PM admits Mascot 'shouldn't have been in' guarantee scheme

Mascot became the first finance company to collapse while covered by the deposit guarantee scheme. Photo / Simon Baker

The Government says Mascot Finance should not have been covered by its deposit guarantee scheme and criteria may be changed.

On Monday Mascot became the first finance company to collapse while covered by the scheme.

Receivers have yet to determine to what extent the Government will be called upon to repay $70 million owed to debenture holders.

Finance Minister Bill English expected the bill would be greater than $10m.

All eligible Mascot depositors would be entitled to 100 per cent of their money under the Crown's deposit guarantee scheme.

When it applied for coverage, Mascot, which was active in the rapidly deteriorating property market, had already ceased raising money via debentures and was "reviewing" its future in the finance industry.

Treasury did not know until last week of Mascot's problems.

Prime Minister John Key and Mr English told The Dominion Post newspaper the company should not have been in the scheme.

"In hindsight it was probably wrong," Key said.

Bill English had asked Treasury to report to him.

"The guarantee has signed up one institution at a time, on the basis that they're institutions that would be viable. We wouldn't want to guarantee ones that obviously aren't," he said.

"In this case Mascot have gone into receivership so we need to learn from this example how to make sure that we minimise the risks to the taxpayer that institutions that come along looking for the guarantee in the future may not be viable."

Those in the scheme would continue to be covered.

The deposit guarantee scheme was put in place to give New Zealand depositors confidence that their money would be secure in the event an approved financial institution failed.

Mascot's decision to opt for receivership came after the board decided a major loan was unlikely to be repaid. A writedown of the loan would put the company in breach of its trust deed.

The trustee and the board decided receivership was the best way of protecting all investors.

The receivership means that deposits are frozen.

The loan book was a mix of commercial property, investment property, property developments and business loans.

- NZPA