You're dreaming if you still think you'd get paid out in 14 days - read the thread back up - that was debunked in the article I quoted.
Alan.
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But the yield may not be that great. Say you have $50k which you want to spend on your summer holiday. Stick it in SCF at 8% and it looks good - but say they go bust in three months. You get your $1,000 interest for the three months but no interest for the next three moths. Alternatively you could have put your $50k into any old bank at 5% and you'd get $1,250 in six months time less the grief of having to fill out a whole pile of forms.
It looks worse if you are a Mom and Pop investor - say its only $5,000 you have deposited. Thats $100 gross in interest v $125. Whats your time worth? Its probably going to cost you $50 net in time and Postage (who knows exactly - you get my drift) your return is now down to less than $50 so the lure of the big 8% doesn't look so flash now.
Yep - fair points.
Worst case, you could invest the day before they go belly up, and then your yield would be zero in three months (say).
If you had invested in a big bank, and were getting (currently, say) 5% pa, then you lost 1.25% over the three months.
Still, not a disaster.
Alan.
The Deposit Guarantee ensures any deposit won't be a disaster but I think we can safely say that depositors aren't really looking at the yield - the risks are just too high to make this a valid reason for depositing. An outlandish statemewnt I know - but who else out there has B- credit rating?
What we are really seeing is a donation scheme where punters get to make a donation to SCf for a period of time and enough time they hope for SCF to get back on its feet. That loyalty or support will be repaid, at worst, by the return of the deposit and if all goes well some interest.
But the fact remains its not the depositor making the donation - its the Tax Payer sitting behind the depositor who is underwriting it. We've got all these South Canterbury folk saying "I trust Alan - he won't default on me, he'll personally give me my money back". Well sure you'll get your money back but it won't be AH's if things go bad.
So, what's your point?
But it's not the "investors" who are in SCF - it's the mums and dads, and they wouldn't know a maturity profile from a hole in the ground. As for diversifying, how many horror stories have we had about people who had all their money with (say) Hanover.
So I think that they'd have a lot to worry about if the timeline was stretched.
There is so much mischievous nonsense being put about concerning SCF.
The simple facts are:
1) Sandy Maier took the CEO position last year. Like any good CEO he went through the cupboards and dragged out all the skeletons. SCF declared a $200million loss for the year end Dec 2009. This loss was predominantly due to loan impairments. Unlike Hanover - I believe this figure. The SCF loan book is of better quality than Hanover, for example; there is the application of IFRS accounting rules, which are more stringent; and, there is the new CEO wanting to get all the bad news out, on the table, to begin the recovery.
2) Due to this loss - SCF was in breach of it's Trust Deed. (If you are not aware of the debenture covenants - and they are extensive - you don't know anything about SCF). Three things happened ... Allan Hubbard introduced two new equity assets ... Torchlight introduced a bridiging loan senior to all other debt ... and the Trustee agreed to delay full enforcement of the Trust Deed, via waiver, until 31 August. The new equity healed most of the breach.
3) SCF is now in a period of structural change. The business has been partitioned into 3 parts - the "Good Bank" - a fine $1billion finance business; the "Bad Bank" - impaired and non strategic loans - the "Equity" portfolio. Both the "Bad Bank" and the "Equity" portfolio are non strategic to SCF.
THE "STEADY STATE" ISSUE FACING SCF IS WHERE IS THE NEW EQUITY, FOR THE "GOOD BANK" FINANCE OPERATIONS COMING FROM?
The magnitude of the requirement is that a $1billion dollar finance company could be run with equity of $100m. (The actual SCF covenant is debt <= 12 x equity).
A) SCF could sell the "Bad Bank" loan book. While this will happen, the old Benjamin Franklin saying "Necessity makes a bad bargain" is true - the margin is likely to be too thin.
B) SCF could sell selected assets in the "Equity" portfolio. This will happen ... Allan Hubbard was hoping it was to be back to Southbury ... that is "Plan A". "Plan B" is to sell them to wider interests. Sale of this portfolio would save SCF - it would repair the outstanding Trust Deed issues.
C) SCF could find a new equity partner. $200million, tops .... the only issue is what kind of deal (and dilution) would Allan Hubbard take (or the Statutory Manager, de facto)?
THE THREAT TO SCF COMES FROM THE "DYNAMICS" OF DEBT MATURITY vs LOAN MATURITY
The key issue facing SCF is cash flow planning. The "wall of debt" provides CASH FLOW challenges (NOT as everyone implies BALANCE SHEET challenges). If your debt is due in a couple of months and yet debts owed to you, to cover your debt, are spread over a year - you have a problem if you cannot "roll" you debt.
Bridging finance and spreading the maturities of new debt will solve this issue. SCF should not fail because of this issue - that would be completely tragic - because a viable business would be destroyed. Remember, the "wall of debt" is balanced by the "hill of maturities" ... the combination of downsizing the business and the structural changes outlined above will see SCF into calmer waters.
The business is getting smaller, we all know this. A finance business needs to borrow in order to lend. If SCF can borrow $1billion - it can lend $1billion; if it can borrow $500m it can lend $500m. So the issue is - how much can SCF raise, in the current market ... that is the "steady state" size of the business. Clearly, the higher amount it can borrow simplifies the cash planning challenges of the "wall of debt".
SCF IS A VIABLE BUSINESS
This is why the arrant nonsense spouted by ego maniac, self appointed, "industry commentators" is tragic. The orderly reduction of SCF to a $1billion business is easier than a paniced reduction to a $500m business.
Shouting "Fire" in a crowded picture theatre causes damage and harm, as people rush for the door; if there is, in fact, no fire - this act is more than dangerous, it is criminal.
Final point. An intelligent commentary on SCF should focus on the Trustee. If you do not understand the Trust Deed covenants, what the Trustee has done, in terms of waivers, deadlines and monitoring; you do not understand anything about SCF. The Trustee has behaved responsibly - if there was a serious balance sheet issue - the Trustee would act to defend the position of the debenture holders.
There, more facts and balance than anything Bernard Hickey is capable of. I do grow tired and sickened by his "headline grabbing" sensationalism.
SCF is viable ... lets not make Maier's job more difficult than it already is by imagining SCF is insolvent or fraudulent ... it is simply facing cash planning issues in the face of business restructure and downsize. These difficulties present significant risks ... but the most likely outcome is a full recovery - to the downsized state.
Excellent summary Enumerate - Well done.
Alan.
Yes, I have.Quote:
Originally Posted by mouse
The SCF010s were attractive, because of the partial guarantee and the high yield - 30%. I decided against this.
Investing SCF020/SCF030 with 12% yields, full guarantee, and the ability to roll them on maturity to "help out", is attractive. I decided against this.
Investing in new debentures at 8.25% with full guarantee, is attractive, and "helps out" with new money. I decided against this.
The SCFHA's are an insane yield - but are the highest risk due to deep subordination of the debt and lack of guarantee.
I went for the SCFHA ... because I have spent the last month extrapolating the SCF balance sheet from Dec '09 to current, incorporating the likely structural outomes, estimating the effect on the balance sheet ... I have been following up changes to SCF subsidiaries on Comapnies Office filings to understand what structural changes are happening in the background ... I have been analysing the debenture prospectus and the various Trust Deeds to understand the senior debt ... I have been following every scrap of publicly released news including following the various commentators.
In short, I put myself into an acceptably risky position with the expectation of the greatest return based on being as fully informed as I can possibly be.
Enumerate,
an excellent piece of analysis.
One thing that should be mentioned is that both SCF's own auditor and that of the Crown (Korda mentha) have been looking at SCFs assets with a fine tooth comb. Probalby the impairments are very conservatively cast, but to protect themselves the SCF directors will be taking a most conservative line. Remember thay are personally liable for misstatements in the prospectus and that they are now not shareholders of SCF, so there is little upside for them taking a liberal line.
Yes, a great summary Enumerate and I agree SCF is viable - except there remains a great deal of challenge and uncertainty which should not be understated. That risk can be measured in some part but as has been previously mentioned there is probably something in SCF's offerings to suit different appetites for risk.
I agree with your Simple Facts but we should perhaps not be too simplistic
1) The SCF loan book is no doubt better than Hanovers - but there is still the issue on related party lending which I'm not entirely sure we have seen the last of.
2) Torchlight has introduced new funds - and part of that is $20m from AH - which makes it a third injection by him.
3) While undergoing structural change SCF has a Standard and Poors Albatross of a C short term rating which puts it in a Substantial Risk / Extremely Speculative grade or a B- long term which is still highly speculative.
Your "Steady State" summary contains lots of "could's" - all rational, but the sooner the coulds turn into "dids' the better.
Your "Viable Business" provides an interesting analogy.
Shouting "fire" where it is clear there is no fire is surely irresponsible - but perhaps there is enough of a whiff of smoke that a precautionary approach is the most pragmatic. We've seen from the weekend that you don't even need smoke to end up with dead bodies lying around a picture theatre. Conversely shouting "all is well" when it is not, is also irresponsible - and that is where SCF separates itself from the Hanovers - we haven't had that kind of misleading message presented by celebrities: though perhaps some of the AH adorees are getting a bit close to that position.
I'm not sure anyone here is suggesting SCF is insolvent or fraudulent. On balance, based on cash flow, I'd say the scales are tipping towards drawing on the Govt Deposit Guarantee being called on. SCF need more facts and "dids" (like "we did secure $200m in equity") to get them tipping back in the right direction.
But in the meantime there is something there for those with an appetite for risk.
Excellent presentation, Enumerate, just excellent.
Without the H-bomb of the Statutory Management of the Hubbards and the SFO scud missile attack on them I firmly believe that the SCF situation could have been successfully managed back to health and happiness. Now we have the potentially disastrous effects of collateral damage to the whole SCF business, by way of a likely serious falling-away of debenture inflows and rollovers, that even Sandy Maier seems to be acknowledging as a "given".
I had been steadily accumulating the SCF010's, as well as the SCFHA's, at recent high yields, but have now sold back most of the SCF010's, at a small loss. However, like you, I decided to stick with the SCFHA's, given that there is little to be derived from selling them now, and a great deal to be gained from a possible eventual restructure of sorts.
Mini, thanks for your in depth comments ...
I get the sense from reviewing Companies Office filings that alot is happening on the related party front. The Kelt Finance and Mercer changes are an example of this. It should be noted that there are no Trust Deed covenants on the level of related party debt, per se.Quote:
Originally Posted by minimoke
I note that Torchlight have raised $150m (up to $170m). Torchlight could buy SCF - or they could take out the equity assets and the "Bad Bank". Related party or not - SCF needs all the "white knights" it can get.Quote:
2) Torchlight has introduced new funds - and part of that is $20m from AH - which makes it a third injection by him.
NZF has a B rating for short and long term debt. They managed to package up $100m of AAA rated RMBS - that were sold into the institutions. B- long and C short, in SCF, reflects the cash planning issues with the "Wall of Debt" and the overall negative outlook S&P has on the NZ finance sector. Do not interpret the S&P rating that the SCF loan book is in any way a toxic mess. My basic belief is that the loan book is solid ... the dynamics of the SCF business are the issue. SCF needs more primary equity, less equity assets and to be rid of the property sector loans. All this is happening ... as far as I can see.Quote:
3) While undergoing structural change SCF has a Standard and Poors Albatross of a C short term rating which puts it in a Substantial Risk / Extremely Speculative grade or a B- long term which is still highly speculative.
Once the "coulds" turn into "dids" - you will no longer be able to buy SCFHAs at 10cents per unit.Quote:
Your "Steady State" summary contains lots of "could's" - all rational, but the sooner the coulds turn into "dids' the better.
Fair enough call. I have a different view.Quote:
Your "Viable Business" provides an interesting analogy.
Shouting "fire" where it is clear there is no fire is surely irresponsible - but perhaps there is enough of a whiff of smoke that a precautionary approach is the most pragmatic. We've seen from the weekend that you don't even need smoke to end up with dead bodies lying around a picture theatre. Conversely shouting "all is well" when it is not, is also irresponsible - and that is where SCF separates itself from the Hanovers - we haven't had that kind of misleading message presented by celebrities: though perhaps some of the AH adorees are getting a bit close to that position.
I'm not sure anyone here is suggesting SCF is insolvent or fraudulent. On balance, based on cash flow, I'd say the scales are tipping towards drawing on the Govt Deposit Guarantee being called on. SCF need more facts and "dids" (like "we did secure $200m in equity") to get them tipping back in the right direction.
But in the meantime there is something there for those with an appetite for risk.
The only response I would like to make is that the only entity capable of shouting "Fire" is the Trustee. Only the Trustee has the full facts, provided on a daily basis, in some cases. The Trust Deed is very good, in terms of defining the debenture holder position. Trustees will only act to enforce the terms of the Trust Deed - this Trustee has accepted some temporary waivers to the covenants ... has set a deadline for full compliance ... and is NOT shouting "Fire" like some uniformed commentators.
I draw confidence from this and my own research that the SCF balance sheet is sound, in the present situation; will get better with further structural change.
The key risk is the dynamics of the debt rollover (the cash management issue). This could kill SCF - but if it does, this would be the tragic loss of a viable business.
If downsizing to a $1billion business is tough ... downsizing to a $500million business is more than twice as difficult. There comes a point at which it is impossible. This remains a clear risk ... akin to a "run on the bank".Quote:
Originally Posted by COLIN
If SCF survives, there is alot to like about the SCFHAs. The fully imputed dividend and the 2.5% margin above the bank bill rate makes them very tasty. As a long term investment ... they are either worth the $1 ... or they are worth nothing. Mine are now in the bottom drawer - awaiting the judgment of the Gods of finance.Quote:
I decided to stick with the SCFHA's, given that there is little to be derived from selling them now, and a great deal to be gained from a possible eventual restructure of sorts.
I think your "fire" analogy works - except the shout has already been made. It probably was made first by the Govt when they introduced the Deposit Guarantee. "Theres a fire on the horizon and we will make sure we have enough appliances to protect your assets". S&P have also shouted "Fire" - but they have probably been successful in squeezing out the oxygen needed by fire as well as life. AH has shouted fire and bought in the helicopter crews. and SM has shouted fire and is pleading for more cash. The Regulators sure have shouted "fire" - except that was the neighabours building and their emergency response appears to have been to (inadvertently) lob the flaming fuel next door. The message we'll get from the Trustees, in this analogy will be "Run!, the building falling down". If this happens the survivors will be the ones who didn't get too close to the heat.
Enumerate and Minimoke.
May I say how much I enjoy your well thought out informed posts.
The magnitude of the requirement is that a $1billion dollar finance company could be run with equity of $100mil,you wrote Enumerate.I think the commentators do not understand this.
From the PGC exercise ie capital raising it was shareholder capital lost.The speed at which Torchlight raised $150 mil surprised me,then Marac paying cash of $70 mil for GMAC.
My point is that $220 mil At PGC makes SCF requiring capital look not so hard.
Shareholders led by Kerr saw Marac as a good finance company once the proprty loans were accounted for.SCF is the same.
The Marac of old was an commercial/industrial financier, I believe. SCF is to agribusiness what Marac was to commercial/industrial. Both are specialist forms of lending and require much more commercial savvy than is present in the trading banks.
I'd say that if PGC had to choose between Marac and SCF ... they would choose SCF!
.
I'd say that if PGC had to choose between Marac and SCF ... they would choose SCF![/QUOTE]
Yes.That's a thought.!!!PGC shareholders love divies,where they come from they do not mind.A few years ago I was at a PGC AGM when then chairman Sir Miles Warren announced that the divie was being increased.Greeted with hurrah,hurrah from the shareholders.I thought someone would lead three cheers for the chairman!!!!Yes SCF is more of a fit with PGC when you really think about it.
Many posts about SCF. Mine was, 'would you lend SCF cash in the present situation?' Since that is what is required, cash, and long term it is required without a Government Guarantee. The next danger, and it is just as serious, is 'would you borrow cash from SCF?' The danger of borrowing from SCF is you might have to repay it at short notice and in a bad financial market. The business of SCF is to borrow cash in and lend money out. Both are very difficult until everything is cleared up and SCF has a clean bill of health. I would neither lend to nor borrow from SCF at the present time.
It is perfectly OK to take a punt for excellent gains. Would you do it for 8%?
That is the question for the market.
Would sharebrokers, or sharemongers, recommend investing in SCF deposits?
Some time ago Marac lost shareholders capital.Shareholders put in fresh capital.Brand intact.A long time ago Westpac looked to be in trouble and looked as though Kerry Packer would take it over.went to shareholders for more capital.Brand intact.American Express looked to be in terminal trouble.Warren Buffett saw AE cardholders were still using the card.Brand intact,Buffett brought large shareholding and made huge amount of money.
What is needed inSCF is new capital.This will restore the brand very quickly.Very,very quickly if the new capital or new shareholding is also a known name or brand.Until that time there is uncertainity,so would be hard for adviser to recommend them in my opinon.
I still find it surprising how much money Kerr has raised with Torchlight and PGC and how Marac paid $70mil cash for GMAC.Seems to me there is plenty of money around so long as there are good rewards.
I am not recommending anything to anyone ... but as a hypothetical case:
If I had $100,000 capital ... and needed 5% before tax to live on ... that is $5,000 per year, at the bank, at best.
This is what I might do as an alternative:
I'd put $90,000 into SCF020 (due 15/6/2011) at 11.5% - that gives me $10,350 per year.
I'd put $5,000 in the bank, on call, at 4% - that gives me $200 per year.
I'd put $5,000 into SCFHA at 13cents each - about 38,500 scfha at 5.71%. or about $2,198 per year
Analysis:
If it turns to custard ... I could lose up to 1 quarter's interest from my SCF020s and all my SCFHA capital ... I simply cash in my on call money to cover off my income needs .... I get my $5,000 to spend (the on call money) get an extra $10,350 +$200 in interest pro rated and my $90,000 guaranteed capital back. Basically, I'm fine - on average, slightly better off than money in the bank.
If it goes well ... I make out like a bandit. I get my interest of $10,350 plus on call interest of $200 plus $2,198 from the SCFHA. I exceed the $5,000 I was going to get from a bank by a wide margin and have made a tax free capital gain on my SCFHA asset that now has a capital value of $38,500. I now have capital of $133,500 and income approaching 3 x what the bank was paying. Tasty!
I don't see how a Financial Advisor could point clients to SCF at the moment. The risks are not well enough known nor are the results if those risks come home to roost. The risk for Advisors is they don't know how long it would take for a client to get their money back if things go bad - nor can they guarantee the interest payable. And there are better alternatives for those who would seek financial advice. Though that probably wouldn't stop ForBarr pointing their clients to SCF.
Thats not to say that there aren't opportunities for more sophisticated investors / institution who can do their own research and come to an independent view on the returns relative to that risk. They will know the business and also have sufficiently deep pockets to ride out any loss if things go pear shaped. They won't use Advisors.
There are also opportunities for those uninterested in the risk (or what Advisors have to say) and will put money in for the sole purpose of supporting AH. Clearly AH has support to December 2011 - the test for these people will be if they leave their money in after the Guarantee runs out. If SCF lasts that long these punters will be in the minority as they will be minor players since the real equity injection will come from the big players.
[QUOTE=Enumerate;310235]I am not recommending anything to anyone ... but as a hypothetical case:
Loved it,but what hypothetical recommendation would you make for your mother in law ,or your grandmother?
For a start ... I am not a registered financial adviser ... so I never, ever, ever make recommendations as to what or how to invest.
However, for my grandmother or mother in law, I would suggest that they investigate the following model.
Take their $100,000 and borrow a further $100,000 from the bank at 7.4% interest.
We have income requirements of $5,000 + $7,400 +28% tax for the interest. Hence we need $13,880 income.
We have $200,000 to invest ... but put aside $15,000 for the call account earning $600 per year.
We put $180,000 in SCF020 at 11.5% - earning $23,000 per year.
That leaves $5,000 for the SCFHA, as above, which allows us to buy the 38,500 units at 13cents yielding 5.71%. or about $2,198 per year.
Analysis:
If it turns to custard, we get pro rated $23,000 + $600 + $2,198 = $25,798 per year plus our $15,000 on call capital plus government guaranteed $180,000. We pay back the bank's $100,000, pay the $7,400 + 28% interest. That means we have $16,918 pro rated left - we take our $5,000 income and add the $11,918 pro rated to our income for the year.
If it all goes well ... we are in like a lizard drinking, as before!
All sorts of interesting models are possible when your basic capital is protected by the NZ government.
Lol.
I did appreciate your point - what would the ultra simple, ultra conservative approach be? (Decided to put the leveraged model up for a bit of fun).
There is a much simpler model ...
Key point is that you can collect interest, on the SCF020s, for a full quarter - without actually owning them for a full quarter.
Lets say you have $100,000 and buy half way through the quarter - look at the www.nzx.com site and check out SCF020. The "buy per $100" and "sell per $100" prices INCLUDE accrued interest. So with your $100,000 you would get $100,197 of debentures with the entitlement for a full quarterly interest payment of $10,520/4 = $2,630.
Skip the SCFHA investment ....
You put in $100,000 into SCF020s. However, you time it until shortly before an interest payment. You get about $2,630 (with tax deducted) as your first interest payment. This is like half a year of bank equivalent income gained in a few weeks.
I'd just like to restate .. these models explore generic approaches to structuring fix interest investments.
People reject the SCF debentures/bond because of the ability to lose up to a quarters worth of interest ... due to the delays in processing the government guarantee.
What I am trying to prove is that:
A) The government guaranteed nature of debt is worth alot ... it makes models, pointed out above, work - even the leverage case.
B) It is possible to construct a very simple structure that overcomes the risk of losing income for a quarter
If NZ's financial planners cannot see this or cannot structure an even better portfolio to deal with this risk ... then I am amazed. What matters, in a portfolio, is return for a defined level of risk. Even the 8.25% SCF debentures offer some amazing alternatives to bank deposits.
I hope that I have proven that it is worthwhile paying closer attention to the possibilities.
Do your own research or ask for a qualified expert to pass judgment on any investment proposal! Do not take these illustrative models as an investment proposal!
[QUOTE=Enumerate;310255]For a start ... I am not a registered financial adviser ... so I never, ever, ever make recommendations as to what or how to invest.{/quote]
If I may, for a moment, play devils advocate.
There’s your first hurdle. Your mother-in-law still doesn’t think you are good enough for her child so she ain’t going to be taking no advice from you. As for granny – she’ll already have her money tied up with that nice Mr Hubbard.Quote:
However, for my grandmother or mother in law, I would suggest that they investigate the following model.
Hurdle two. Head down to the bank and say “ I want to borrow on my house so I can put money into to SCF”. The bank teller needs a good a laugh!Quote:
Take their $100,000 and borrow a further $100,000 from the bank at 7.4% interest.
But lets say they are a bit more courageous than most – the best you’ll get, maybe is 30% loan on the value of your property (rather than 90% if you were to leverage into property). You're there fore not utilising 60% of the potential equity in your own property.
And since we are borrowing on the house we should take Bernard Hickeys wise words into account: "You're house will lose 30% in value"
Not sure where the tax payment comes in - wouldn't you claim your interest as an expense and reduce your net tax payable. I might just keep the tax implications out of the equation for the time being since there are possibly some capital gain issues in there somewhereQuote:
We have income requirements of $5,000 + $7,400 +28% tax for the interest. Hence we need $13,880 income.
What you will certainly need though is cash to repay principal as there is no way the bank will let you go Interest Only on a loan relating to SCF. I'd imagine that until 31 December 2011 they would be wanting big chunks back - maybe $30k a year. You could of course renegotiate along the way as SCF position firmed.
OK - I'm going to call you on your call account interest. You're really looking at 3% gross or there about - so thats $450 less tax: peanuts I know. So you have your $200,000. put aside $5,000 for living; $7,400 for interest and $30,000 for capital repayments. You're closer to $158kQuote:
We have $200,000 to invest ... but put aside $15,000 for the call account earning $600 per year.
lets call it $152k earning potentially $17,100 (less tax)Quote:
We put $180,000 in SCF020 at 11.5% - earning $23,000 per year.
Quote:
That leaves $5,000 for the SCFHA, as above, which allows us to buy the 38,500 units at 13cents yielding 5.71%. or about $2,198 per year.
if it all turns to custard, say on 13 October (and Sandy Maier reckons he can make payment for the time being) you don't get any interest past the 13 Sept coupon date. You will get your $158k cash back - eventually. You'll also loose your money on the SCFHA's. You'll also having the bank knocking on your door wanting their $100k back - but you only have $30k put aside.Quote:
Analysis:
If it turns to custard, we get pro rated $23,000 + $600 + $2,198 = $25,798 per year plus our $15,000 on call capital plus government guaranteed $180,000. We pay back the bank's $100,000, pay the $7,400 + 28% interest. That means we have $16,918 pro rated left - we take our $5,000 income and add the $11,918 pro rated to our income for the year.
So you can give the bank $30k plus the remaining interest cash you'd put aside (lets call it $5,500) leaving you a shortfall of $64,500. So what do you do? You can't use your own $100k cash cos thats tied up until Treasury releases it in how many months. The bank wants its regular interest payments on the $64,500 balance in the meantime - and they have put your interest rate up because your house has dropped in value and you don't have the income to support the debt you previously had. You do have your $5,000 to live on (which you have wisely put aside) so you could use that - but that means your spare cash is pretty much shot. So now rather than thinking your rolling in loot your worried about how you are going to meet the banks demands for their interest repayments.
If not, the mother-in-law will only blame that no good piece of rubbish that married their precious child " I always knew you were trouble!!" ands thats you off the "Socks at Christmas" present list. As for Granny - she'll just trust that nice grandchild to see her right - except the grandchild is also in hock cos their money is also tied up in SCF!Quote:
If it all goes well ... we are in like a lizard drinking, as before!
Lets not forget its actually the tax payer who is allowing people the freedom to punt on long shots.Quote:
All sorts of interesting models are possible when your basic capital is protected by the NZ government.
And again leading from your post 1031 wouldn't the simplest model be to roll your money into the SCF020's. Why put it into 8% or 8.25% for a year when you can do so much better with the 020's?. I guess the answer to that might be that your Investment Advisor would miss a slice of the action if you went for the 020's under your own steam in preference to the 8% debentures
Certainly there is money to be potentially made out of SCF. But the 8.25% begs the question "what are the SCF lending rates". I presume it will have to be at the very least 9.75% plus broker margin. Thats 8.25% to investors and 1.5% into the Govt Guarantee scheme. So borrowers are paying over the odds for their loans - personal borrowers are paying 14.5% for home renovations when the friendly local bank will do it for around 6%. So who would pay over the odds - distressed borrowers who can't get a better deal else where. The borrowers risk profiles have to flow into SCF books - which will increase SCF's likelihood of a default event. If SCF can get past 31 Dec 2011 what will depositors do when there is no guarantee and the loan book is full of distressed borrowers? Investors could perhaps do better than by-passing the SCF middle man and lending directly to those who borrow from SCF - that way they would be propping up real business rather than a finance company who can't stand on its own two feet.
you could put your money into, for example, SPY. Alternatively hold onto your money until a helicopter or cool store company comes to market. Or we could learn off AH - he had a talent for attracting people who wanted to borrow off him
Thats like that hoary old chestnut "how many companies should I invest in". Popular opinion seems to suggest (on another thread here somewhere) around 5 - 15 would be a good number. While you have, at face value, some information on the risk provided by SCF we have no idea of the risks associated with the hundreds of companies SCF have lent to. It may only take one or two of those to default on their repayments to SCF to trigger a guarantee default event. I'm not sure if we've seen the make up of the "bad book" - perhaps someone here has some detail - because they are the companies you'd be investing in if you put your money into SCF.Quote:
Wouldn't my risk be that much greater due to concentration of my investment into one or a few borrowers?
Thanks,
Alan.
[QUOTE=minimoke;310309
And since we are borrowing on the house we should take Bernard Hickeys wise words into account: "You're house will lose 30% in value"
/QUOTE]
Splutter..............., splutter!! Not exactly the adjective I would use, I'm afraid.
.................................................. .................................................. .........................
The "Chalkie" column in today's Press (and in other Fairfax papers?) headed "GOVERNMENT RISKS OWN GOAL" has no doubt been read by keen followers of the SCF saga. It makes some very valid points, and I couldn't agree more with the concluding sentence:
"The fixing of a $40m problem at Aorangi may create a $2b SCF problem."
Here's the whole article:
-----------------------------------------------
Why hasn’t Sandy Maier started selling key assets to keep the beleaguered South Canterbury Finance afloat after the backwash from Allan Hubbard’s statutory management?
The Government’s move to put Allan Hubbard and a group of associated trusts into statutory management may prove a massive own goal.
The move has not only exposed the underdeveloped business plan of South Canterbury Finance chief executive Sandy Maier, but it has undone the Government’s own sneaky efforts to keep the Hubbard-associated finance company orderly.
Last Friday Maier was reported in effectively commenting on debenture inflows since Hubbard was poleaxed by the government regulatory authorities.
quoted Maier as saying SCF could pay maturing investments ‘‘for now’’.
‘‘No question that if people cease sending in new money and cease rolling over sooner or later, probably sooner, there will be a problem,’’ he said.
Asked if SCF could pay maturing debentures, he said: ‘‘The answer for now is ‘yes.’ It’s my job to ensure it stays ‘yes’.’’
Maier is arguably too honest. You don’t have to search between the lines to judge that money flows into SCF have dissipated since brand Allan Hubbard has been dented (they might be marching in support for him in Timaru, but the rest of the country suspects when the Serious Fraud Office is called in, not only poor record-keeping is at stake).
Maier’s words contrasted with those he used after a series of investor meetings spruiking debenture holders to reinvest their money.
He described those meetings as ‘‘fantastically successful’’ and having ‘‘wildly met or exceeded our expectations’’.
SCF has just under $1 billion of deposits maturing about the October deadline for the first government guarantee scheme.
Maier was reported as saying that about half of that amount was being reinvested or pledged.
But it appears that even offering the ridiculously attractive rate of 8 per cent, the government-guaranteed SCF is struggling to stay liquid.
The extension to the government guarantee only ever bought time to fix the balance sheet, which needs to be either heavily reinforced with equity or downsized.
What has puzzled Chalkie is why Maier has not been trying to move quickly in terms of asset sales. He’s seemingly putting all his chips on the government guarantee buying Hubbard enough time to raise fresh equity in the group.
Surely the situation has appeared more desperate than this from the inside, because it sure hasn’t looked fresh from the outside.
Maier has talked about SCF having three businesses – a good finance company, a bad loan book and a ‘‘private equity’’ portfolio of businesses.
The point is SCF hasn’t got enough equity to support all three businesses. SCF is like an overgeared property developer wanting to keep the holiday house on Waiheke, the Porsche and the Parnell mansion.
SCF had at the time of its last report (adjusted for Hubbard’s subsequent equity injection) about $170 million of tangible equity supporting business investments of $400m and $1.5 billion of finance assets.
If the company really wants to keep all these assets an additional (rough stab) $300m of equity is needed. That’s unlikely to be raised, so why hasn’t SCF been selling the business assets which are so ‘‘equity needy’’?
There has been a desperate need to monetise assets – the big ones being Helicopters (NZ) (supposedly worth $120m-plus) and the 34 per cent stake in Dairy Equities (about $100m).
Gee, those would be useful amounts to be putting into the kitty right now as well as getting the buyers to refinance the businesses from someone other than SCF. If Maier had started this process in March he may have already brought in $300m of cash.
Maier has been stuck between two masters. Looking pretty much like a government appointee, his one equity owner is Allan Hubbard, a reputed magpie with more appetite for debt than for selling his beloved assets.
Perhaps Hubbard has effectively blocked Maier from selling Helicopters NZ or Dairy Equities? At times it has been hard to know where the power has resided in this relationship, although it is now with Maier.
Chalkie has heard conspiracy theories that the SCF directors encouraged the statutory management move so the board could begin selling businesses.
If this is true, they and the Government have seriously miscalculated the pull the untarnished Hubbard had with debenture investors.
It will be ironic if the Government move effectively results in SCF going into liquidation prior to the extended guarantee scheme kicking in. Ironic because the Government bent over backwards to extend the guarantee to SCF, which didn’t deserve the privilege.
Chalkie has written that he believesStandard and Poor’s granting of an investment grade rating in March for SCF was nonsensical and probably born of political pressure. The nonsensical bit is evident by the fact the rating agency has subsequently downgraded the company several notches before seeing the next balance sheet.
Once the rating was secured, the Government moved with indecent haste in terms of extending the guarantee even though SCF’s balance sheet was miles away from meeting the criteria set down by the Reserve Bank.
The extension of the guarantee to SCF appeared a jack-up by the Government which did not want New Zealand’s biggest finance company going into liquidation/ receivership or the bill under a disorderly wind-up scenario.
All the Government’s efforts to protect SCF and its liability under the guarantee could be undone by the decision to place Allan Hubbard into statutory management.
The fixing of a $40m problem at Aorangi may create a $2b SCF problem.
----------------------------------------------------------------------------------------
Well done Alex.
Yes, thanks Alex.
Best commentary on the SCF situation I have seen from the fourth estate. I can see why Chalkie has so many devoted followers.
I think Chalke's point about $300million equity is true, if they want to keep all the assets. I seriously doubt whether the private equity or "Bad Bank" parts will be kept. The fact that neither Scales nor Helicopters has been made part of the charging group tells me that AH wants to keep these assets intact - to be repatriated back into Southbury, say.
Some very strong appointments to key senior management positions, announced today. I doubt if people of this experience and calibre would be risking damage to their career paths if they thought they were joining a foundering ship. I find today's message from Sandy Maier most encouraging.
It is now 3 weeks since the SFO took the unprecedented and as yet unjustified step of putting Allan Hubbard and his wife into Statutory Management.
I would have thought this would have been plenty of time to validate any strong implications of fraud. I would have thought some public statement would have been mandatory, by this time.
All we have is Simon Botherway deeply embroiled in his brother's insolvency, with weak and feeble reasons being offered why there was no conflict of interest for his role in recommending statutory management to the Minister.
Nothing from Simon Power, as responsible Minister.
I continue to find it remarkable that Minister Power seems to wish to dispense with basic rights in our legal system and continues to favour a "rule by whim" approach over "rule by law". His proposals, as part of court procedure modernisation, to strip defendants of their right to confront their accusers is one example. A more chilling example is his attitude to the Search and Surveillance Bill - government agencies will be allowed to break laws, trespass, to conduct surveillance. Now we have Allan Hubbard's statutory management - why does Minister Power think that AH needs his permission to buy a tin of beans?
Simon Power, it seems, wants to be the chief architect of a future NZ police state.
I am still white hot with rage over this injustice to Allan Hubbard. This is a vital issue of basic justice ... the fourth estate is absent without leave, parliament is silent ... I shall certainly keep this issue top of mind at the next election.
Now then Enumerate, surely you are familiar with the rules:
http://bookreviewsbybobbie.files.wor...the-trolls.jpg
Alan.
If this is not reckless, what is?
http://www.briangaynor.co.nz/blog/20...rty-loans.html
It is fact that AH and SCF continued to pile on related party transactions after the market became very concerned after the collapse of the other finance companies. Just read back over this thread.
The huge increase in related party transactions was a huge red flag - read S&P comments in the last 2 years.
Hey Emunerate - you should know by now who controls the fourth estate in NZ and even if they did have the freedom you think they should have maybe there isn't a story here anyway. At least until investigations are concluded.
Just like the press seems to have gone quiet on the BP thing. Even Obama doesn't want the full extent of the disaster to come out now and what better ally than BP to make it difficult for the 'fourth estate' to do their job. Even reports that BP are subsidising the local sherrifs office payroll to ensure that life is made difficult for any investigative journalist to get anywhere near anything important
With Hubbard from a journalistic view there probably isn't a story anyway (or not one big enough to waste time on) or if there is really an injustice and some want to do some reporting maybe there are barriers being put up
Just think who may be behind the Hubbard SM and it make it make it all clearer. All I know one punter from Waimate hasn'i caused all this.
I get confused when people use the initials "SM". Do they mean:
Sandy Maier
or
Statutory Manager
or
Sado-Masochism?
(Just a lighter comment, amongst all the heavy stuff!)
Key point is that SCF related party transactions are no reason, at all, to put Allan Hubbard, his wife, the cat ... the trusts and Aorangi into statutory management.
More generally, related party transactions are not cause for statutory management. Especially ones that are disclosed ...
The Gaynor blog was October 2009. Near the end of 2009 there was serious reason be concerned about the future of SCF. SCF, at that time, seemed to be in complete denial of the core issues it had to face. Management and directors were not up to the task.
Since then, we have seen Maier take the reins. If you look at Gaynor's list - some entities have ceased to be related parties and others have turned into equity!
Balance, I insist that you agree with me on this point! Minister Power owes the NZ public and explanation as to why this outrageous step, statutory management of a respected SI investor, has taken place. This is not a minor commercial issue. This is about basic rights ... Allan Hubbard should be free to enjoy his property unless deprived of this right due to criminal behavior.
The burden of proof for criminal behavior and our laws of evidence prevent state authorities from conducting "fishing expeditions" looking for faults or problems. Minister Power is trampling on these rights, in the name of regulatory intervention under the Finance Act. What is next? Is he going to institute marshal law to enforce correct parking etiquette?
Does anybody know an accurate answer to the following question? - Do NZ laws allow appointing statutory managers when a finance company handles investors' funds in a manner conflicting with what's been agreed with, or promised to, the investors?
No, this is not sufficient.Quote:
Originally Posted by Alex
The Law Commission's recommendations are:
* that statutory management should be preserved as a remedy of last resort to be used if:
1. the affairs of a corporation cannot adequately be dealt with by any other formal and collective insolvency regime; or
2. the public interest requires it to be used.
* To suggest that the maximum initial period of statutory management should be three months, but with power to extend for a further three months;
* To suggest that decisions to invoke statutory management should be made by the High Court, with provisions for notice of the hearing to be given, and reasons to be given;
* To suggest that a report be provided to creditors and shareholders within one month, with a meeting to be held in the second month to decide what action should be taken.
However, it seems it you are Simon Power - you can do whatever you damned well please.
They look like just the sort of people SCF could do with - but perhaps six months ago would have been a better time to bring them in. I'm not so sure they are risking their career - SCF would certainly be a challenge. More of a challenge, and rewarding, rescuing someone than than maintaining or growing a bit of whatever you already you have. I'd imagine there are pretty hefty redundancy provisions and performance pay in their package to help neutralise the risk they are exposing themselves to - but with all the activity in the banking industry locally they can't go too far wrong over the next 12 months or so.
I'm trying to recall who else has been put into Stat Man.
There was Equiticorp and as we know Alan Hawkins ended up in jail. Unraveling Equiticorp was likened to doing a 100,000 piece jigsaw when you had a million pieces. 20 years later there will still bits in Stat Man.
Then there was the PSIS - no prosecutions there I think. 6 out of every 100 NZ'ers had an account with PSIS. That Stat Man lasted 8 years.
And now we have, on par (??), Aorangi Securities. Aorangi can't be just bad, it must be very very bad if these previous Stat Mans are anything to go by - especially when we consider how everyone else in the past 20 years has escaped such action. I wouldn't be expecting any news anytime soon.
Okay, i'll be brave for my first post, many would be too scared to weigh-in on this relativly heavyweight subject straight off the bat. First as a newcomer, let me briefly introduce myself.
Late 40's, an Accountant in practice, former investor in SCF, investor in the sharemarket for over twenty years.
The new appointments look good, as were the director appointments some time ago. Unfortunatly there's little question the SM of Mr Hubbard's interests has cast a dark shadow over SCF's future.
One of the key issues is how can investment advisor's now recommend clients invest in SCF given the on-going investigation and the fact that there was allready a significant degree of uncertainty hanging over the company before the SM action ? Of course that probably won't stop Forsyth Barr from clipping the tiicket, but its probably best I don't go there...at this stage anyway, Credit Sails, Feltex, need I say more ?
In my opinion, the liklyhood of SCF climbing the wall of maturities within its own resources has diminshed considerably which appears to beg the question, perhaps the Government might provide temporary cash flow assistance to bridge the gap, "too big to fail"
This may be logical as they're in it good and proper if SCF fails anyway with the key question can the losses be stemmed or mitigated by continuation of trading ?
Regarding the preference shares, I've thought about this long and hard and my conclusion is its only for the very brave. Given they're at a margin of only 2.5% over swap they were issued at a time when margins for this type of security were very thin, its seems most unlikely they'll ever get close to a dollar again, even if the company survives post the Govt Guarantee period which I think is extremly unlikely. At 13 cents on the dollar today with a maximum apparent upside of about 60 cents, that's one chance in about seven..., isn't that just gambling ?
Heres S39 of the Corporations (Investigation and Management) Act 1989
Grounds on which corporation can be declared to be subject to statutory management
The Securities Commission shall not make a recommendation under section 38 of this Act in respect of a corporation unless it is satisfied on reasonable grounds—
(a) That the corporation is, or may be, a corporation to which this Act applies; and
(b) That, in the case of a corporation that is, or may be, operating fraudulently or recklessly, it is desirable that the corporation be declared to be subject to statutory management for the purpose of—
(i) Limiting or preventing the risk of further deterioration of the financial affairs of the corporation; or
(ii) Limiting or preventing the carrying out, or the effects of, any fraudulent act or activity; or
(iii) Enabling the affairs of the corporation to be dealt with in a more orderly or expeditious way:
(c) That, in the case of a corporation referred to in section 4(b) of this Act, it is desirable that the corporation be declared to be subject to statutory management for the purpose of—
(i) Preserving the interests of its members or creditors or beneficiaries or the public interest; or
(ii) Enabling the affairs of the corporation to be dealt with in a more orderly or expeditious way.
Now tonights homework is: Name the companies that have met this criteria in the past 5 years.
So they got the guy who as a director of hanover seemed to have got a better deal for Hotchin et al than for the hangover investors .... good one
Enumerate: You touch on a very salient point, i.e. in a civil society who should have the actual power to boot an individual into something as drastic and as freedom-depriving as Statutory Management? Should it be the Executive arm of Government or the judiciary? I would have thought the latter. Even a search warrant to rummage through my house requires the signature of a judge. As you so rightly point out, we like to pride ourselves that we are not in a police state - not yet, anyway. I, and others I know of, share your concern as to the disturbing nature of this whole development.
Head of the Serious Fruad office at the time Charles Sturt said:""The company was in dire straits and innocent investors were still being encouraged to pour in their hard-earned cash.". They were into fishing, property and building. Loads of related party loans and complex cashflows. Early '70's it was - have we moved on and learnt?
you need S40 for that one"
Grounds on which associated person can be declared to be subject to statutory management
The Securities Commission shall not make a recommendation under section 38 of this Act in respect of an associated person of a corporation unless it is satisfied on reasonable grounds that—
(a) An Order in Council could be made in respect of that associated person on any of the grounds specified in section 39 of this Act; or
(b) The business and affairs of the corporation are so closely connected with that associated person that the statutory manager or statutory managers would be unable to exercise effectively the powers conferred by this Act in relation to the corporation unless the statutory manager or statutory managers is or are appointed as statutory manager or statutory managers of the associated person.
Colin ... those were the days
Heres the rogue gallery of those days ..... in 20 years time we prob will read the same story but replacing the names with Hotchin, Hubbard, Hangover, Nathans, SCF etc etc
Things haven't really changed have they
That Charles Sturt was a good guy
Umm, actually no. You could be quietly walking at the bottom of the Port Hills minding your own business. The police have the power to search you without a warrant. Its part of a liquor ban area and if they think you have grog on you, you're stripped! If they think you have drugs in your House they can stroll in without a warrant.
isn't that just gambling ?
Isnt being in the Market today a fair amount of gambling, be it Pyne Gould, PGGWrightson or Pike Coal? Without even mentioning SCF?
In the market today means owning shares inPGC.PGW,RYM,AIA,SCY.EBO,ABA,NPX,CCC FBU. Being a shareholder means you are a part owner of whichever business you own shares in.
All of these companies go about their business every day supplying goods and services to customers.They employ thousands of people,pay millions of dollars of wages and taxes.
Some will do very well,some not so well,some will takeover other companies,some will be taken over,some will go out of business.
So as not to gamble,an investor will look at them,analysis their record ,their balance sheet,their management and their prospects before buying a part ownership. Buying into a business or buying a debt issue you do not understand is gambling.We all know people who have record of achievement and know others who are losers.Who do you invest in,or lend money to?
Welcome, Roger!
Point of correction here, the interest rate varies, year by year, as the interest rate is reset using the bank bill swap rate in October. So, they are not locked into an unnaturally low "interest rate".
Also, while the dividend rate is fixed, each year - the amount payable is fully imputed - there is a cash topup mechanism if SCF doesn't have the necessary imputation credits.
The prefs behave like equity ... because of the deep subordination of the debt and the perpetual nature of the security.Quote:
Originally Posted by Roger
I have a feeling that we will see a price sub-10cents per unit before the next chapter of the "SCF story" is written. I believe the odds of SCF surviving are significantly greater than the odds implied by the SCFHA price.
Further, I believe there is recovery value in the Prefs due to the recent introduction of equity assets to shore up the SCF balance sheet.
Buying SCFHAs is a risky proposition. However, all the risks are on the table and are blown up, in the minds of investors, by the constant dirge of impending doom coming from press commentators. Hanover in 2008 had even greater risks associated with it ... but these were all hidden.
Markets are nearly always too exuberant or too fearful. They are only sometimes efficient.
And its worth reiterating that Southbury (Alan Hubbard) has to lose every cent of his ordinary equity in SCF before perpetual preference shareholders lose a bean, in the event of a winding up. Clearly I do not believe that will happen. Its interesting to note that the volumes on the buy and sell side of the SCFHA's are about equal at the moment; and buying volume far outweighs selling volume on the SCF010's.
So, if thats a recently retired director of SCF, thats got to be either Stuart Nattrass or Robert White. So what do we make of that. Who knows.
But we could start a trail from Robert White, ex Director of Aorangi Securities. Back in 2005 Aorangi had 5 directors. Duncan Brand, Paul Hewitson, Christopher Stark, Robert White and Alan Hubbard. Like the 10 green bottles year by year the directors all resigned so that by 2010 there was only Alan left. Only one new director came on Board and that was Margaret.
But then again Stuart Natrass, through Rathgen Holdiongs Limited has a stake in Southbury Corp. So if Lauchie Mcleod was loaned $15m for his 1m shares how much was Nattrass loaned for his 37,500 shares. Its probably fair to assume there is a loan since SCF also had $750,000 owed by Ed Sullivan.
Or we could go back to Aorangi and check out Paul Hewitsons shareholding in SCF which is around 47,000 or Christopher Stark or Duncan Brand who have 27,000 each
C'mon Temuk name a name!
Still curious to know who would gain from the "dobbing in". Also what they'd gain.
The problem with the Western World, and the rest of the world, is we are relying upon one country to pull us out of the trough. The minor problem with that is the country who is hopefully going to do the pulling is run by the local version of The Mafia. So where does your careful analysis go then? You can only analyise so far. After that it is pure guesswork. Heads or Tails?
I agree the cat should not be in Stat Management - he probably is the only innocent one in this whole affair
Did the cat take advantage of that naive wee sparrow that was lured into the bird bath filled with the promise of clear fresh water in the Hubbards back yard - YES it did.
Was anyone holding a gun to the cats head as it supped from the bowl of Jellymeat purchased in a "cash for asset" transaction (with no paper trail!) that was probably made by Mrs H and without the Trustees knowledge. NO, the cat voluntarily scoffed down the Jelly meat AND also licked at the bowl of fresh cream which had been separated specially for it from the rest of the milk.
Did the cat share its companionship with all and sundry - or was it just a select few. Its been reported no-one in Auckland saw the Cat!
Did the Cat prefer to warm itself in the engine well of a Mercedes or a VW. Sources say it was the VW!!!!!!!!!
Ohh - that cats got guilt written all over its whiskers. Call in the SPCA and get it off to the pound straight away I say!
I say good on the whistle blower.
Whether SM is the right thing or not is a matter for debate - what is not at dispute is that there are serious problems and issues at the house of AH which required proper investigation to protect investors.
Sorry if I change the subject but there is a great story adout the sharebroker in London who brought up all the shares he could just at the hight of the Cuban affair when there looked as though there was going to be a Nuclear war.If there was he would not have to pay for them.If there was no war then the markets would recover and he would make a fortune,which he did.Heads he won!!
Thanks for the warm welcome guys.
Unpacking the "gambling" a little, really its an "all or nothing" situation with the key apparent question being, are all the deliquent loan skeletons out of the closet, or is there significant further provisioning forthcoming once the Auditiors run their ruler over the end of year financials ?
I'm in the latter camp and the double dip camp for that matter also. One of the key reasons is that small business in N.Z is finding things very very tough, I know this from my practice and if the majority of my clients are struggling, (and we know from the recent Institiute of Economic Research report that they're not alone), its widespread throughout N.Z., in effect many of SCF's customers must also be struggling.
I think its worth pointing out that the last thorough "independent" provisioning was as at 31 December 2009 and clearly the economy has been far from robust since then. SM himself has pointed out that further provisioning may be necessary, to exactly what extent is clearly the key question.
Regarding the preference shares, as has been astutely pointed out the dividend rate is re-set each year, but its reset based on the interbank 1 year swap rate plus a margin of 2.5%. Unpacking this, firstly in my view interest rates will remain low for a protracted period of time so its unlikely the current woefully inadequte dividend will increase much in the forseeable future. Secondly for a perpetual secuity the margin was set at a time when margins for this type of security were very low. A brief review of other perpetual securities listed on the market shows that SCF's margin was not the only one the market now considers grossly inadequate for the new, shall we say "enlightened" market conditions and there's a number trading well under par, who arn't trading under anything like the same cloud as SCF.
For what its worth Forbar, and they would be the most one-eyed and biggest backer of SCF, believe fair value over swap for a perpetual preference share of this nature is now 9% !! Even if SCF can be fixed, and that's a huge "IF", 2.5% over swap is never ever going to cut the mustard in the new environment we're in, so as mentioned yesterday I see the maximum upside as about 60 cents from here.
On the other side of the ledger, if SCF can get past the wall of maturities coming due in October, perhaps with a little Govt assistance ?, there's the liklyhood of getting three dividends, Oct 2010, April and October 2011, before the next wall arrives, so about 7.5 cents of dividends potentially forthcoming even if they do fail after October 2011.
So are the pref shares a fair "bet", it all depends whether you think SM has been straight up with his declarations regarding loan provisioning or is their another nasty surprise lurking just around the corner when the Auditors take an independent look at the situation, which might effectivly eliminate some or all of the "so called" equity AH recently introduced ?
What about them carrying over $100m in tax losses as an asset on their balance sheet, (the test here is probable utilisation of same), some would say that's very creative accounting.
Minimoke .... that nattrass fellow gets around a bit .... I see he is a director Pike River as well
Roger, we have a rule on this thread that new participants have to be doe eyed optimists ...
Here you are predicting further SCF loan impairments and a double dip recession. This will not do!
It is usually left to Winner, Mini, Colin and Balance to strip any trace of optimism from a new poster and to leave dreams of a recovered SCF and 3% economic growth shattered in the ditch.
You are not giving these fine gentlemen much material to work with (starting off with such a depressing prognosis).
Alan, Percy and Mouse are obviously too well bred or finely mannered to engage in such repast. However, Roger, your pessimistic views could turn these gentlemen into confirmed "gold bugs". The last postings we will see from them will be in the ASX forum - about how the world will end soon and why they are thankful they own junior Aussie gold stocks.
;-)
OK, I'm going to speculate and this thought has no substance based on fact. Perhaps someone could see that with the year end coming up the Accounts were going to be looked at closely. Perhaps the proverbial was going to hit the fan so an insider, or closely related party thought "best to fess up now" and do some back room deal with the Authorities to avoid or mitigate any future legal action.
theres a rumour going around that the Authorities have hired out Shed 10 to have it relocated to a secret location. Its needed because there is no space in Wellington large enough to lay out the paper needed to draw up the web of related people and companies. And when its reported that the Shed has been burnt down on "mysterious circumstances" you'll know why!
Not being into illicit drugs, or consuming alcohol in prohibited areas, I don't know much about that - and I doubt very much if Allan Hubbard does, either!
Thanks for posting those extracts from the statutes. I note the reference to the Order-in-Council, and while this particular extract doesn't specifically state that this is required, I am assuming that other sections of the Act do in fact make it clear that that is so. So, the Governor General, by Order-in-Council, would have signed the death warrant; I suppose, in our constitutional monarchy, you can't get much more authoritative than that. I'm no lawyer (only did Comm Law Stage I for my degree) but, wondering out loud, could such an Order be subjected to judicial review. Probably not.
Not sure about being either 'well bred' or 'finely mannered'!
Not being a current SCF investor, I am just sitting on the sidelines watching in anticipation right now.
Quick and dirty thoughts - Probably missing something, so please pick this apart:
Roger pointed out there are possibly three 'reasonably certain' dividends to come (not to say only three, but I'll go with that for now). I doubt they are paying much tax, but I'll assume for the purposes of this analysis that there will be a top up to make it so that the net cash receipt comes out the same as if they were fully imputed.
Roger worked that out to be about 7.5c.
If I could pick up SCFHA for, say, 10c and I regarded the 7.5c to be an economic 'capital repayment', and taking 0.5c for the time value of money for now, then my net investment would be about 3c per pref share.
If it all falls apart, I'd expect to get none of that back.
If it doesn't then I think that medium term, 50c is not unrealistic (bit like a binary 'all or nothing').
Hence my 'return' looks like about 17-fold if it comes off.
Using the gambling analogy (although this is not just the 'pure chance' of gambling), would you put your cash on SCF at 17-to-1 ($18 I think that means in TAB-speak) to survive?
Alan.
Repeat - save the part about SCF surviving beyond this year. SFO investigation and SM are serious matters - irrespective of rights or wrongs of using SM as an instrument. The smoke screen of outrage at the use of SM does not detract from the fact that what's happening is very very very serious.