From: Toby Fiennes Sent: Friday, 22 May 2009 3:18 p. m.

From:
Sent:
To:
Subject:
Toby Fiennes
Friday, 22 May 2009 3:18 p. m.
PSD - Domestic Deposit-Taking Oversight; Grant Spencer
FW: Vjsit to South Canterbury (SCF)
To see Treasury comments on appointment of inspectors.
From: John Park [mailto:[email protected]]
Sent: Friday, 22 May 2009 3:07 p.m.
To: Toby Fiennes
Subject: RE: Visit to South Canterbury (SCF)
We are in the process of getting internal sign-offs for both SCF
and allowing time for briefings etc with the
selected inspectors, I expect them to be in place by the week after next.
We also had a discussion with the CFO for SCF recently and got much the same story based on your comments below.
When you say the group restructure is off, do you mean the proposal to merge Southbury and SCF?
John
John Park Team Leader Guarantee Scheme I The Treasury
Te1: +64 4 917 6252
[email protected]
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Sent: Friday, 22 May 2009 2:59 p.m.
To: John Park
Cc: Andy Wood
Subject: FW: Visit to South Canterbur
y (SCF)
It's a!I quite murky and ultimately dependent on Hubbard making things good in the event of problems. We obviously
could not Iook at their asset quality in any detail. Where are you in terms of appointing independent investigators? In
Note also the encouraging comment from the Mascot depositor!
Toby
From: Toby Fiennes
Sent: Thursday, 21 May 2009 5:15 p.m.
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To: Landscape; Grant Spencer; PSD - Domestic Deposit-Taking Oversight
Visit to South Canterbury (SCF)
Soundness
They talked through their Ioan book and the Iargest exposures. The quality Iooks patchy, with some Ioans / sectors
apparently holding up quite we11 - the most obvious concerns are in the property book. They have some substantial
market to recover'.
A great deal depends on Alan Hubbard himself. It is clear that SCF executives have tremendous faith in him: his integrity
and his ability to fund any shortfalls. He attended a meeting with us for a couple of hours and stressed several times
that he would never Iet any SCF investor Iose a cent. (The only thing he would not part with is his 40 year oId VW
Beetle.)
A key question for us, and for Treasury, is how much reliance we can place on this. In the event that he is not around or
can no Ionger take key decisions, the trustees wi11 supposedly take the same approach but it is hard to rely on this.
Hubbard has in recent months swapped in some "good assets" ($80mn of farms...) for Ioans that would have needed to
waters and also worsened the company's capital adequacy ratio, by our new rules. We discussed this with the CFO
privately, and stressed that a transparent and simple approach would be easier for us and other stakeholders to
understand.
Group issues
A restructure of the group is no Ionger on the table. However, the parent (Southbury) is Iooking to se11 one of the Iargest
subs, the helicopter business, for c$100mn.
Hubbard is bullish about farming and dair
y and is reluctant to se11 farms or related businesses.
A11 group businesses are apparently profitable and Iook on the face of it to be of substantial va1ue, so, in principle,
Hubbard may be able to realise sufficient assets to fi11 any plausible shortfall in SCF.
They are Iooking to use a Iarger, better known audit firm from the end of this year. This is welcome news.
Other
A strong plea for an announcement on the future of the guarantee scheme shortly. Investors are uncertain and the
maturity structure of the deposit book is steadily shortening. Unexpectedly but interestingly, they see a genuine risk of a
flow of funds to Australia if our scheme is not extended to match the timing of theirs.
The failure of Mascot seems to have had Iittle impact in Timaru. We actually spoke to a Mascot depositor, who was
pleased with the way the deposit claims had been processed.
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