Cunliffe David: Questions for Oral Answer — Questions to Ministers 
Cunliffe David: Questions for Oral Answer — Questions to Ministers 
[Volume:666;Page:13974] 
3. 
Hon DAVID CUNLIFFE (Labour—New Lynn) 
 to the  
Minister of Finance 
: What was the earliest date that Treasury formed the conclusion that South Canterbury Finance could fail and when and by whom was that first raised with him? 
Hon BILL ENGLISH (Minister of Finance) 
: 
 We need to bear in mind that the Retail Deposit Guarantee Scheme was put in place in October 2008 for the very reason that there was a distinct possibility that some financial organisations could fail. Without the view that they could fail the guarantee would not have been needed. That was reasonably obvious given that 45 financial organisations had already failed before the Retail Deposit Guarantee Scheme was introduced. In respect of South Canterbury Finance Treasury reached the view that that company was more likely than not to fail. 
Hon David Cunliffe 
: On which date? 
Hon BILL ENGLISH 
: On 13 August 2009. That decision was reflected in the inclusion of South Canterbury Finance in the provision of $831 million reported in the Crown accounts as at 30 June 2009 for all companies under the Retail Deposit Guarantee Scheme. I was informed by Treasury of its view in August 2009. Yesterday I incorrectly suggested that the provisioning decisions were made in March or April 2009 when in fact they were made in August. 
Hon David Cunliffe 
: Given his answer that he knew there was a “more than even chance that South Canterbury Finance … would fail” as early as the preparation of the Crown accounts did he discuss with the Minister of Commerce or his officials the placing of South Canterbury Finance into statutory management or receivership by or around June 2009; if not why not? 
Hon BILL ENGLISH 
: I do not recall that discussion or any discussion of that nature. Some work was done on the general concept of the difference between the Government using statutory management or receivership which I think was responsible work to do given that we were guaranteeing dozens of institutions that had the potential to fail. Discussions that were focused particularly on South Canterbury Finance probably did not occur until this year. 
Hon David Cunliffe 
: Given the Government’s stated objective to minimise the cost to taxpayers of the bail-out how did he expect to reduce the cost to taxpayers by allowing South Canterbury Finance to trade on past June 2009 when provisions in the Crown accounts prove that the Government knew the company was already in a negative equity position by that time? 
Hon BILL ENGLISH 
: The point here is simply that both the Government and the company made every effort to avoid any costs to the taxpayer at all. If the company had been able to be recapitalised or if it had been able to generate sufficient inflows of deposits then it was possible up until quite recently before the receivership that the company would not have failed at all. That of course was the preferred option. 
Hon David Cunliffe 
: In the light of that answer would the taxpayer’s liability for South Canterbury Finance have been lower if his Government had not decided on 1 April 2010 to include South Canterbury Finance in the extended Retail Deposit Guarantee Scheme given that its chief executive Sandy Maier has said the company used that extension to obtain extra funding; if not why not? 
Hon BILL ENGLISH 
: The important thing to remember is that the guarantee was not a guarantee of the company but for the depositors. In fact South Canterbury Finance had been running down its deposits so it is quite possible that we paid out less through the recent receivership than we would have paid out in April when the book was bigger. Secondly we need to remember that at the time it was almost certain that if the Government had not announced an extension South Canterbury Finance would have failed there and then. Our option was to try to give the company the opportunity it asked for which was to see whether it could succeed in rebuilding the company so that there would be no liability to the taxpayer. 
Hon David Cunliffe 
: Approximately how much extra taxpayer liability would the Government have avoided if it had intervened in June 2009 and what was the rationale for incurring the additional taxpayer liability after that date? 
Hon BILL ENGLISH 
: The first point I make is that even as late as early 2010 no one really had a good grip on the assets or liabilities of South Canterbury Finance. In fact it became clear with KordaMentha’s involvement that the Government had a better idea of that than the company itself did until Mr Maier came on the job. The kind of calculation that the member is postulating never really occurred. The Government’s approach was knowing that there was potentially a very large liability to make sure the company had every opportunity to succeed so that there was no taxpayer liability. We made decisions along the way that did not in our view increase the taxpayer’s liability yet gave the company the best opportunity to succeed. In the end the company did not succeed. 
Dr Russel Norman 
: How does the Minister explain the apparent conflict between his claim that the great majority of problem lending occurred prior to South Canterbury Finance’s entry to the guarantee scheme and the comments of the company’s chief executive Sandy Maier that South Canterbury Finance used its acceptance into the scheme to ramp up its risky lending? 
Hon BILL ENGLISH 
: I think Mr Maier said the company used the extension of the guarantee scheme to bring in more deposits and that was obviously part of the drive to see whether the company could carry on. In respect of the lending we simply have to look at the figures that have been published. Those figures show that most of the problem lending occurred before South Canterbury Finance entered the scheme. In respect of the likelihood of the company failing I point the House towards the Financial Statements of the Government of New Zealand for the 11 months ended on 31 May 2009. Even in May 2009 there was no provision for South Canterbury Finance because at that stage Treasury did not believe there was a more than even possibility that the company would fail whereas by August 2009 it believed there was that possibility. 
Dr Russel Norman 
: Given the level of what we could only describe as fundamental uncertainty concerning some of the basic facts—that is about whether the level of risky borrowing increased after the guarantee—why will the Minister not support having some kind of select committee inquiry or public inquiry into the events surrounding South Canterbury Finance’s failure given the amount of public money involved? 
Hon BILL ENGLISH 
: In the end that is a matter for the select committee. The Government will when we have the time and the resource issue all the documents related to the scheme that we can. That will give the member along with anyone else the opportunity to scrutinise all the relevant information and decide which further questions need to be answered.