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.

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