Treasury dumps more documents on South Canterbury Finance's inclusion into deposit guarantees and 2010 failure

Treasury has dumped another 200 documents surrounding South Canterbury Finance's acceptance into the government's retail deposit guarantee schemes from late 2008, and its entry into receivership in August last year.

SCF was placed in receivership in August, triggering the government's obligations under the guarantee, paying out NZ$1.6 billion to 35,000 30,400 depositors.

Government also paid NZ$175 million to a higher-ranking creditor, Torchlight, so that government could receive any proceeds from the receivership.

The documents can be found here on the Treasury website.

We will be going through them and welcome insights and help from interest.co.nz readers.

Deposit Guarantee

On October 12, 2008, then-Prime Minister Helen Clark in an election campaign speech announced a retail deposit guarantee scheme would be put in place due to worries caused by the global financial crisis. The National Party, then in opposition, supported the implementation of a guarantee. The Australian government had signalled its intention to impliment a guarantee scheme there, causing concern that New Zealand depositors may withdraw funds and invest them in guaranteed Australian deposits.

The guarantee was to initially run for two years.

Former Finance Minister Michael Cullen announced policy guidelines for officials for the acceptance of institutions into the guarantee on October 22, 2008. SCF had applied for the guarantee on October 14, and was accepted on November 19 - just over a week after the November 8 election with saw a change in government.

A new guarantee deed between South Canterbury Finance and the Crown was signed on December 11, 2009, as part of a revision of the original guarantee for all financial institutions covered by the scheme.

Government announced an extention of the gurantee on August 25, 2009, which would see more stringent criteria for institutions wanting to be covered from October 12, 2010 to December 31, 2011. A previous dump of Treasury documents indicated South Canterbury Finance was desparate to be included in the extended scheme.

Political football

Issues surrounding the receivership of South Canterbury Finance on August 31 last year, and private offers to the government for the company's assets, had been raised again in recent weeks by Labour's Finance Spokesman David Cunliffe after news of an additional impairment of NZ$300 million in SCF related party loans which would hit the government's books.

Cunliffe has attacked the government for not accepting a bid from Permanent Investments Limited to the government in the days before the receivership that he claims would have limited the Crown's liability from SCF losses to NZ$500 million. Expected gross losses from SCF are now considered to be about NZ$1.1 billion, up from NZ$800 million. However, the previous document dump from Treasury largely discredited the Permanent Investments bid. See more here.

Cunliffe went as far as to call for English's resignation over the affair, which the government rebuked as pure politicking by the Labour Party.

Labour has also attacked the government for signing the revised deed with SCF in December, saying it had ample opportunities to cut the company adrift from the guarantee before the company failed. However the government would still have had to have paid out depositors who had been covered by the scheme, had SCF failed outside the guarantee.

Potential conflict of interest

One of the documents released today indicated Teasury was worried about a potential conflict of interest for Finance Minister Bill English in regard to a private offer for SCF's assets after it had been put into receivership.

The email from Treasury's guarantee scheme manager, John Park, to English's economics advisor, Alex Harrington, on September 13 last year said: "a situation has arisen in relation to South Canterbury Finance (SCF) asset sales where the Minister of Finance could potentially be conflicted".

An offer has been made to the receivers of SCF to purchase all the assets of SCF. The offer is from [blank] in association with [blank] [.] [Blank] is involved in the transaction as the proposed purchaser of SCF’s minority shareholding in Dairy Holdings Limited. 

Treasury will be in a position to provide advice in relation to this transaction tomorrow.

In view of the Ministers’ role in relation to [blank] please confirm what action the Minister will be taking and to whom Treasury should address any advice on the proposal.

No further documents were released on the matter.

A spokesman for the Finance Minister said the conflict of interest was due to English's ministerial responsibility for the Supperannuation Fund, which was the bidder for Dairy Holdings. Businessday reports.

"It was a conflict between ministerial portfolios and it was handled appropriately,'' the spokesman said.

(Updates with link to comment on conflict of interest, background, potential conflict of interest email)