Barr managing director Neil Paviour-Smith has been reflecting
carefully on events of the past few days and believes some
lessons have been learned from the Credit Sails agreement
announced on Tuesday.
The sharebroking firm and Credit Agricole CIB have paid $60
million which will be held in a trust account from which
payments will be made to eligible investors. Those investors
will receive about 85% of their original investment back.
Credit Sails was sold as fixed-income securities at $1 each
with the prospect of 8.5% interest income and capital
protection. They had a principal-only rating of AA from
Standard & Poor's. Interest was paid for two years but in
the wake of the global financial crisis, the securities fell
in value, ceased paying interest and were now nearly
In an interview, Mr Paviour-Smith said Forsyth Barr found
itself in the same position as other brokers - both in New
Zealand and globally - as the GFC took hold.
''We aren't seeing these types of offerings in the market any
more. People have changed.
''From my point of view, the issue I see we need to be
addressing is the requirement to be seen doing something
versus that we know we are doing something.''
Mr Paviour-Smith said Forsyth Barr had been actively working
on a resolution since the collapse of Credit Sails and how it
could work best for investors. Asked why he had not made that
public during several interviews with the Otago Daily Times
in the past, he said the firm was bound by a confidentiality
clause that prevented public comment.
The firm could not obtain the answers it needed from the
questions it had asked so put the matter in the hands of the
trustee - a body which had the power to obtain the answers,
The trustee managed the process for a year before the
Commerce Commission came along.
''It was in nobody's interest if we ran a public campaign. We
decided the best way to investigate was through the trustee.
There were lots of questions that needed answers.''
The main question Mr Paviour-Smith wanted answered was why
the product had failed. Before 2006, nobody was saying not to
invest in products like Credit Sails, he said. Investors were
looking for high-yielding investments and the AA credit
rating was a key component.
Investors had become more circumspect regarding credit
ratings but everybody still agreed on the need to have a high
credit rating. Even the Government was conscious of its
credit ratings, he said.
''We have reflected very carefully on what we expect from
this. We struggled a great deal, as investors did.''
Investors needed a diversified portfolio and should carefully
consider their investments. Some people invested too much
into one product (Credit Sails) but they were receiving much
of their investment back, he said.
Forsyth Barr staff had ''enjoyed'' phoning clients and
telling them the good news. There was another side to all the
angry complaints that had appeared in the media, Mr
As an investor, he could understand the anger and
frustration, but the other side was Forsyth Barr had been
working hard to get an outcome.
The firm would be ''very reluctant'' to put itself in a
position in the future where to get a mandate as an issuer of
a product it had to put itself under a ''cloak of
confidentiality'', he said.