Rates round-up: May 7
SCF fraudster sentenced; local government bonds popular; bank funding requirements change
Monday, May 7th 2012, 6:30AM
by Niko Kloeten
The former IT company director who admitted to defrauding South Canterbury Finance of $103 million has been sentenced to eight years in jail.
Gavin Bennett used his company DataSouth as his personal vehicle to fund a lavish lifestyle, paid for with money loaned by South Canterbury on the basis of fraudulent IT leases.
Earlier this year he pleaded guilty to the fraud, one of the largest in New Zealand history, which resulted in a $23 million loss for the finance company.
Delivering his sentence last week in the Christchurch District Court, Judge Jane Farish also increased the non-parole period from two and a half to three and a half years.
The judge said there needed to be an element of deterrence and said the average person in the street wouldn't think two and a half years in jail was enough for a crime she described as "unprecedented".
Bennett's offending took place over six years and involved nearly 900 documents.
According to the Serious Fraud Office, which brought the charges, Bennett moved nearly $8 million to bank accounts and credit cards for personal expenses during this time, including $A900,000 in regular payments to "various female companions".
He also spent $A463,000 on rentals for luxury apartments in Sydney, $A429,000 on food and beverages, A$161,000 on international air travel for him and his companions, A$163,000 on designer clothes and A$53,000 on corporate taxi expenses.
Local government bonds popular
The newly created Local Government Funding Agency (LGFA) is having no trouble finding buyers for its bonds, with the latest issue heavily oversubscribed.
The LGFA, which has the same credit rating as the New Zealand Government, was set up to enable local councils to borrow at lower cost.
It also provides a new product for a fixed-interest hungry market, which continued to snap up its offering in its latest bond issue last week.
A total of $140 million was on offer, with $20 million maturing in April 2015 and $120 million maturing in December 2017.
The April 2015 offer attracted a bid-cover ratio of 2.9, with $57 million of bids at a successful range of 3.36%-3.46% and a weighted average successful yield of 3.43%.
The December 2017 offer was even more popular, attracting almost $800 million for a bid-cover ratio of 6.6, a successful range of 4.22%-4.24% and a weighted average successful yield of 4.23%.
The yield for the 2017 bonds was just over 100 basis points above that of equivalent New Zealand Government Bonds, higher than the 50 basis point difference the LGFA is aiming for.
Bank funding requirements to change
Banks will have to look locally for more of their funding from next year, the Reserve Bank has confirmed.
Reserve Bank deputy governor Grant Spencer said in a speech last week that the Core Funding Ratio, currently set at 70, will be increased to 75 from January 1 next year.
This means banks will have to get 75% of their money from domestic savers and with terms of more than one year, meaning demand for deposits will likely heat up.
The new ratio was supposed to be introduced in June, but was delayed in November last year as a result of the European debt crisis.
Niko Kloeten can be contacted at firstname.lastname@example.org
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