hubbard’s business enterprises give an indication of the level of Hubbard’s expertise. That Hubbard was additionally managing one of NZ’s best performing funds in 2010 (as claimed by PriceWaterhouseCoopers) shows that Allan Hubbard was an astute businessman. When he was forced out of SCF in 2010 as a consequence of a management restructure (a condition required by Treasury) the pillar that was the strength of SCF went with him."
"It was recapitalising and had weathered the storms."
"On 20 June 2010... ....South Canterbury Finance was still standing and its good reputation was resulting in strong demand for its interest bearing products"
etc etc
I stand by my original observation.
Good for you ... I'll stand by Hubbard.Quote:
Originally Posted by Breastwork
Maybe you have a point, Balance ... he has certainly taken your credibility.Quote:
Originally Posted by Balance