South Canterbury Finance Limited

[Balance]

From a balance sheet perspective, even a "retail novice" can be satisfied that the basic levels of equity are already in place (mainly as equity assets - not as tier 1, but this will sort itself out over time).

Reading SCF accounts is actually straight forward. If you compare this to Macquarie, for example, it is childs play. Macquarie accounts, with the twists and turns - it is surprising anyone believes they understand them.

Back to SCF. It is also fascinating and rewarding to understand the impairment mechanisms. Would you impair a solid loan receivable at 9% because market rates should be higher? The nervous schoolgirls over at interest.co.nz seem to believe this is a cash impairment! Various Lost Souls believe this loan should probably carry a weighted risk rating of 350% for capital adequacy rules.

Back on this SCF thread no one else posts anything quantitative at even a balance sheet level - so you expect me to?!?

The real interesting bit is the Income Statement analysis. What hope is there of intelligent, informed discussion here - when we can't even get past a pro forma balance sheet?

I have detailed my conclusions and posed a number of questions that I was hoping would lead to informed discussion on SCF financials. No one has responded. Further, I have no intention to "file a report" when the full year accounts will set a new datum (these are due in about one month).

There are other basic questions to ask. Why is it that so many Aucklanders, with no financial exposure to SCF are so terribly interested that every aspect of this company be portrayed in the worst possible light? Why are there so few people willing to declare their interest? I am just a humble psychic tea leaf reader ... with a few SCFHA ... I don't have significant financial connection in the South Island ... I am not a Viaduct "player" ... I find these things difficult to understand.

Disclosure of interest - taxpayer who is cheesed off that we are going to have to pay for AH's mess.

[Enumerate]

YEAH RIGHT. As mentioned by many commentators they're carrying many dubious items on their balance sheet, the worst of which is the aforementioned tax losses which they're stating has a net present value of over $100 million dollars, when I think its clear to almost everyone on "this planet" that there's no credibility whatsoever to this balance sheet assertion as there's no chance whatsoever of the company being profitable in the forseeable future.

Lets talk about the tax losses.

These are declared in the half year accounts - largely following the impairment loss also declared in these accounts. I think that the tax loss declaration is fair - for two reasons. First, the impairments advised were not all cash impairments - we have already been told that a significant proportion of the $250m recovered in the non strategic loan book is on impaired loans. We do not know the quantum - but anything recovered here will offset the tax loss. Secondly, the net present value of cashflow impairments will naturally work it way out of the books as time progresses and as commercial interest rates restore to non-GFC premiums - these time recoveries will also offset the tax loss.

See, Roger, it doesn't look so bad when you sit down analyse rationally and not take your opinion from an hysterical school girl.

You are in "denial", and that's putting it as kindly as possible, I believe there's a widespread understanding within the professional financial community that SCF needs a significant capital injection, but what would all thos eprofessional commentators and professionals know right ?

Roger, I deny that I am in denial. I am a simple psychic tea leaf reader - I know these things.

There no way there's a further single cent to write-down on the deliquent loan book of $500m since 1 January 2010 right ? and there's no possibility that there's any further new loan deliquencies and provisioning required since 1 January 2010 ?

There will be further impairment - but minor compared with the major hit taken in the half year accounts.

There will also be write backs. If you want to see this "in action" - you should study the NZF accounts - there is much there than can inform. Maybe the NZF funding model may also offer some interesting insights into a path for SCF.

I worked out you can't be a lawyer, I think that's abundently clear, they have professional training and an understanding of realistic outcomes.

I am thankful we have cleared that up - being accused of lawyerly tendencies is a slight on the tea leaf reading profession.

[Beagle]

Disclosure of interest - taxpayer who is cheesed off that we are going to have to pay for AH's mess.

Ditto, and a little bit tired of people who blow their own trumpet about how much great work they've done throughout the N.Z. community but don't follow required Securities Act laws. It could be that Aorangi investors get back less than 50 cents in the dollar after many many months because AH appears to have used it as his personal piggy-bank. How's Uncle Alan going to make good on that ?

I'm sick to the back teeth of company directors not following the laws in this country and the courts treating white collar crime in a manner as if they're telling off school girls for being a bit naughty. Its pathetic and the judicial system in this country is even more pathetic in the penalties handed out to white collar CRIMINALS.

[Enumerate]

Ditto, and a little bit tired of people who blow their own trumpet about how much great work they've done throughout the N.Z. community but don't follow required Securities Act laws. It could be that Aorangi investors get back less than 50 cents in the dollar after many many months because AH appears to have used it as his personal piggy-bank. How's Uncle Alan going to make good on that ?

I'm sick to the back teeth of company directors not following the laws in this country and the courts treating white collar crime in a manner as if they're telling off school girls for being a bit naughty. Its pathetic and the judicial system in this country is even more pathetic in the penalties handed out to white collar CRIMINALS.

I am not surprised that you and Balance concur on this ... and probably much more ...

However, your notion that Aorangi investors will get only a 50% recovery needs some examination. Are you saying that the Statutory Manager is so inept and so incompetent that he will not only destroy a solvent company but he will proceed to lose a good proportion of the assets?

I fear you have been spending too much time reading the tabloid financial commentators.

[Jaa]

Do you guys actually invest in anything? Or, are you simply happy to follow the herd?

You are letting your political bias cloud your investing judgement again Enumerate.

I'm not a Viaduct type either nor am I a fair weather friend of SCF who bought in only for the government guarantee. I purchased some SCF020 on listing as along with Marac saw SCF as the strongest of the finance companies and preferred SCF over Marac due to Hubbard's reputation. At the time Marac was explained to me as a corporate/tie wearing type of company (ie Viaduct) and SCF as an integrity/relationship/no games type of company.

I sold in May this year, before the statutory management was announced. Made a 4% capital gain over the 2 years and received 10.5% interest during that period so in the context of the GFC turned out to be a reasonable investment.

Sold out as I could only see future downside risk and saw better things to do with the cash. Lastly it hardly behaved like the boring steady bond it was supposed to be even when government guaranteed!

[Beagle]

Enumerate,

Please read SCF's prospectus and note the Auditors fundamental going concern and other fundamental concerns.
S & P have downgraded SCF several times for very good reasons.
SCF are claining as an asset pre-paid tax of $26.7 million and deferred tax of $82.8 million, total of $109.5 million as at 31 December 2009.
To realise any value from this so called asset SCF has to actually make a real profit, do realise this ? That's a real profit of over $300 million at current tax rates.

Hands up all those who think SCF will make a real taxable profit after adjustments of $300 million in the forseeable future ?

I hope you're not suggesting I or David Hillary are emotional school girls Enumerate, I've been called worse but I think its not really that hard for the blog to see who's the one getting carried away with emotion on the SCF matter.

There's a limit to how much dellusional denial I can tolerate so I'll go and have some lunch and see if that helps.....what's that old saying...oh yes that's right, "there's none so blind as those that don't want to see"

SCF Auditors are idiiots right ? The SM's of Aorangi are completly incompetent right, more school girls ? and should ahve allready done a full analysis on Aorangi in three weeks right ? e.t.c. e.t.c. Oh I give up, what's the point.....

[minimoke]

Disclosure of interest - taxpayer who is cheesed off that we are going to have to pay for AH's mess.

In the spirit of openness and transparency (and to help appease Emunerate)
- also a taxpayer who is more than a tad cross that I'm supporting punters who get a free ride with finance companies especially in respect of SCF
- Also a very pissed off tax payer who can't comprehend why it is that Finance Companies seem to be able walk in a world other business simply can't. And I'm referring to Kiwisaver where the tax payer, again. is shelling out billions to finance companies who have done not one thing to earn that largesse.
- a disgruntled voter who saw a labour govt (especially Dalziel) fiddle while Rome burned. (and now I have the prospect of the olds trooper Jim Anderton being my Mayor god forbid!)
- A friend, Colleagues and relation of many people who inexplicably are lured into deals offered by finance companies such as Hanover, SCF, Blue Chip on the basis of the kindly "front man" and bugger all else. They have been like rats following the Pied Piper and even today are rolling their cash into SCF purely for no other reason than support of AH.
- a local resident who has seen the rivers ruined by the greed of the dairy industry in their conversions and the exploitation of natural resources whose benefts are tied up in a Co-op.
- We don't even get to vote for our own Regional Council in Christchurch due to water issues which came from the dairy industry which is being funded by the likes of SCF. So if Emunerate is cross about AH loosing some rights what about our right to elect our representatives!
- and last (I think) but by far not least a Non-holder of SCF but potential holder if i see the risks balanced by the returns. It took me a while to push the "Buy" button on Air NZ back in 2001 (and that paid off handsomely) and my finger remains poised today.

[Balance]

I am not surprised that you and Balance concur on this ... and probably much more ...

However, your notion that Aorangi investors will get only a 50% recovery needs some examination. Are you saying that the Statutory Manager is so inept and so incompetent that he will not only destroy a solvent company but he will proceed to lose a good proportion of the assets?

I fear you have been spending too much time reading the tabloid financial commentators.

No, Enumerate.

Roger is saying that Aorangi was already buggered before the SM was appointed.

Let's rehash :

- All $96m of investors' money invested in AH's entities,
- Most of that money has gone to farm businesses with prior ranking bank security,
- 170 interest-free loans have been made by charitable trust with money borrowed from Aorangi.

That's why there has to be SM to protect what's left for those poor delusional buggers who think AH walks on water and can 'guarantee' them returns - with his paper ledgers and hand-shake documentation.

[Enumerate]

You are letting your political bias cloud your investing judgement again Enumerate.

I am not sure I completely understand your criticism.

If you think I defend Allan Hubbard from the perspective of a political point of view - this is not the case. I think that within our current justice system - which reflects, largely, a conservative view of the NZ political environment - the Statutory Management of Allan Hubbard cannot be supported. There are, of course, wider perspectives on this ... political perspective influences the detailed view ... but, my objection is based on fundamental principles of the existing justice system.

In terms of investment - my judgment is not related, at all, to the Allan Hubbard injustice. From an investment perspective, recent events add significant risk. These events have also created opportunity.
- Earlier in the year my view was that the SCFHAs were a bad investment independent of price. This was based on the view that SCF management were in complete denial of their predicament.
- It became clear to me that the leadership of Sandy Maier was a significant factor in the turn around of SCF. I revised my view on SCF and suggested that SCF010s were a reasonable entry point to participate in any recovery. I did not like the SCFHAs, then at about 30cents - because of the terms of the trust deed.
- I posted, a while back, that I thought the value of the SCFHAs was about 15cents, SCF trading, 10cents recovery value. There has been good news and bad news, since this assessment - on balance I maintain this view on value.

I would resist the assessment that my investment view is coloured or clouded by my views on Allan Hubbard's statutory management.

[Enumerate]

Hands up all those who think SCF will make a real taxable profit after adjustments of $300 million in the forseeable future ?

I think the treatment of the tax "asset", in the full year accounts will be different from the reported "half year". As I stated before - there will be a number of factors that crystalise at full year that will allow a reasonable determination of the appropriate treatment.

I do believe we will have write backs over the existing half year impairments - yes, I believe this will be material to the statement of the tax position.

SCF Auditors are idiiots right ?

SCF audiitors are thinking of their professional indemnity insurance. E&Y, I am betting, on talking over the audit account have taken as many skeletons out of the cupboard as they can find. I would expect that Sandy Maier has been encouraging this, as new CEO.

You will, in fact, find that old man Hubbard's cupboards are bare!

The auditors tagging the accounts comes as no surprise.

The SM's of Aorangi are completly incompetent right, more school girls ? and should ahve allready done a full analysis on Aorangi in three weeks right ? e.t.c. e.t.c.

You were the one suggesting incompetence based on less than 50% recoveries on Aorangi debt receivables.

The Statutory Managers have effectively destoryed Allan Hubbard's business. There has been no attempt to continue as a going concern. They froze interest payments and have published disparaging comments on the business systems.

So, if anyone expected a full analysis in 3 weeks - It actually looks like the Statutory Managers made the decision to effect de facto insolvency in less than this time!!

My expectations, in this matter, were for a simple explanation of the reason for statutory management - the defense of the "public interest" - I would have thought this would have been a trivial task.