Despite requests from media, I have, until now, said nothing about South Canterbury Finance, and the other Alan Hubbard financial entities. It has been sad to see one of the pillars of New Zealand agribusiness, and also a pillar of the wider business community, fall over. I needed time to think about what has led to the crash.
I have never met Alan Hubbard, yet he has often been a topic of conversation amongst my agribusiness colleagues, going back over many years. Nearly everyone I know in NZ agribusiness seems to have had a close association with him, and to have done deals with him.
In trying to make sense of what has happened, I find my self reflecting on many past conversations. I recall one farming friend, whom Alan Hubbard offered to support in a new farming endeavour. My friend turned it down, as it seemed too high risk, but often kicked himself in later years, as he realised that Alan would have supported him through the difficult times. I imagine that now he is no longer kicking himself.
I recall another associate of mine who often introduced young farmers in need of finance to Alan Hubbard. When perusing the accounts, Alan would focus almost exclusively on the personal drawings. If someone was thrifty – like Alan himself – then the chances were that he would get Alan’s support. Dealing with Alan Hubbard was always a straight forward affair, and I have never heard of anyone complaining that Alan welched on a deal.
The Opuha dam in South Canterbury is the lifeblood of much of South Canterbury agriculture. There are several people who stand to the fore in creating a great community scheme. When it came to getting the finance together, Alan Hubbard’s support was pivotal.
Everyone said that Alan was a good man. We all wanted to trust someone who was so community minded, and yet lived such a frugal life himself. Alan was so humble, and did not talk much about himself. But some years back he did talk to a group of senior citizens in Timaru and laid out some of the details of his early life, including his childhood. As reported to me, it would be hard to think of a more inauspicious start to life.
In recent years, if I ever had a niggling doubt, it was because I saw Alan was associated with some people whom I did not hold in such high regard. But I easily cast those doubts aside.
As the NZ finance companies fell over throughout 2007, 2008, and 2009, I thought that South Canterbury Finance was different. I was influenced in that by the writings of Kapiti Coast financial adviser and stockbroker Chris Lee. I had observed Chris engage in battle with one of the other high flyers of the NZ finance company world, who I had good reason, as a result of my own investigations, to believe was a ‘bad egg’. The details of that story will have to wait for another day, but my own peripheral involvement came about when a TV producer asked me to run my eye over an agribusiness proposal, which, after some days of digging, I reported back as being a scam. For other reasons, that TV program never ran, but it was enough for me to think that Chris Lee, who was trying to expose other activities undertaken by this person, was one of the good guys. And so if Chris was backing Alan Hubbard, then Alan must also be one of the good guys.
In amongst all of this there were warning signs. I first got worried when two South Canterbury Finance directors suddenly resigned in August 2009. What was going on? Were they jumping the sinking ship? Was it a matter of principle? The newspapers never explored the issue in any detail, but the bush telegraph subsequently told me that one of the directors had moved a motion of no confidence in Alan Hubbard. The voting amongst the directors was two for and two against, with Alan voting against, and then using his casting vote as chair. So was the dye already cast at that time? Was the demise already inevitable? And if so, why had it taken these directors so long to act?
There was another warning sign. Accountant David Hillary has been writing in great detail about South Canterbury Finance on his blog http://www.lostsoulblog.com since about October 2009. In an early blog (October 25, 2009) he drew on an article by Tim Hunter in the Sunday Star Times of the same date, where the tangled mess of inter party lending in SCF was discussed. Since that date, David Hillary has been like a terrier, gnawing away and exposing the problems at SCF. Looking back now, it is obvious that David did an exceptional job. But if David could do this in his spare time, then where were our regulators over the last few years?
It is going to take some time for the dust to settle. But I don’t think that anyone else is going to come out of this saga with much credit. That includes the SCF managers and directors for at least the last five years. It also includes our financial regulators. And it includes the politicians of the last two decades who have to take some responsibility for the financial structures that we have in New Zealand.
When I came back to New Zealand some ten years ago, after nearly 20 years living overseas, I wrote myself a mental memo. It said: never invest in the NZ stock market, and in particular, never invest in NZ finance companies. Fortunately, I took my own advice in relation to the finance companies, including SCF. But I did weaken for a short while, but only to a very small extent (and to my cost) in relation to the NZ stock market. So I have written myself another mental memo: never forget that the world of finance is full of cowboys, who, in the NZ environment, can still do almost whatever they like. I have also written myself another mental memo in relation to the agenices that provide risk ratings on financial products: these rating agencies have good hindsight but poor foresight.
I still have a lot more thinking to do about Alan Hubbard and his financial entities. At the moment my feeling is a strange mix of sadness and anger. My sadness is about the losses that some good people are still going to carry because of failures in entities such as Aorangi Securities, which do not (and rightly so) come under the Government Guarantee. My sadness is also at my own naivety that SCF and the other Hubbard entities were somehow different. My anger is that this has been going on in the NZ finance industry for far too long, and every taxpayer is now paying the cost. My anger is also that there are going to be some big winners out of all of this over the next year or so, but they won’t be the little people.