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Rates round-up: June 5

South Canterbury Finance taken over; concern over new finance company law; Government bond yields fall again; Bridgecorp trial to be cancelled?

Tuesday, 5 June 2012

by Niko Kloeten

South Canterbury Finance has been officially nationalised, with its remaining assets transferred to a new government entity that will manage its wind-up.

The biggest corporate collapse in New Zealand history, South Canterbury Finance left taxpayers on the hook for about $1.78 billion after it went into receivership in 2010, as a result of the government guarantee on finance company deposits.

Earlier this year the government set up a company, Crown Asset Management, to manage the sale of assets owned by SCF and several other failed finance companies.

The move came after Treasury suggested it would save costs compared with private sector receivership; Finance Minister Bill English last year said it would save $13 million.

The receivers, Kerry Downey and William Black of McGrathNicol, said the remaining loans in SCF's "bad bank" loan book, sundry equity investments and remaining property investments have been sold to the Crown for an undisclosed sum.

Before the changeover $645 million had been paid back to the Crown.

Concern over new finance company law

Aspects of the new Non-Bank Deposit Takers (NBDT) Bill have been criticised by the Financial Services Federation, which says the finance companies being burdened with regulation are the few that were well-managed enough to survive the sector's collapse.

In a submission on the Bill, the FSF said that despite many of the prudential rules being essentially the same as the ones already in place, there is no certainty that currently compliant finance companies will get a licence.

"This leaves FSF NBDT members in a position where they, and their investors, cannot be sure of their future status, even though they are presently compliant with what are for the most part the same prudential rules as contained in the Bill. That uncertainty may even impact on their ability to retain deposits before and during the transitional period, and thus on their liquidity.

"That is clearly not desirable, and is to some extent at odds with the objectives of the Bill in maintaining a stable NBDT sector," the FSF said.

"It is also worthwhile for the (Select) Committee to note that the compliance burden and cost of regulation is ironically being borne by those NBDT's that didn't fail - that is their business models were developed on a sounder and more sustainable footing than failed firms, and yet they bear the ongoing compliance costs for regulation related to improving prudential soundness."

Government bond yields continue to fall

The recent fall in New Zealand government bond yields has continued as jittery investors seek a safe haven.

Last week the New Zealand Debt Management Office issued a total of $300 million of government bonds, $200 million maturing in 2019 and $100 million maturing in 2023.

The 2019 bonds attracted $380 million of bids with a weighted successful yield of 3.03%, down from 3.11% last week.

The 2023 bonds were heavily oversubscribed, attracting $519 million for a bid cover ratio of 5.2.

The strong demand pushed the average successful yield down to 3.45%, down from 3.54% the previous week, 3.66% the week before that and 3.75% four weeks ago.

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