As more details emerge on the staggering losses of South Canterbury and how it came to have just $7 million in the bank and no deal on urgent recapitalisation in place by a receivership deadline last week, analysts have been questioning what the Government and Treasury knew of its predicament.
Now, Labour, the Green Party and Maori Party are demanding full disclosure of South Canterbury's situation before the receivership and are asking for a parliamentary inquiry, prompting Mr English to respond that all questions would be answered "in due course".
He said before South Canterbury was admitted to the deposit guarantee scheme in November 2008, it "appeared sound", citing rating agency Standard and Poor's `stable BBB-rating' at the time.
But during 2009, it "became clear that much of this additional lending was not high quality".
"Assessing the potential risk [of South Canterbury] was complicated by related-party lending, generally poor credit and accounting processes, and more recently the departure of most of the senior management," Mr English said in a statement yesterday.
"Despite this deteriorating position, South Canterbury Finance remained in compliance with its Deed of Guarantee, and as such, there was no ability or cause for the Crown to withdraw their guarantee," he said.
Labour's finance spokesman, David Cunliffe, asked whether the cost to taxpayers was "really minimised", what the Government knew, and when, whether South Canterbury should have been in the scheme, whether it breached its guarantee eligibility and what deals had been on the table to save it.
"Serious questions need to be answered so we can ensure this doesn't happen again," he said.
Green Party co-leader Russel Norman said Parliament's finance and expenditure select committee should hold an open inquiry into South Canterbury and the Government's actions.
Maori Party MP Te Ururoa Flavell said Maori were comparing the $1.6 billion with the $1 billion cap put on Treaty of Waitangi settlements 15 years ago to cover the following 10 years.
The Government bailout under its deposit guarantee scheme will immediately repay $1.6 billion to debenture and bond holders, plus it offers a further $175 million to first ranked creditors of South Canterbury, enabling the Government to control the asset-sale process, circumventing drawn-out legal challenges from creditors.
Of the total $1.775 billion bailout, the Government expects to recoup about $1.175 billion from asset sales, leaving the taxpayer $600 million in the red.
However, Mr English said, fees collected from finance companies to be in the wholesale and retail guarantee schemes would cushion the net loss to between $300 million and $400 million.
Mr English said that in September last year the Government extended the deposit guarantee scheme, with the unanimous approval of Parliament, to the end of 2011. South Canterbury Finance was approved for the extended scheme in April this year.
During the guarantee period, Treasury and its advisers were in "close contact" with South Canterbury. Once it became apparent the firm was in difficulty, there were proposals either to acquire parts of it or to recapitalise, and Treasury was instructed to "work co-operatively" on those options, Mr English said.
"However, all effectively amounted to a bailout by the Crown, with extra cost and risk to taxpayers. At no stage would the Treasury have recommended accepting any of these proposals," Mr English said.
Once the receivership went ahead, Mr English said the Government stepped in swiftly under the deposit guarantee scheme to offer up the $1.6 billion and $175 million to first ranked creditors, to avoid interest payments which could have accrued over months and to avoid receivership-control by first ranked creditors which could have "disadvantaged" the Crown.
"These decisions were taken for commercial reasons," he said.
Mr English said on having taken control of the receivership, Treasury had estimated the net saving to the Crown was about $100 million from not paying interest over months.
When the fees collected from the wholesale and retail guarantee schemes were included, the net cost of the bailout was likely to be between $300 million to $400 million.
"While this cost to taxpayers is considerable, this expenditure did help prevent the potential collapse of the financial system," Mr English said.
- Additional reporting by NZPA.
