John Key sees net cost of finance company failures, including SCF, of NZ$300 mln to NZ$400 mln

6th Sep 10, 6:02pm by Alex Tarrant

Prime Minister John Key has estimated the net cost to taxpayers from all finance company failures, including South Canterbury Finance, is likely to be around NZ$300 million to NZ$400 million.

(Update 1 adds Key's comments on guarantee.)

Key also hit out at how the retail deposit guarantee scheme was set up, with the likes of South Canterbury and other failed finance companies not initially paying any fees for the guarantee they ended up triggering, while fees charged to the banks meant they paid for the failed companies.

Key told a news conference after the Cabinet's weekly meeting that fees raised by the government's retail and wholesale deposit guarantee schemes were around NZ$500 million, helping to offset net losses expected from South Canterbury Finance of around NZ$600 million and the costs of other failures including Mascot Finance and Allied Nationwide Finance.

The government had made a provision in its accounts of about NZ$900 million for the scheme, which it still stood by, Key said.

"The retail deposit guarantee scheme fees have largely been received by the crown – they are in the order of around NZ$200 million to NZ$250 million. There’s a further NZ$200-$250 million that comes in from the wholesale guarantee scheme, and when that’s finally paid that will earn us about NZ$465-NZ$500 million," Key said.

"So the net cost to the crown for the entire scheme is somewhere in the order of NZ$300-NZ$400 million – or maybe NZ$100 per person."

"When you put that in the context of what the world was facing two years ago, I think that was NZ$100 that was worth investing for both the health of the New Zealand economy and the fact that without that retail deposit guarantee scheme, our funds would have fled offshore to the Australian scheme."

"The one thing that was just plain down-right dumb was the way the scheme was established," Key said.

"They didn’t charge fees to small players, aka the finance companies, but they did the better credit quality commercial banks. We changed that when we extended the scheme, but the crazy thing was the South Canterburies of the world went into the scheme and didn’t pay virtually anything for it. In fact the only fees they paid were when we extended the scheme."

Meanwhile, Key said the Earthquake Commission expected not to have to liquidate or sell government bonds to help pay for the reconstruction costs of the Christchurch Earthquake.

Some had feared a mass sale of government bonds by the Commission would push up market interest rates, which may in turn have pushed up mortgage and deposit rates.

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8 Comments

by Chris | 7th Sep 10, 7:21am 1283800898

Great result? Are you high? Please don't ever run an insurance fund, because if you consider net cost a "great result" you're completely braindead to be honest. The GG should never have been offered to two-bit lenders like SCF, and certainly shouldn't have been extended to further include these cowboys.

by Chris | 7th Sep 10, 7:22am 1283800964

Guaranteeing funds in highly capitalised, highly trusted banks is unnecessary.

by Wolly | 7th Sep 10, 7:38am 1283801927

Then why did the GG start in the first place Chris and what has changed that allows them to go naked?

by Rob of the North | 7th Sep 10, 9:11am 1283807466

Maybe this is the opportunity to fold it into kiwibank to give it new low risk business with the good bank assets. It could be a good injection of new capital.

by Rob of the North | 7th Sep 10, 9:30am 1283808610

have just read a tweet where that ZB on-air dipstick, Leighton Smith has compared Ch Ch mayor Bob Parker with Winston Churchill and JFK...weird times indeed.

by Christov | 7th Sep 10, 12:03pm 1283817821

Nice post David...hope lots read it...good for you!

by David George | 7th Sep 10, 12:27pm 1283819279

D H "NZ needs some real leadership on banking and financial policy, and it means having the balls to see financial institution creditors take their losses promptly and financial institutions that can't maintain the funding they need to be promptly restructured or closed rather than lingering on with taxpayer guarantees and ultimately taxpayer losses."

John Key sees net cost of finance company failures, including SCF, of NZ$300 mln to NZ$400 mln

8 Comments

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