I'd have thought the answer was "No" - since the Treasury doesn't actually have to dish out the tax payer funds unless the finance company remains no longer propped...
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On reflection the answer is "yes". Would I give money to SCF without the $849m Treasury provision - no I wouldn't. If SCF does have the Extrended Guarantee would I? Yes (actaully I still won't) and without having to do any work. Why - because I know I'm going to get my money one way or another; either from SCF or the tax payer.
Now I understand the Govt set up the Guarantee to give Finance Cos a bit of breathing space and depositers some confidence during the GFC. But why should Tax payers prop up SCF when teh writing on the wall isn't that flash. Sure a guarantee to 2010 should probably remain - but to 2011 when S&P reckon SCF aren't doing enough fast enough?
Personally, I think the whole problem is that the original scheme was set up wrong. Easy to say with hindsight perhaps.
If we assume for the sake of argument that the scheme was necessary (I don't believe in them, but let's assume that), then it *should* have been setup with an automatic reducing effect in terms of the guarantee.
Something like:
Deposits made in Nov 2008 to Mar 2009 = 100% until 12 Oct 2010
Deposits made in Apr 2009 to Jun 2009 = 80% until 12 Jan 2011
Deposits made in Jul 2009 to Sep 2009 = 60% until 12 Apr 2011
Deposits made in Oct 2009 to Dec 2009 = 40% until 12 Jul 2011
Deposits made in Jan 2010 to Mar 2010 = 20% until 12 Oct 2011
Deposits made on or after 1 Apr 2010 = No guarantee
Fiddle with the variables, but that would have mitigated the massive wave of redemptions that have built up in early Oct 2010.
It would also have allowed people who saw their guarantee running out (on, say, 12 Oct 2010) to get out earlier (in agreement with the deposit taker) and re-deposit to a later date (good for the deposit taker's liquidity profile) and with a lesser but longer guarantee.
As I say, easy with hindsight, and perhaps 10 minutes of thought...
Alan.
I'm inclined to agree.
The difficulty I have with the EDGS now is that people like SCF can offer "loyalty boneses" on top of 8% to attract depositers knowing that the tax payer will be there to bail them out if need be. Depositers are attracted by the Guarantee - not by the Insitutions underlying offering.
SCF also has no incentive, in terms of the Guarantee, now to improve its credit rating. When it entered it was going to pay the max 150 points in fees. The government appears not to have thought about lowered Ratings post exteded scheme entry so now we have a B+ company paying the same fees as a more solid junk bond institution on BB. Surely a B+ would be worth another 50 - 100 points in fees?
Good points all.
However, it would provide an unfortunate positive feedback and potentially guarantee (!) that a failing institution was pushed under, since they couldn't get out of the scheme (for existing guarantees), and would be forced to pay the higher fees, making them less profitable, and less credit worthy, and lower rating, and higher fees, and .......
Alan.
Interesting development with a potential "Heartland Bank":
http://www.nzherald.co.nz/financial-...ectid=10648881
To my knowledge the ratings agency does not count the value of the gurantee in its ratings. This is because the guarantee is limited in its application, being for "mum & pop" holders only. As far as retail is concerned unless you hold more that $250,000 of bonds which mature before Dec 2011 the bonds should be considered "AAA" because that is the rating of the NZ government Guarantee in NZ currency.
I think the reason is that the guarantee was extended is that the crown could have the keys now or better later, the more time the private sector has to work out a solution the better (maier has until then to work out a capitalisation structure), more time to get value from distressed assets and a bit of "too big to bail/fail"
one old geeza I knew once said never put your money into a finance company that advertises on TV .... and another old sage once said if a finance company has meetings to tell investors whats going on you can kiss your money goodbye (was before the government stupidly guaranteed such investments)
So SCF having investor briefings
But you have to have to find the time to read the comments here ..... insightful ... probably
http://www.nbr.co.nz/article/investo...finance-124288
The Clark guy with two comments posted has for a long time been a devout supporter of SCF ... quickly responding to any who deride Hubbard or SCF .... how his tune has changed .... somebody has pointed out to him what is really going on
And too think that one day my hard earned tax payer dollars are probably to ensure the good old mums and dads get their money back
The NBR commentators are certainly very bearish on SCF. However, it is too early to start assessing the SCF books as if it were to cease trading. The NBR dudes must all be insolvency practitioners ...
We are still waiting for the signs that cash is flowing into SCF, which will save it ...
We have had some positive rumblings on 1) and 2) ... but nothing definite.Quote:
Originally Posted by Enumerate
Hence, it is too early to prepare the lapidary inscription for the SCF tombstone. It is also too early to commit capital to the high yield, speculative, SCF financial instruments.
An investor briefing for a scheme of arrangement is a completely different thing to the SCF investor briefing - which is about an inflow of capital.Quote:
Originally Posted by minimoke
While it is tragic that many people have had too bullish a view on the NZ finance sector; it will also lead to tragedy if people have too bearish as view. Fortunately, the market in exposed instruments (SCFHA and SCF010) seems to reflect a balanced sentiment. I'd begin to get interested in SCFHA at about 10cents; SCF010 at about 50cents on the dollar. Market prices are much better than this. It is this market sentiment that leads me to believe that the secured debenture rollover/issue is probably doing well.
Also, there seems to be some good news on items 2) and 3) of the "three signs":
http://www.stuff.co.nz/business/indu...ny-shareholder
This is a volatile situation ... market pricing will reflect a number of psychological factors as investors try and make sense (and cents) of the situation. I think maintaining a careful watch for developments (positive or negative) could lead to appropriate timing for entry to the high risk/high reward SCF instruments.
I'm not sure this Press release says much.
- Hubbard MAY find a new partner/shareholder by the end of August
- The Trust Deed breach MAY be fixed by 31 August
- There MAY be 5 intrerested buyers - but the price MAY not be right.
- Torchlight MAY have loaned up to $112.5m but sems to have settled on $100m
- The $100m MAY get approval from Treasury, SCF/Torchlight Boards, and Trustee because it is more debt, not equity.
- SCF may accept bids from other parties - but not if they are too low.
- Meetings in Timaru, Wellington, Ashburton (?) and Auckland MAY go ahead but they aren't finailsed.
- Investors MAY get to meet new Directors.
- Timaru investors MAY get to meet Hubbard.
Exactly, hence the word "seems".Quote:
Originally Posted by minimoke
However, there are clearly developments in advancing towards full resolution of 2) and 3). A "portfolio" of significant capital inflow opportunities is better than nothing.
SCF clearly has a viable plan for reconstruction. Further, they are clearly focused on the execution of this plan. Whether they succeed, or not, depends on the capital inflows "measured" by the "3 signs".
About 6 months ago they did not appear to have a viable plan. Execution of recovery seemed to be more about denial and fumbling about than any rational course of action. Things have changed at SCF, for the better. This much, I think we can all agree on.
The issue as to whether these changes are enough to keep SCF "away from the light" is still open. If you read the NBR commentators - SCF has "gone over to the other side". What these people do not understand is that a historical balance sheet can tell you about risk - but it cannot predict the future. SCF could actually trade with "effective" negative equity - this is a point I made earlier.
Cashflow, and only cashflow, can be used to predict the final outcome for SCF. Maier is a smart operator - he is dangling hints - but he would be a fool make this information public, even if it were unambiguously positive. If he can project a positive and confident "vibe" - the SCF reputation will do the rest - in terms of promoting cash inflows. Offering specific targets or timescales would carry high risk in terms of destruction of the "psychology" due to delays or variations.
As an investor - I want to see a complete "case" of evidence to invest. If I wanted 8% - the government guarantee gives me AAA confidence that I will see my capital back from SCF, for certain investment instruments. However, there is the possibility of taking more risk, in SCF, and making a much larger return. The "3 signs" are the basic elements of SCF recovery. At the moment the returns do not outweigh the risks. However, as investors, we should be trying to maintain an accurate view on the state of SCF - neither too bearish nor too bullish - but simply "accurate".
Agree with all your points Enumerate. It would certainly be innappriate for Maier to give too much substance to "hints" - but this leaves him stuck a bit between a rock and a hard place. Like while he is drip feeding positive hints, facts keep coming out - like the new S&P downgrade and the drop in Torchlight funds. I'm not sure trotting out Hubbard is necessaily one way of geting your positive message across - maybe its time for a bit of re-imaging.
8% is not bad for "AAA" but its not just getting your money back at 8% that is important - these depositors are helping keep SCF afloat in the meantime so they also should be thinking are they getting sufficient compensation for this favour. The SCF investors I know are putting their money into SCF soley to keep them going - they are all agreed their money will not be there at the expiry of the Govt Guarantee. Its probably a bit rhetorical but could that money be put to more productive use if it went to other Institutions? So its not necessarily cash flow which is the determining issue - it is cash flow after the Guarantee runs out.
There are of course other opportunites!