Cunliffe David: Financial Markets (Regulators and KiwiSaver) Bill — In Committee 
Cunliffe David: Financial Markets (Regulators and KiwiSaver) Bill — In Committee 
[Volume:671;Page:17698] 
Hon DAVID CUNLIFFE (Labour—New Lynn) 
: 
 I would like to turn the attention of the Committee to clause 20 in Part 2 and in particular the opportunity for the Minister to request that the Financial Markets Authority inquire into and report on a matter. In that regard I wish to raise before the Committee an issue much in the media today and that is the debacle around South Canterbury Finance and the crystallisation of a loss to the taxpayer of $1.2 billion and climbing. That number stands in stark contrast to the approximately $500 million that would have been a capped liability had the Minister of Finance and his colleague the Minister of Commerce accepted one of a number of recapitalisation deals in August and September of last year. 
This is a screw-up of epic proportions for the Government. I know of no company no corporation where a chief financial officer could make a $700 million mistake and keep his job. It is for that reason that the Labour Opposition has called either for the resignation of the Minister of Finance or for the production of documents such as offer documents which would prove his contention that he made a rational decision. If there is a reason that would justify a $700 million extra loss I do not know what that would be. 
I would like to turn the Committee’s attention to the chain of events that led to this debacle and first to identify the period of May to July 2009 nigh on 2 years ago when the Government was first advised that the books of South Canterbury Finance were to use the technical term “rumpy”. Advisers were sent in Treasury was advised and provision was made in the Crown accounts for the Crown’s liability under the Retail Deposit Guarantee Scheme because the Crown knew 2 years ago that the company was verging on insolvency. The Government faced the first of probably three sets of tragic decisions and that was that rather than putting the company into statutory management the Government opted to install a new management team through proxies and allow the company to continue to refinance its debt. 
The second crucial decision was made in April 2010 when the Government decided to extend South Canterbury Finance in the Retail Deposit Guarantee Scheme. Now there is no partisan argument about its original inclusion or the value of the scheme. Both parties agreed to set up the scheme and although South Canterbury Finance was brought in under National the preparatory work was done under Labour and there is no debate about that. But there is big debate about whether it should have been extended. By that time the Government knew full well that there was a massive hole on its balance sheet. 
The CHAIRPERSON (Lindsay Tisch) 
: The member must come back to the relevant theme in Part 2. 
Hon DAVID CUNLIFFE 
: I am being absolutely relevant to clause 20. 
The CHAIRPERSON (Lindsay Tisch) 
: I want you to bring it back. I have sat here for a minute now and I have not heard anything to do with Part 2. Although the member’s comments may well be relevant they must be tied back to the relevancy of Part 2. I ask the member to come back to that. 
Hon DAVID CUNLIFFE 
: Clause 20 in Part 2 which features on page 27 of the bill allows the Minister to request that the Financial Markets Authority inquire and report. I am challenging the Minister to request such an inquiry around South Canterbury Finance if he thinks there are other matters that need to be brought forward for scrutiny—other than his own incompetence. At the moment in the absence of documentation that would prove that the Government had good cause not to accept a $500 million cap in liability in August and September 2010 we are now faced with a $1.2 billion bill and climbing. The difference is equivalent to all the new money in the Budget round. If anything justified an inquiry I would submit that that did. 
The third critical set of decisions occurred up to and including 31 August 2010 where officials negotiated with South Canterbury Finance through the night around a recapitalisation deal or several options one including Permanent Investments. At that time the deal would have limited the Crown’s liability I understand to about $400 million providing about $1.2 billion of Crown equity. There were some risks around that deal which were advised on by KordaMentha and others and the Crown allowed the company perhaps encouraged the company to go into receivership. Equity-holders were wiped out; debt-holders were made good some to an enormous profit margin; and then shortly after the Crown faced a third round of offers. A very interesting offer came from the same company Permanent Investments this time associated with the New Zealand Superannuation Fund and Ngai Tahu which I understand would have capped the liability to around $500 million transferred the good bank to a consortium owned by those three parties allowed the bad bank to be restructured and hopefully a happier outcome to occur than has occurred. There is now an unexplained wedge between the approximately $500 million cap that that deal would have afforded and the $1.2 billion which has already come to charge under the Crown accounts which were released this week. 
Clause 20 provides that the Financial Markets Authority may institute an inquiry. I submit that this is the largest financial collapse in New Zealand history and if anything ever merited a Financial Markets Authority inquiry it is this. My colleague Lianne Dalziel has raised the issue of whether the authority would be keen to do that given the involvement of some of its own should we say in earlier stages. We have heard various accounts of the management of potential or perceived conflict of interest issues around one Simon Botherway. I am not going to repeat those issues right now but let me say this: there is much more to come on this issue. We cannot have a $700 million loss to the taxpayer over and above that which would have been required by the recapitalisation of the company and not have hot political debate. If I was ever in doubt of that it was on Sunday morning when I was at the Avondale market—a very august place in my electorate—and an elderly Pacific Island gentleman came up to me and said “Mate we’re doing it tough. We need you to fight for us.” That $700 million would be a lot of money to him because he cannot feed his family and there are 180000 people unemployed. I know that I have to come back to the clause Mr Chairman but forgive me if I am feeling for my constituents. Clause 20 provides an inquiry power which if it were ever to be used should be used in a case like today’s. 
The third leg of the treble is the Minister’s justification for his action which ironically has been to challenge the Opposition to produce the offer documents which he himself has in his possession. I say to the Minister of Finance— 
The CHAIRPERSON (Lindsay Tisch) 
: Come right back to this part. 
Hon DAVID CUNLIFFE 
: —under clause 20 that if he does not want an inquiry if he wants to keep his job and prove that he is right then he should do so by releasing each and every document all the offers all the advice into the public domain because we do not have a third round. If I am wrong and there is a $700 million reason why he was smart to pay $1.2 billion and climbing then I am happy to admit it but I have not seen it yet. I can only make the judgment that a huge mistaken punt was taken on behalf of the taxpayer. I fear that it may have been worse than that and that there will be more to tell about this issue as it goes forward but for now suffice it to say that clause 20 provides a very important power and it sits right here in Part 2 of the bill. It provides for an inquiry power. We face a financial scandal that is of such magnitude that it has eaten Budget 2011. There is no new money for Budget 2011. There was $800 million 2 weeks ago—$700 million has been wasted on this issue alone above what could have been capped with a recapitalisation deal. That is a tragedy of epic proportions and New Zealanders want to know the reasons. I tell this Government to use this power if it is so confident it is right—release the documents and let the light shine otherwise the Minister must go.