Mascot always looked shaky
A good article by Tim Hunter in the SST on how Mascot should never have been let into the deposit guarantee scheme:
Mascot was one of the smaller lenders in the sector, but not tiny. Its most recent accounts, for the year to March 2008, showed a loan book of $118 million, just over half of which (57%) was lent on property projects of various kinds. The rest of the lending was to charitable trusts for gaming machines and to commercial loans.
The lending was financed by a debenture book of $123m.
Right there, it is clear that Mascot had a problem. Its debenture liabilities were greater than its loan assets. What’s more, the imbalance was more severe in the short term. Only $53m of its loans were due for repayment within one year, while Mascot owed $71m to its debenture holders over the same period.
Before the year was up ie, by the end of this month Mascot was highly likely to hit the wall.
This is the sort of analysis you hope Treasury would have done.
Mascot’s desperate situation didn’t require much detective work. It was laid out clearly in the liquidity profile in its accounts, which showed the company would be in the red to the tune of $6.8m within the next 12 months.
Without a substantial reversal of its fortunes, Mascot had no chance of survival. By the time it entered the government guarantee scheme on January 12, it is highly likely that Mascot was already doomed.
Not all collapses are foreseeable. But this one seemed prety obvious.
Another thing one of the criteria the Treasury could consider in awarding the guarantee was whether the people controlling the company were of good character. In this context it is interesting to note that one of Mascot’s directors, Christchurch lawyer David John Stock, was fined and censured in 2007 by the Canterbury District Law Society for serious misconduct after acting for both his long-term mistress and her unwitting husband, in a deal in which the husband signed away his interest in the family home.
He was also criticised by Justice Willy Young in 2002 for having “a credibility problem” and for repeatedly making “untrue” statements during a court dispute between rival meat companies PPCS and Richmond.
Due diligence on directors should absolutely be a requirement before taxpayers guarantee a finance company.
Treasury used to be regarded as the top performing Government agency. Their breach of the Public Finance Act over ACC, and this stuff up, is tarnishing their former reputation.
March 8th, 2009 at 11:14 am
Good post David.
March 8th, 2009 at 11:24 am
Are you sure it was Treasury who breached the Public Finance Act and not Cullen and his cohorts. I would trust Treasury more than I trust Cullen.
March 8th, 2009 at 11:31 am
Two words: Political appointments.
March 8th, 2009 at 11:37 am
If the herald can do this analysis, why can’t the legion of analysts and consultants that make up treasury have done the same?
Whoever allowed mascot to enter the guarantee scheme should be fired for incompetence. And, that person should be replaced by the herald analyst.
March 8th, 2009 at 1:56 pm
Obviously, not a lucky mascot then?
All the directors of the second tier finance companies seem be be of a certain ilk?
And yet the sheeple pile their hard earned money into the husks of companies, masquerading as proper.
Labour and Cullen are culpable for this. Book him Danni!!
March 8th, 2009 at 2:50 pm
Sorry, wrong thread!
March 8th, 2009 at 3:52 pm
Warren Buffett said THIS recently:
“It is better to be a cripple with a government guarantee than a rock of Gibraltar without one”.
(Hat tip: Peter Cresswell)
Buffett was lamenting the fact that non-”banking” businesses involved in productive activity are being starved of investment money right now.
And here is an article from the Australian angle:
“The Banks are in Kevin Heaven”
http://www.businessspectator.com.au/bs.nsf/Article/The-banks-are-in-Kevin-heaven-$pd20090116-NBQUW?OpenDocument&src=mp
“……the banks are mopping up all available cash at the expense of corporations. With so much AAA, sovereign guaranteed bank paper available at quite healthy yields, the international credit market (such as it is) has little interest in the A+, A and A- paper being offered by Australia’s leading corporations, even at triple or quadruple the margin.
The banks are like kids let loose in a lolly shop: they are paying as little as 100 basis points over the bank bill swap rate (BBSW) and getting plenty of money at that price. (BBSW is Australia’s version of Libor; yesterday it was set at 3.86 per cent, 40 points below the RBA cash rate, in anticipation of a rate cut in February. Usually BBSW and cash are roughly the same.)
On top of that margin, the banks have to pay the government 70 basis points for the guarantee, but it’s worth it. Oh yes, indeed.
They have a captive corporate market for the funds that produce a very handy interest margin to help make up for all the loan losses they are wearing from the past follies of now-departed hotshot credit marketers whom they used to employ……
“……..there is a long way between the official RBA rate and what they are paying. When they go shopping for cash there are only four stores in the mall: ANZ, Commonwealth, Westpac and NAB.
And the grinning shopkeepers standing out the front to welcome them all look exactly the same because they are wearing Kevin Rudd masks.
Did the Australian government have to offer to guarantee the offshore debt raisings of local banks? Who knows, but it did it.
The result is that 2009 is the year of the banks’ revenge.
Bank corridors are echoing with the screams of corporate treasurers issuing from every meeting room, as they plead for refinancing or to just be allowed to survive.
And in every room there is a picture of Kevin Rudd plus an insolvency accountant wearing a black hood standing in the corner, waiting.”
This is happening all over the world. The productive sectors of our economies have been screwed by the bloody socialists in power for ten years or more as investment money chased property bubbles; and now they are being screwed again to pay for the mess that they had no part in creating.
This is madness; it is this sector that we depend on to work and employ and produce our way out of this mess.
March 8th, 2009 at 5:42 pm
Things like this happening were inevitable because the legislation creating the govt guarantee scheme was drafted, re-drafted , debated and passed too fast. It was panic ridden, sweaty backroom stuff with little pause for thought or consideration. It was govt policy on the run, similar to govt bailouts of banks in the UK or Obama’s upsized bailout for the entire US economy. With pressure from the media however and pompous, over hyped declarations by western politicians of “WE WILL ACT TO SAVE THE BANKING SYSTEM!” “ WE’VE GOT TO ACT NOW TO SAVE JOBS!” “THE TIME FOR TALK IS OVER! IT’S NOW TIME TO ACT!” etc that inevitably leads to poorly drafted, ill judged, ill considered govt schemes which are of course being abused and used as a get out of jail free card with a handsome profit by the unscrupulous in the finance sector all over the western world. For them Christmas has come very early this year.
However the poor old dears who invested with Mascot will be happily filling in the many forms required to get their cash back and a certain Christchurch based property developer involved with Mascot will be breathing yet another sigh of relief. Saved once by the Christchurch City Council ratepayer now saved by the NZ taxpayer. Lucky fellow.
March 8th, 2009 at 6:17 pm
“the legislation creating the govt guarantee scheme was drafted, re-drafted , debated and passed too fast. ”
there wasn’t any. It was already there. It’s called the Public Finance Act 1989.
March 8th, 2009 at 8:53 pm
The opt-in retail deposit guarantee scheme was new:
http://beehive.govt.nz/release/deposit+guarantee+scheme+introduced
Its rules were rushed as was the scheme in general. The PFA was the legal method but the Act provides no detailed tests as to who gets covered by the scheme or not or what deal to offer those wishing to be covered. The scheme was drawn up in a mad rush which wasn’t necessary and has lead to cock up’s like covering Mascot.
Excuse me for suggesting it was new legislation though.
March 8th, 2009 at 10:25 pm
The Treasury should not be guaranteeing dodgy finance companies. Their depositors had no expectation of that happening. Furthermore they do not impact that much on the economy. They have been falling over during the last 18 months or so. This is very bad public policy, very bad and the Treasury needs to get its ideas clearer like the old days.
March 8th, 2009 at 10:26 pm
PS I agree athiest, the guarantees were contracts entered into under the Public Finance Act 1989. No legislation was required.