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South Canterbury Finance - Source: ONE News -
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A once-mighty financial institution has fallen - and it was mighty, once. And with it, in a way, a totara of the Timaru community has been felled.
All as that 'r' word, dreaded by investors - receivership - befalls South Canterbury Finance.
But for all of the fear, speculation and rumour about what receivership might mean - it doesn't appear to have resulted in the armageddon that some were predicting.
For a start of course, no depositor will be left out of pocket, not even those whose deposits didn't qualify under the gaurantee scheme.
No one I've spoken to seems concerned about contagion or about any significant impact on economic growth.
The credit rating agencies have moved to quell fears that it could result in a downgrade of the government's sovereign credit rating.
Even the Finance Minister seems reasonably confident he will eventually make back the a fair whack of the $1.6 billion dollars of taxpayer money he is been forced to spend.
Some might even be rubbing their hands together as they consider where investors might now put that money.
But it may still make its impact felt. Farm prices are already depressed, with many sitting on the market but few selling.
South Canterbury has loaned money to a large number of South Island farms, so its receivership, as Federated Farmers' Conor English puts it, 'certainly won't make farm prices go up'.
But NZIER economist, Shamubeel Eaqub, says even that large exposure to the farming sector needs to be put in context.
Total farm lending in New Zealand tops $47 billion. Look at total lending to business and farms and it's more like $120 billion. Even the loans of one of the country's biggest finance companies are small alongside those numbers.
Added to that, with the government now as the sole creditor and the likelihood of a more gradual, managed realisation of assets will further temper any impact on farmers and on the economy.
I don't mean to downplay the significance of the announcement - no corporate failure is good news. What I mean to say is that South Canterbury Finance is not likely, as some had feared, to be our Lehman Brothers.
But the recriminations over what went wrong, who's to blame and what can be done about it will continue all the same.
What it could be is the final nail in the coffin of the retail debenture-funded mezzanine finance company.
Interest.co.nz's Bernard Hickey certainly thinks so - he says investors' confidence in such companies is now simply non-existent.
And if the '87 stockmarket crash is anything to go by, investors do have long memories and may never again dip their toes where they've once been burnt.
And what reason could investors possibly have to do so, when not only companies run by perceived crooks fall over, but those started by frugal god-fearing do-gooders do too?
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Post new commentjoeyblogs said on 2010-09-01 @ 21:45 NZDT: Report abusive post
Anyone who has recieved a payout from SCF because of the government should be grateful and thankful to the rest of the country who all had $405 of their yearly tax payed to them. They stood to loose everything and instead the rest of the country pay for their greedy and stupid investments.