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South Canterbury Finance (SCF) ramped up its risky real estate loans after it signed up to the Government's scheme that protected its investors' money, the company's chief executive Sandy Maier said tonight.
SCF went into receivership today and the Government is paying out $1.6 billion under the Retail Deposit Guarantee Scheme to ensure investors get their money back.
Bad loans were the main reason for its downfall, and Mr Maier revealed the high risk tactic in an interview on TV3`s Campbell Live programme.
Asked whether it had been cynically exploiting the government guarantee, Mr Maier replied: "It might have been cynical, it might have been merely incompetent... it probably violated a lot of prudent lending criteria."
He said he didn't know exactly why it had happened.
"Personal egotism, misreading, out of control... whatever it was, there's no real positive name for it," he said.
"I guess the best you could say was it was somebody's idea of aggressive growth.
"This happens in the lending industry, cyclical excesses and rushes of blood to the head.
"South Canterbury Finance was poorly controlled and managed for some time."
Finance Minister Bill English, appearing on the same programme, said the management team at the time would have to be asked why they acted the way they did.
"Certainly they made loans which turned out to be bad loans and can't be recovered," he said.
"They essentially lost $500 million or $600m and the taxpayer is obliged to make up the difference to the depositors.
"So there's no doubt we're here today because SCF lost a lot of money."
Mr English said the company's managers might argue they were caught by the global financial crisis.
"For the last 12 months or so we've had advisers in there... and until last week there was still a chance the taxpayers wouldn't have to pay up at all," he said.
"However, that didn't happen and so we've got this bill for what is essentially bad management and bad decisions by a company that was probably growing a bit fast."
- NZPA
