Just NZ$65 million left to be paid from total NZ$1.8 billion plus Crown retail deposit guarantee scheme payouts

By Gareth Vaughan

All investors' in Crown guaranteed failed finance companies, bar two Viaduct Capital depositors, should be paid out by the end of the month.

Following yesterday's release of the Crown's financial statements for the three months to September, a Treasury spokesman told interest.co.nz that about NZ$65 million was yet to be paid to investors' in failed companies that carried the guarantee, down from NZ$155 million at September 30.

"The Treasury expects to complete payments to all depositors with eligible securities before the end of November 2010, except for two deposits with Viaduct Capital that have not yet matured," the spokesman said.

"Unlike the seven other defaults repaid under the Crown guarantee, the Trustee for Viaduct Capital did not accelerate maturity when the company was placed into receivership, so the eligible debt securities issued by Viaduct Capital did not immediately become payable but instead are repaid upon maturity."

Eight companies fell over

A total of eight guaranteed companies - Strata Finance, Viaduct Capital, Mascot Finance, Rockforte Finance, Vision Securities, Mutual Finance, Allied Nationwide Finance, South Canterbury Finance - fell over during the two year life time of the Crown retail deposit guarantee scheme. The eight are among 61 entities to fail during the last four years putting at risk NZ$8.5 billion of investors' money held in nearly 239,000 deposits. See our Deep Freeze list.

Introduced on October 12, 2008 at the height of the Global Financial Crisis by the then Labour-led government, the Crown retail deposit guarantee scheme ended on October 12 this year and was replaced by the extended Crown retail deposit guarantee scheme. Just seven entities have been approved to join the extended scheme being the three merger partners in the proposed 'Heartland Bank' - Canterbury Building Society, Marac Finance, Southern Cross Building Society, plus Equitable Mortgages, Fisher & Paykel Finance, PGG Wrightson Finance and Wairarapa Building Society.

No provision for extended guarantee scheme

The extended scheme guarantees NZ$2.3 billion worth of investors' deposits but the Crown accounts for the three months to September show no provision for default under the extended scheme.

In those financial statements, Treasury said the net cost to the Crown from the July and August defaults of Mutual Finance, Allied Nationwide Finance and South Canterbury Finance was expected to be about NZ$745 million.

Meanwhile, the Treasury spokesman said as of September 30, some payments under the initial scheme were still due to Allied Nationwide Finance, Vision Securities, Mutual Finance, Rockforte Finance, Viaduct Capital, Strata Finance and Mascot Finance depositors. Payouts to South Canterbury Finance investors were completed - by Treasury - on August 31 - the day of the company's receivership.

Mutual Finance and Rockforte Finance investors were paid out on October 27.

"As at 9 November, the bulk of payments have been made to depositors in Allied Nationwide Finance and Vision Securities. A small minority of depositors in Viaduct Capital, Strata Finance and Mascot Finance are yet to be paid out," he said.

He wouldn't, however, say how much Treasury would pay out in total to investors' under the initial retail deposit guarantee scheme, only saying this would be disclosed in the Crown accounts after the final payment is made. But, based on the figures owed to investors by the eight failed companies when they fell over, the total Crown guarantee scheme payout is likely to total something north of NZ$1.8 billion.

South Canterbury Finance failure leads to rule change

In the wake of the collapse of South Canterbury Finance Treasury changed the rules, saying taxpayers' would now foot the bill for all depositors of Crown guaranteed finance companies that defaulted, including those that had already defaulted, regardless of any previous eligibility criteria in place. Criteria relating to citizenship and tax residency were dropped, with the criteria for repayment changed to merely that you were on the debt securities register at the date of default. These changes came after Treasury faced criticism from some investors in smaller failed companies over the length of time it took to get their money back.

Meanwhile, the Government's June year accounts showed it collected NZ$237 million in fees from financial institutions participating in the Crown retail deposit guarantee scheme up to June 30, and expects to book a further NZ$231 million in deferred fees up to the 2014/15 financial year.

Finance Minister Bill English told Parliament in September that when the fees collected from the wholesale and retail guarantee schemes are included, the net cost to taxpayers' is likely to be between NZ$300 million to NZ$400 million.

"While this cost to taxpayers is considerable, this expenditure did help prevent the potential collapse of the financial system. In the light of ongoing bank bailouts around the world, this net cost is the premium our economy has paid to avoid potential catastrophic losses to the taxpayer over the last 18 months," the Finance Minister said.

As of June 30, 73 financial institutions had joined the initial Crown retail deposit guarantee scheme with deposits totalling NZ$133 billion guaranteed.