South Canterbury Finance Limited

[Aaron]

Oh Aaron! Those taxpayer dollars have already been spent, bailing out SCF and some of the others, getting on for a decade ago.

Mister Lee's book is mainly concerned with the shambles that was the collapse of SCF - the book demonstrating that greed, panic, and incompetence make very dangerous bedfellows.

Sorry not very knowledgeable just thought Balance's article (post 2929) was to do with Chris Lee wanting preference share holders to get taxpayer money as well.

[peat]

the ultimate irony of course with SCF was how (after the government guarantee ) it became the best investment in town. Not that I would ever have played that game.
How did it work out for those invested? Did the loss of opportunity cost cripple the (I presume) full return one eventually got from the government?

[GTM 3442]

Sorry not very knowledgeable just thought Balance's article (post 2929) was to do with Chris Lee wanting preference share holders to get taxpayer money as well.

Well the bondholders got the benefit of the government guarantee, but the holders of the preference shares didn't. And seeing that both instruments were marketed to the same target audience, the difference seems rather inequitable.

That's the point of that little exercise - simple fairness.

[GTM 3442]

the ultimate irony of course with SCF was how (after the government guarantee ) it became the best investment in town. Not that I would ever have played that game.
How did it work out for those invested? Did the loss of opportunity cost cripple the (I presume) full return one eventually got from the government?

One of my roles is as an inveterate bottom-feeder, and I bought both the bonds and the preference shares.

By the time that I bought them, the bonds came with a government-guarantee, and were yielding about 20%.

I bought the preference shares at about 25c , and sold out at about 60c, although IIRC they went higher. Later, the price went back down to about 30c and I got greedy and used half the profit I'd made to buy more in anticipation of a successful resolution. But then the "rescue plan" failed, and I got wiped out.

All three purchases were sheer speculation. Two wins, one loss.

[peat]

Well the bondholders got the benefit of the government guarantee, but the holders of the preference shares didn't. And seeing that both instruments were marketed to the same target audience, the difference seems rather inequitable.

That's the point of that little exercise - simple fairness.

Its not the audience in finance that determines outcome though, and shares are equity and equity is taking more of a risk than bonds - well that's the way I see it anyway.

One of my roles is as an inveterate bottom-feeder, and I bought both the bonds and the preference shares.

By the time that I bought them, the bonds came with a government-guarantee, and were yielding about 20%.

I bought the preference shares at about 25c , and sold out at about 60c, although IIRC they went higher. Later, the price went back down to about 30c and I got greedy and used half the profit I'd made to buy more in anticipation of a successful resolution. But then the "rescue plan" failed, and I got wiped out.

All three purchases were sheer speculation. Two wins, one loss.

It was a smart thing to do and in another time or place I might have as well.

[GTM 3442]

Its not the audience in finance that determines outcome though, and shares are equity and equity is taking more of a risk than bonds - well that's the way I see it anyway.

Peat, you know about this stuff, I know a little about this stuff, but those poor b*ggers were just fish in a barrel.

I suspect that many if not most of the good (but financially illiterate) folk who bought these things had no idea what they were buying. None. Zero. Zip. Nada.

Blissfully ignorant of any difference between debentures, bonds, and term deposits, there's a good chance that they thought that "Equity" might be good for a place in the 3:30 at Trentham.

In many cases, seeking professional advice provided no better outcome (if not worse) than clipping the coupon in the paper and sending it off to one of the abysmally-supervised and appallingly-regulated many finance companies which blighted the early 21st century New Zealand landscape.

Now, given that financial markets regularly blow up about every ten years or so, where should we look for the next explosion?

[Balance]

Peat, you know about this stuff, I know a little about this stuff, but those poor b*ggers were just fish in a barrel.

I suspect that many if not most of the good (but financially illiterate) folk who bought these things had no idea what they were buying. None. Zero. Zip. Nada.

Blissfully ignorant of any difference between debentures, bonds, and term deposits, there's a good chance that they thought that "Equity" might be good for a place in the 3:30 at Trentham.

In many cases, seeking professional advice provided no better outcome (if not worse) than clipping the coupon in the paper and sending it off to one of the abysmally-supervised and appallingly-regulated many finance companies which blighted the early 21st century New Zealand landscape.

Now, given that financial markets regularly blow up about every ten years or so, where should we look for the next explosion?

Always interesting how the good folks will spend days and weeks checking and researching before a new car or a new fridge - but do bugger all when entrusting their money to someone.

[Aaron]

Well done GTM3442 smart investing but you cost the rest of us taxpayers $1.7billion or $405 each at the time so well done, but fu at the same time.

I recall reading predictions regarding the imminent demise of the finance companies long before they happened. Although this isn't the article I recall reading I think it was Bruce Sheppard predicting the demise of the finance companies. Wish I had listened more closely to him when investing in Cadmus.

http://www.stuff.co.nz/waikato-times...ms-to-collapse

Although he wasn't very charitable towards Hanover investors after trying to advise them. Possibly his comments might be considered ageist in this more enlightened age. Watson & Hotchin sucked up all the available cash with dividends that could have been challenged although I do not understand the situation well enough to comment.

http://www.stuff.co.nz/business/7562...tupid-lunatics

Stupid lunatics might be an accurate label for finance company investors. Although the same label could be put on me after investing in companies I have not put much effort researching.

[GTM 3442]

Well done GTM3442 smart investing but you cost the rest of us taxpayers $1.7billion or $405 each at the time so well done, but fu at the same time.

I recall reading predictions regarding the imminent demise of the finance companies long before they happened. Although this isn't the article I recall reading I think it was Bruce Sheppard predicting the demise of the finance companies. Wish I had listened more closely to him when investing in Cadmus.

http://www.stuff.co.nz/waikato-times...ms-to-collapse

Although he wasn't very charitable towards Hanover investors after trying to advise them. Possibly his comments might be considered ageist in this more enlightened age. Watson & Hotchin sucked up all the available cash with dividends that could have been challenged although I do not understand the situation well enough to comment.

http://www.stuff.co.nz/business/7562...tupid-lunatics

Stupid lunatics might be an accurate label for finance company investors. Although the same label could be put on me after investing in companies I have not put much effort researching.

Oh Aaron! I shall take that as a compliment - albeit somewhat backhanded.

However I think that in the interests of fairness, you should save a word or two of criticism for the directors and managers of the various finance companies, as well as their trustees and auditors.

However, at the time, I don't think that the government had any real choice other than to implement some form of guarantee scheme. The economic, social, and political risks at the time were such that some such scheme was inevitable.

Personally, I like government guarantees. That's why I have a whole bunch of term deposits in Australia rather than New Zealand - the Australian guarantee scheme is still running. Mind you, given the interest rates currently on offer in Australia, I doubt that I'll be rolling them over at maturity.

Looking ahead, what do you think will blow up this time round?

[macduffy]

That's right, GTM. Once Australia had a guarantee the NZ govt had no option but to follow suit to prevent a massive outflow of funds over the Strait. And, of course, the (mainly) banks paid a fee for that, little as it was.

All water under the bridge - until the next time?