Saturday, September 18, 2010

The other South Island fault line

(First published in the Nelson Mail and Manawatu Standard, September 15.)

Not one but two hitherto unsuspected fault lines have emerged in the South Island.

The more obvious is the one that ruptured at 4.35am on the morning of September 4, causing catastrophic damage. In the first 24 hours after the event, there was mostly relief that no one had been killed, due no doubt to the lucky timing.

But as the days went on and the aftershocks continued unrelentingly, the true cost of the 7.1 quake started to become apparent – not just in terms of damaged property and infrastructure, which was massive enough, but in the form of public anxiety. Relief turned to fear and uncertainty as businesses closed, houses and public buildings were condemned and the ground just kept shaking.

The evidence of the previously unknown fault line running under the rural town of Darfield was there for everyone to see in the pictures of cracked roads, kinked railway lines, crumbling buildings and ruptured farm paddocks.

Not so obvious, however, was the other newly discovered South Island fault line – one that is sociological, economic and political rather than geological. It lies further south, around Timaru.

The furore surrounding the collapse of South Canterbury Finance, and its subsequent $1.6 billion bailout by the taxpayer, laid bare a seismic divide between the provincial South and the urban North.

It evoked memories of a distant time – it would have been the late 1970s or early 80s – when there was a vocal South Island secessionist movement. North Islanders regarded it as a joke but its proponents took it very seriously, believing that the interests of the South were being arrogantly disregarded by those in power in Wellington.

The fallout over SCF has brought similar North-South divisions to the surface. Alan Hubbard, the octogenarian multi-millionaire behind the Timaru company, was a genuine local folk hero – a sainted figure who seemed to remain untainted even when other finance companies were falling like skittles.

The government’s announcement that his affairs were being placed under statutory management provoked shock and outrage. Crowds marched through the streets of Timaru demanding that Mr Hubbard be given a fair go.

But in the metropolitan north, financial commentators began asking hard questions. Unaffected by home-town sentiment, they looked past Hubbard’s reputation as a generous and much-loved benefactor, of whom the worst that could be said was that he spurned modern technology and didn’t always keep his books completely up to date.

They also began to wonder whether, preoccupied with health problems, he had taken his eye off the ball.

For a time there were two simultaneous but conflicting narratives running in the media. In one, Mr Hubbard was a man of impeccable probity and loyalty to his community who had been unfairly targeted by meddling bureaucrats and blamed for events beyond his control. It was said that he deserved a chance to dig himself out of the hole – which, with his proven financial acumen, he would inevitably do.

In the other narrative, SCF and its related companies were a disaster waiting to happen – one made worse by related-party lending (a common feature of some of the notoriously shonky finance companies that had already gone under) and dodgy speculative investments that multiplied after SCF became eligible for the government’s deposit guarantee scheme.

In this narrative, which rapidly became the dominant one in the North Island papers, Mr Hubbard had not only allowed his business to grow too big for him to handle, but had let it fall into the hands of people who didn’t necessarily share his principles. (In saying this I exempt SCF’s most recent chief executive Sandy Maier, who appears to have worked hard to salvage the firm).

It’s tempting to say that no winners come out of this, but it’s not true. SCF investors have kept their money and even their interest, much to the chagrin of other New Zealanders – especially those who had to walk away empty-handed from earlier financial collapses. A few cold-eyed opportunists who got their timing right will have done exceptionally well.

On the other hand, Mr Hubbard and his wife Jean have not only lost a fortune, but have sacrificed a reputation that took decades to build – if not among their stalwart local supporters, then certainly in the eyes of the taxpayers who were called on to rescue SCF. And those taxpayers, of course, are all losers too, to the tune of several hundred dollars each.

What we are left with is a striking rift between North and South. People are shouting at each other across this chasm and it will be a political challenge for National, traditionally the party of the provinces, to reconcile them.

Resentment clearly simmers in South Canterbury. When Finance Minister Bill English (himself a Southern Man, at least by birth) suggested that Timaru should be grateful for the SCF bailout, he copped a savage backlash. Timaru Herald editor David King reported a flurry of furious letters to the paper.

Attitudes in the South seemed to be summed up in a poster carried by a protester in one of the pro-Hubbard marches. “Get back to Wellington where the real fraudsters are,” it said.

But resentment feeds on resentment. New Zealand Herald business editor Liam Dann wrote that Mr Hubbard had left an appalling mess for the taxpayer to clean up and owed the country an apology.

Broadcaster Paul Holmes wrote in his newspaper column that the country had been forced to swallow a filthy rat and all it had got from the south was contemptible ingratitude. Another Auckland-based commentator, Deborah Hill Cone, wrote derisively about “the cult of Hubbard and his affectation of having a VW” and concluded that the financier ending up believing his own self-righteous hype.

That graunching you can hear is the sound of two tectonic plates – the south and the north – rubbing up against each other. This is a fault line that may run even deeper than the one that tore Christchurch apart.


homepaddock said...

", and its subsequent $1.6 billion bailout by the taxpayer, "

No-one has bailed out SCF, the company is in receivership.

The bail-out is of investors who were covered by the deposit guarantee scheme.

The eventual cost of that, once SCF's assets have been sold, is expected to be $400m - $600m. That's still a lot but not as bad as $1.6b.

I agree with the thrust of your post, though. This has opened a north urban - south rural divide, even though nearly half the investors who'll get money back are North Islanders.

Ele Ludemann

Karl du Fresne said...

Thank you for that correction, Ele.