Don’t bank on SCF investors’ spending spree
0 Comments | Waikato Times, Sep 4, 2010 | by Terry HALL
Everyone, it seems, from gold bullion dealers to real estate agents, to share traders and storekeepers, is salivating at the prospect of the money they hope to make from the Government’s injection of about $165 billion into the economy after the receivership of South Canterbury Finance.
Unfortunately, this is largely wishful thinking.
There is little doubt that most of the money will be reinvested in fixed-interest securities. This is because it belongs to mainly cautious older people who aren’t big spenders and want income and security – and thought they had it with South Canterbury Finance.
They trusted the image of Allan Hubbard, a noted public benefactor, whose modest lifestyle and trademark aged Volkswagen car didn’t suggest in any way that his company was anything but a model of security and propriety, or that control had apparently passed to a new generation of wheeler dealers because of his poor health.
Such investors didn’t want to be troubled by the risks of the sharemarket or dealing with tenants, or worry about the safety of a gold bar hidden under the bed: while it may gain in value it contributes nothing towards the weekly grocery bills.
Many of these people were brought up with a savings habit taught at primary school, where children were encouraged to watch their savings grow through old Post Office Bank accounts. They understand fixed-interest saving.
What went wrong was they were misled by glossy advertising and appalling advice from so-called financial advisers.
Many of these investors were also greedy or poorly informed: most of the failed finance companies were offering as little as a quarter or half a per cent more than the banks.
Those hoping for a sizeable lift to the economy from the government injection are likely to be disappointed. Had all gone according to plan, many of the investors in South Canterbury Finance would have got their money back next month, when the original government guarantee was due to expire.
Most of the investors in the company had invested with October this year in mind, precisely to take advantage of the security offered by the guarantee up to that date.
It is doubtful that, given the bad publicity that has struck the sector, they would have reinvested in any finance company without the guarantee. So they are simply getting their money back a few weeks early. It is not known precisely when, although it is widely believed that South Canterbury Finance had good records and it should be a simple matter for the receivers to pay it out earlier than the month that has been set.
However, the South Canterbury investors do have a few problems in deciding where to reinvest the money, apart from having to adjust to lower interest income which will cut their consumer spending.
Their hunt for fixed-interest investments is handicapped by a great scarcity of quality options available at present