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April 2020 Edition

Well we are back again. Sorry about the delay. Being in lockdown allows one to catch up. We have read or at least browsed the book The Billion Dollar Bonfire by Chris Lee. This was basically a biography of the late Allan Hubbard and the fate of the financial empire Hubbard created. We are impressed with the telling of the financial detail and the life of Hubbard in general. It seems to ring true; but with two exceptions the operation of the industry in general into which South Canterbury Finance fell was grossly over-glamorised, and chapter 19 being 4 pages on what happened the day Allan Hubbard died seems to be a mess.

Let us take the death issue first. The cause commenced about 1pm when apparently Mr Hubbard was being driven from Timaru to Oamaru by his wife Jean and they were at Richmond, 5km or so short of destination. Richmond comes before the Pukeuri where the large old meatworks is. They had come from a final meeting with South Canterbury Finance (SCF) staff on their final day at work. The receivers had completed their function and the office was closing down. Allan and Jean were both in their eighties, Allan was facing fraud charges involving we think the greatest amount ever in NZ. We wonder whether they should have been driving so far that day on what one would think would be an emotional occasion. There is evidence of a collision at Richmond with the Hubbards and one other person, apparently from the other vehicle, appearing to be somewhat injured. The newspaper or Stuff story is that all three were taken to Oamaru hospital in one ambulance and each were in a bed there. It was arranged for Allan to go to Dunedin by helicopter while Jean went by road ambulance. Allan's death certificate records that he died in an air ambulance bound for Dunedin. The prime cause given was shock due to sustained blood loss. He also had a dislocated hip and multiple pelvic fractures. But the Government was deeply involved in final years of South Canterbury Finance and we say in such circumstances official records, or for that matter any records are not to be fully relied upon.

The author Chris Lee says he heard about the death after finishing a round of golf. He had a phone call from his son James. James was an executive with First NZ Capital. He is now CEO for that large finance firm which is now called Jardens. This information from James seemed to arrive extremely fast in that it has been said that police released details of the death at 7pm. We sort of wonder why the keen interest in the death of an old man, a has-been. Mr Lee senior said he and many others wondered whether the death was an accident. We still wonder that. But Mr Lee says he was later assured it was an accident after viewing photos taken by a Timaru photographer Brian High who apparently arrived at the accident road block but subverted it to take photos of the scene which he later showed to Mr Lee. It apparently gave good evidence of the collision being an accident. There were no skid marks for the van which he said indicated that the driver had gone to sleep. It is said the front passenger door was badly stoved in which accords with the injuries stated, but that door is not really exposed with a straight road collision. The car must have been shunted back and twist around to expose that door and the van had a second go. It was suggested the Hubbard’s car might have parked off the road at the time of the collision. But Mr Lee says that the car was shunted back 10 meters and sideways 20 meters which makes a second collision with the van rather unlikely. These photos don't seem to be available to the public. Mr High has apparently had quite a long involvement with SCF and Allan Hubbard and the cover photo of this bonfire book shows Allan Hubbard by himself on a wide beach near the Shag river mouth in 2005. Hubbard apparently owned the farm bounding that beach. Mr Lee says that after the helicopter taking him to Dunedin took off Hubbard started failing so it landed on the first available flat land which happened to be that very beach and that is where Mr Hubbard died. This information is not very important but perhaps is a little poetic. It describes a fluke if it is so. He does not say where he got that information from. Nor does he explain that Hubbard was first taken by road to Oamaru hospital. You would expect that his condition would be stabilised as much as possible before the trip to Dunedin, including a blood transfusion perhaps. The van driver said he had spoken with Hubbard while he was in hospital. He said Hubbard said he was rather sore but not too bad. The van driver said that he was highly surprised when he learned that Hubbard had died soon thereafter. Chris Lee said Hubbard had told him and others that he would die probably by failing to do his blood dialysis rather than face fraud charges. He had then thought the "accident" might have been an alternative suicide method. He then ruled out the suicide possibility but has chosen not to consider the possibility of murder. You have to be rather careful when you talk about such, but such discussions are most necessary to ward off high tech murders being disguised as accidents or suicides. The person in the other vehicle probably did nothing wrong if it is high tech.

We say that there was plenty for a whole range of people to be concerned about if Mr Hubbard had decided to defend himself against the fraud charges with all guns blazing. Even if you can’t deny the charges effectively it can be a reasonable argument that most everyone else was doing it and you should not be picked upon. Mr Lee reveals that he has put a lot of time and effort, along with others, into trying to get compensation for the preference shareholders of South Canterbury Finance who generally lost their money. Probably he knows of some sad cases of people who put much of their assets into these shares. The argument is that deposit holders in SCF were well treated while the preference shareholders got nothing. But it should have been well recognized from the start that the deposit holders get everything back before shareholders including preference shareholders get anything. And so it worked out. With a finance company there is generally high gearing so the prospects of shareholders losing the lot is relatively high. This is especially so if the company management is pretty much a one man band with no evidence of any succession plans in place. It can be argued that when the Government guarantee of SFC deposits was put in place there should have been controls put on the amount that could be borrowed by way of deposit. Investors were keen to put money in and there was too much money for the management to invest at its normal high rates. But preference shareholders just have to trust in the quality of the management. They are stuck there. That is the nature of the investment. If the management has done illegal things against them of course they can take action but if the errant shareholders are insolvent that is not going to get them anywhere. Of course if the Government or elements of it have encouraged the illegal behaviour there should be relief available but that will be hard to prove. The fact is preference shares in a finance company are a bad investment and should not have been recommended to anyone. Certainly a huge amount of Government funds went into assisting the deposit holders while nothing went into assisting preference or any shareholders, but the stated motive from a Government point of view was national economic stability which is hard to argue with.

Something we learned from The Billion Dollar Bonfire was that Allan Hubbard was awarded an honourary doctorate from the University of Otago in 2003. More relevant was the implication the doctorate had been bought for $250,000 cash. Mr Lee’s interest seem to be in what account Hubbard took the money out of, but we are more interested in qualifications being bought. Eion Edgar, then chair of Forsyth Barr, was chancellor of the University of Otago. Edgar got the same honour the following year when he retired as chancellor. That was 2004 and the “Feltex IPO” was launched in April that year. South Canterbury Finance “subscribed” 3m shares costing about $5m to that “offer”. We would suspect Edgar pushed Hubbard into it. The ACC through $16m into the Feltex fund pretending it was an investment with Edgar head of its Investment committee. The SFC contribution to Feltex should have been mentioned in the book. It is part of the bonfire. It went up in smoke. It was the largest contribution by a private organisations other than those associated with the lead brokers and Hunter Hall an Australian “ethical investment” which seemed to be carrying out an underwriting function on behalf of the Australian Government. This SCF subscription was a major happening in the company but as far as we are aware it is not mentioned in the book. It would be an Eion Edgar initiative as well we suspect. Forsyth Barr had been the main supplier of SCF broker deposits up until that time according to the book. The book was not over-complimentary about the of advice given to Hubbard and SCF staff by Edgar and Forsyth Barr. On the other hand the occasional mentions of advice from then FNZC, the other Feltex IPO broker was seen as very positive. One wonders whether the fact that at the time of writing the author’s son James was CEO of FNZC, now Jardens, had something to do with it. Well James joined FNZC in 2002 when it was the NZ branch of Credit Suisse. The firm had a couple of years earlier represented both parties (one as Credit Suisse F B and the other as CS First Boston) when the ACC bought $500,000 of National Mail shares from Cliff Cook. A few days later National Mail went out of the mail business losing the ACC 95% of its “investment”. ACC said it bought because of its confidence in Peter Fitzsimmonds who had joined the National Mail board a little while back. But they would know Mr Fitzsimmonds and Cliff Cook were chair and largest shareholder/director respectively in the listed company Metlifecare. This was clearly an agreement with public officials (possibly a trial) to move public funds into a “co-operative” corner of the private sector. A smart young man would be aware of that and should not have any intention of joining that brokerage firm. James had been on the staff of Credit Suisse/First NZ Capital for over a year when the “Feltex IPO” was launched. His work might not have been associated with the offer but he should have been interested enough to look over the prospectus. And this page 37 deception should have been obvious to him and his father who was probably working at his Paraparaumu practice. It is obvious at a glance that this statement about 1.7% growth is there to deceive readers about growth in the carpet market. Firstly it can be seen that the 1993 size is low and outside the traditional “last 10 years”. Then with a simple calculation it can be shown that only two years, 1993 and 2003 have been used in this “1.7% “ calculation. Least squares regression analysis of all the latest 10 years of sizes gives an average increase of 0.3% but more importantly this average line does not pass through the actual 2003 size but well below it. The predicted 2005 size is 3% below the 2005 size not 1% or 2% above it as Feltex adopted effectively saying that the market growth adopted is less than what the trend of the last 10 years indicates but if you look at what happens two years after a high size years, (2003 is clearly the 2nd largest year). The largest year,2000, falls 9.2% to the 2002 size, the 3rd largest year 1995 falls 5.2% to the 1997 size, the 4th largest year, falls 2% after 2 years and the 5th largest year, 1994 falls 4%. There is a clear pattern there suggesting there will be a 7 or 8% fall from 2003 to 2005 so the adopted percentage is 8 to 10% overstated. This is criminal manipulation. A similar over-estimation with market share is what put Feltex under. If it was good enough for these professional brokers to do such it was good enough for Hubbard to do similar. The Feltex rip-off went of course went for licenses for the country to cheat Olympic medals. Other rip-offs have been to pay for us to be at the top of the anti-corruption index. These things do us no good. The long serving FNZC CEO Scott St John has been on the Fonterra board while that company somehow lost large investments. The bias toward FNZC is not justified.

The forerunner of First NZ Capital the NZ branch of the Swiss finance giant Credit Swiss. Prior to that it was R A Jarden and Co, a name FNZC have gone back to. While the name was Credit Suisse it is clear that the firm operated as a crime school in conjunction with senior political figures. Obvious graduates of the crime school have been Chris Liddell, Craig Foss, Fraser Whineray, Matthew Whineray, Suzanne Snively, and inevitably the leaders who were there in some capacity during the Credit Suisse period, Scott St John and James Lee. The first scandal we know of was in the year 2000 there was a sale of National Mail shares held by Cliff Cook to the ACC Investment Fund (officially Investment Fund),managed by Nicholas Bagnall. Mr Bagnall left the ACC in late 2019 to run his own investment business which is contracting with ACC. Trevor Janes retired in 2018 after being about there for 20 years. Anyway Credit Suisse represented both parties in this sale/purchase of National Mail shares, to one party it was known as Credit Suisse F B and to the other C S First Boston. National Mail had not reported for some time and about 10 days later said it was going out of the mail business, its shares losing 95% percent of their value. Bagnall said they bought because they were impressed with Nation Mails relatively new director Peter Fitzsimmonds but he would have known that Fitzsimmonds and Cook were close associates being chairman and largest shareholder respectively in the listed company Metlifecare. This was clearly a scam to raid public funds for secret purposes of Government and business associates.

As joint lead brokers First NZ Capital were clearly in the thick of the 2004 Feltex IPO scam which robbed $200m off amateur investors to buy licenses to cheat gold and silver medals at the Athens Olympics from crooked Olympic officials. It is obvious to any decent broker that the 1.7% statement above was crooked as was the peculiar Olympic wins. The sole vendor of all the Feltex shares and the promoter of the IPO both had names starting with the words Credit Suisse. These offenders have engaged Tony Gavigan to recruit the losing shareholders to take a case against the Feltex directors and brokers but the case is weak and with a generally corrupt (Government appointed) judiciary the case is going nowhere. Gavigan called Australian “accountant” Greg Meredith as an expert witness. He suggested 1993 might not have been the right starting point in conducting an average growth calculation and presented other calculations using two year only being various starting years with years 2003. He did not mention least squares regression analysis or the fact that there was always a large fall from a year of large size to a year two years later.

A third major crime which largely stems from the Credit Suisse crime school concerns a payment of $US150m in mid 2014. It was purportedly for an investment by way of a deposit in one only private Portuguese bank. The investment turned sour about six weeks after the investment was made and the investment was written off in February 2015. The “deposit” was made through the investment house Goodman Sachs. There were 11 other depositors who’s deposits were combined for a total investment of $US612m, all in the one bank. The conglomerate, called Oak Investments, purports to be taking a case against the reserve bank of Portugal because it is claimed that this bank undertook to pay out the deposit and then changed its mind. They do not appear to be claiming that the Reserve bank always had an obligation to repay the deposit. A purported or real claim form of Oak finance against this reserve bank was until very recently available on the Funds site but we have it here. It can be seen that claimant numbers (1) and (12) are the NZ Super Fund and a Super Fund of a major Danish Superannuation Fund. Denmark rivals NZ for top place on the Transparency International anti-corruption perceptions index. It is clear that these positions are arranged for one year at least by these payments to corrupt TI officials. Other contributions on the list could also be payments in support of NZ and Denmark. But many are probably in support of countries to give them a relatively high rank. For instance the UK has had the highest ranking on the list for countries with a population over 10 million. Note that these 10 other contributors are all registered in recognized tax haven countries. John Key authorized NZ accountants to act for such countries without advising the country of the companys’ owners what is going on, until the publication of the Panama papers gave him a change of heart.

Fraser and Matt Whineray were with Credit Suisse for about 8 years around the turn of the century the they were appointed to Mighty River Power and the NZ Superannuation Fund respectively in 2008 the last year of the Clark Government. About 6 weeks before the Portuguese bank deposit cheque Fraser was appointed CEO of Mighty River Power by Joan Withers, who joined the Feltex board just before the “IPO” was issued. She would or should have realized the 1.7% market growth calculation was crooked. She had a duty to check over the prospectus before it went out. Then just before this deposit cheque was issued Matt was officially appointed the Chief Investment Officer of the Fund. Suzanne Snively has been on the board of Transparency International since 2012 and is currently its chair. The current Reserve Bank Governor Adrian Orr was CEO of the Fund at the time the deposit was made. He is up to his neck in it. He cannot explain what was the attraction of the deposit from an honest CEO’s point of view. They were suing the Portuguese Bank via an UK court, then via a Portuguese court, now it seems not at all.

There is very little democracy in the country. It is ruled by parliamentarians who tell the public what they think is good for the country. Eg the country is incredibly athletic, top of the summer Olympic table per capita and incredibly honest, top of the anticorruption perception index. The public is told we have a high safety standards while industry leaders are told to ignore these standards and are told that they will not be prosecuted if disasters happen. The Government has spent purportedly millions of dollars on highly actions in going down the access tunnel at Pike River where 29 miners lost their lives. Their theory is that red tape inhibits economic growth. They have not got to and will not go to where the bodies are. The Feltex and Pike river fiascos have rather destroyed the domestic stock exchange and no wonder.

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