Editorial: Finance failure and earth moves

Yesterday's big jolt was the second to hit the Canterbury region in a week.

While the first didn't demolish buildings, it has shaken the financial foundations of the region.

The collapse of Allan Hubbard's Timaru-based South Canterbury Finance has huge implications for the country. The taxpayer bailout will cost us just under $1.8 billion, or $405 for every man, woman and child in the country.

The Government hopes to recoup all but $600 million of that through a structured sale of the company's best assets.

The 35,000 investors in SCF should be relieved. The retail deposit guarantee scheme has saved their bacon. Farms, businesses and many individuals would have gone to the wall without that backing. And the one or two bleating about Hubbard's treatment would be wise to remember that.

Based on what happened over the past two weeks - Hubbard's company failed to find a financial saviour before a deadline - the Government seems to have done the right thing.

Propping SCF up and giving it a chance to trade its way out of trouble would almost certainly have failed - that's been the clear experience of other finance companies that have hit the skids.

But questions remain. Why was SCF given an extension to its participation in the guarantee scheme in April? That was granted without the Government seeing its audited accounts. It effectively allowed the company to stave off the wolves by offering depositors interest rates of 8 per cent.

Even if it went belly-up, canny investors knew their money, with a fantastic rate of return in these times, was safe. That must be galling to those who suffered from other company failures and who had no backstop. It is at the very least an annoyance to the rest of us, and something John Key's Government needs to explain.

No one wanted SCF to go belly-up, the repercussions would have hit like an earthquake. You just can't shake the feeling this was one the Government should have seen coming. That being the case, shouldn't the ambulance have been a bit closer to the action, rather than at the bottom of the cliff?