Taking Stock   3 July 2025

Chris Lee writes:

1. If you have money in Senior Trust – read my message.

2. Has the Government been listening to the banking lobby? – Retrospective law is disgraceful.

3. Santana investors face some music – it might be punk rock, but the music has a right to create noise.

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ANY investors in the retail funding issuer Senior Trust last week had a long overdue heads-up after some discussions between the Financial Markets Authority and Senior Trust.

The heads-up, as I read it, was for investors to notify tomorrow, if not today, that they want their investment deposits to be returned by Senior Trust.

The first to do so may get a position in a queue of which it is better to be in the front than in the back.

Senior Trust has for a decade or so raised money aiming to pay investors 8%, or some similar rate, sometimes 6%. The securities issued were for some time listed on the NZX and sold in piffling volumes, providing a degree of liquidity.

To describe that degree as modest would be similar in exaggeration to describing Trump as “somewhat immodest”.

Some time back, the NZX-listing was ended and for a short while Senior Trust listed on the USX “Unlisted” platform, where the liquidity was even less.

The securities are not listed anywhere now.

Directors wanting to be repaid now apply to Senior Trust, seeking to be repaid if Senior Trust ever has surplus cashflow.

I guess few things are impossible.

Senior Trust uses investor money to own and develop a small number of retirement villages or gated villages of a quality that is doubtless high, though I have never visited such a village. The Trust faces many problems, all stemming from its fundamental design flaw - it has utterly inadequate capital and far too much debt, making it an improbable structure to attract mainstream debt finance.

Accordingly, the “loans” made with the investor money fund a high and rising level of the money needed to build and maintain the villages.

In banking jargon the loan-to-valuation ratio is now high, in some cases beyond what a prudent lender would accept.

Under-capitalised and over-indebted, its second related problem is that it has not received enough interest on its “loans” to enable investors to be paid the intended rate.

So for some years Senior Trust has borrowed more to pay the rate that investors believed they were promised.

Borrowing to pay one’s interest cost is the sort of strategy that usually leads to spiralling, eventually failed, debt. It may not be the same as the strategy that the Italian Charles Ponzi designed in the 1920s. When the securities were listed, and liquidity imagined by new investors buying from existing investors, the term I used was “the bigger fool” structure, rather than a “Ponzi scheme”.

Well, after recent discussions with the FMA, Senior Trust has cancelled any commitment to repay or pay any particular rate, noting it will pay returns and repurchase securities as its financial circumstances allow.

This is an honest and legitimate outcome, reflecting the difficulty of an organisation that, put quite simply, has too many assets based on too little capital, creating too little income to service too much debt.

I do not know any of the investors who fund it and am thus unable to offer personalised advice, but my general advice would be that if a queue of investors is ever repaid, those at the front have more hope than those at the back.

Long-term investors will know that the first iteration of Senior Living was Vision Senior Living, also under-capitalised, also linked to a small number of equity investors supervised by Goldman Sachs.

Vision Senior Living (VSL) survived until the disastrously-supervised Crown Deposit Guarantee scheme, created by Helen Clark’s government in October 2008. By surviving till October in 2008, VSL was included in the guarantee so investors were paid out, courtesy of the taxpayer.

Another Goldman Sachs group later put capital into what is now Senior Living Trust. This amount of capital, I think, was around $30 million, on which balanced what is now some hundreds of millions of assets, at least in part funded by high-spirited investors.

While history keeps repeating itself, the lessons of the past should be heard.

Senior Trust may well survive if it receives a large capital increase and finds staunch lenders willing to wait until cash flow surpluses enable the expectations of investors to be met. My guess is that the FMA will be mindful of its obligations to investors and will be regarding Senior Trust as an entity to be monitored carefully.

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THE Government’s remarkable decision to surrender to the requests of the ASB and ANZ banks is not unwise simply because of the derision it will attract from lawyers and the commercial sector.

The lack of wisdom, displayed by the Government and the two banks, is certain to raise questions about the lobbying sector and the neutrality of the law-making process. The background is this.

The Credit Contracts and Consumer Finance Act of 2014 sought to tidy up the disgraceful practices of backstreet lenders, who sold loans to desperate people, citing rates of “2% per week” rather than the true cost of such a loan, a three-figure percentage.

The law was bungled and did not differentiate the heavily audited and regulated banks from back street hoodlums.

The penalty for disclosure errors by ANY moneylender was that all interest and all fees must be refunded for the whole of the period that elapsed before the error was identified and repaired.

Backstreet lenders with a 3-month, 2% per week loan, would thus have to return the usurious rate. Good job. The backstreet hoodlums were exploiting desperate people and deserved the penalty. Their disclosure was deceitful.

Banks do not seek to deceive but do make errors and can use software that has flaws and makes tiny calculation errors. Banks naturally would repay any money received that was erroneously charged, and ordinarily would pay a relative compensatory amount, topped up by an apology and maybe a bunch of flowers.

BUT the CCCFA spelt out the compensation formula for the banks. The law was explicit.

A half-intelligent banker would have seen the need to ensure no error was ever made, given the gravity of the penalty.

If 150,000 different people over a five-year period each borrowed $10,000 at 10%, then on average each bank would have lent $750 million for years at 10% per annum. This might have raised $187.5m in interest. (Many variables mean the number is a guess.)

If the banks’ computer described in the loan papers a rate of 9.99%, but charged 10%, the disclosure rate would be wrong, and a full refund of all interest would be required.

Did I hear you say: “Diddums?”

Well, if the banks did not discover the error until five years later, the law would require them to repay the $187.5m (or whatever), effectively giving everyone affected an interest-free loan for several years. In 2019 Ardern’s government was told of the error and changed the law. At that point, it was not known that the banks’ disclosure rates were errant.

So now we move to the present.

Around 150,000 people over the past three years have joined a litigation funder’s case, demanding the two offending banks, ANZ and ASB, pay back the prescribed penalty sum, perhaps around that $187.5 million, the actual figure not known to me.

The law says the banks must pay. There no doubt might be a settlement discussed to reduce the penalty, but the law as it stands defines the penalty.

Here is one of the ugly issues.

The Prime Minister is Christopher Luxon, a man not blessed in the guiles of gotcha politics but an intelligent fellow with highly-developed private sector skills, his previous jobs being head of the huge Unilever company in Canada, and later, CEO of Air New Zealand.

As a person, he rates highly with me. As a politician he is a greenhorn. Yet I am sure he will have absented himself from the lobbyists linked to his former chairman and chairwoman at Air NZ.

At Air New Zealand the board to which he reported was chaired for a while by John Key, and later by Therese Walsh, both very political people, with close connections to the blue hue of politics, both close to Luxon.

Key has been a director of ANZ, indeed chairman of ANZ New Zealand, and Walsh, for reasons that do not need examination, has been chairwoman of ASB. It is irrelevant, perhaps, but I would not have endorsed either of these appointments.

When the banks were confronted by a penalty sum, they met with government departments and sought to have the CCCFA rewritten, RETROSPECTIVELY erasing the penalties defined in the Act, going back to 2014.

The Ministry of Business Innovation and Employment, and Treasury initially ruled out any retrospective clause.

But after bank discussions, the lawmakers relented and right now we await committee hearings in Parliament to discuss the proposed new law, which included the retrospective clause, effectively cancelling the penalty defined by the law, the cancellation applying right back to 2014.

Pretty clearly the banking lobby has been noisy and successful.

I have made my submission, in part because of the misinformation about the potential costs to banks of the potential penalty.

Banks have estimated the potential penalty at around $13 billion, a sum that would indeed badly damage the banks. For that reason alone the law had to be changed, the banks argued.

But there is only one current case seeking to apply the law for the period prior to the 2019 law change.

That case, in full flight but threatened by the retrospective law, might, at most, cost banks around $187.5m, or say, ANZ $100m and ASB $87.5m, in penalties for the five years of not taking sufficient care to obey the law and recheck their interest rate disclosures. That figure is somewhat less than the “nuclear” figure used by lobbyists.

For ANZ, a $100m fine (or $20m for each year), would be around 1.5%–2.0% of its annual profits. The fine for ASB would be similarly undramatic, nothing like the ghost-in the closet figure of $13 billion.

The Government has been subject to scare tactics. One cannot admire such scare tactics.

In my opinion, the banks have responded in a vulgar, careless manner, perhaps believing as Trump would say it, that “MIGHT IS RIGHT”. Lobbyists are by definition not balanced people.

I do hope Luxon’s government has the sense to exclude the existing law case from any retrospectivity clause, as it sets about fixing a law that clearly had unintended consequences but was made and remade (in 2019) without any planned lenience for banks.

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AROUND 20,000 (by my guess) NZ investors have bought shares in the Bendigo gold project being developed by Santana Minerals near Cromwell.

The gold discovery is of world-class dimensions, the grade unusually high, the ore easily able to be realised without the high-energy process of burning off carbon before the gold is heap-leached from the crushed rock.

The investors will be elated that the gold price has risen, converting the modelled production of gold into a giant dollar value, probably exceeding ten billion, over a decade or so.

All of this will be highly relevant to those investors.

Naturally there will be an anti-mining lobby. Quite correctly it will want assurances that the project does not create hazards (for example, water pollution), does not damage any unique flora or fauna, does not ruin the life quality of any neighbours, and does not destroy public playgrounds, like national parks.

The authorities that will assess the project are about to be called into action, the consent application to be filed soon (but no date specified).

Under the previous Act, the Environmental Protection Agency assessed the environmental issues and the economic benefits and released its judgment, approving (or not) the project. Only a court could reverse the EPA decision.

Today, the EPA simply assesses the “completeness” of the application, given 15 working days to announce that the consent is complete or not. A “complete” application respectfully acknowledges the issues, and details how these matters will be mitigated, relying on expert independent consultants.

Santana has spent $6 million, and change, on at least 12 consulting firms, one of which has yet to complete its work; hence the delay.

The EPA would not destroy its credibility by comparing mining disasters in unregulated parts of the world where engineering standards do not exist, and no heed is placed on safety or the environment. Such a scare strategy would be childish and would discredit the anti-mining lobby.

The EPA no longer has the role of assessing the economic benefits and thus is not the judge of the overall case. All it can do is refer the consent back to Santana, demanding it addresses whatever the EPA decides has not been addressed or conclude that the application should be passed on to the Fast Track panel, to approve the project, or not.

The EPA process no longer involves public submissions or public hearings. The Fast-track panel weighs the environmental cost with the economic benefit.

The modelled economic benefits at today’s prices are undeniable.

Annual export of gold – $500m-800m per year

NZ Govt tax and profit share per year – $200m or thereabouts

Jobs – 300 (plus)

Minimum span of the mine – 13 years (probably 15+)

Modelled profitability – billions

NZ ownership – currently 40% plus

To date, 900 people from around Central Otago have contacted Santana applying for jobs.

The objectors have one immutable claim – that the distant valley, on private land, 3.4 kms from any house, and around 6kms from the highway, will end up with a giant hole in it, possibly 2kms long and 1km wide. No doubt soil and rotten rock will be stored and later used, and no doubt natives will be planted later, but a hole is still a hole.

Some of the objectors, holding meetings and attracting media coverage, have badly damaged their credibility with silly stuff, which has encouraged the general public to dismiss the agitators as Wallys.

One angry protest organiser has claimed she will have to look at the mine while she drives along the highway. Her driving licence should be withdrawn if she gazes into the hills looking for a distant valley six kilometres away.

Another, an unwise lawyer, wrote that all the financial benefits will go to the Australians (who own 60% of the project). The tax, amounting to billions, goes to the NZ Government, and 40% of the dividends go to the NZ shareholders. Facts are facts.

But a giant hole is a giant hole so the consenting process will be crucial in coming weeks.

That hurdle to overcome is reflected in the discounted share price, now less than one half of the value of a consented project, and less than a quarter of the value of a producer should the current gold price be stable.

All of this explains the high level of concern of current and potential shareholders. For example, the Australian institutions would rather buy later at double the price than take the risk of the consent process favouring objectors. Aussies have no respect for our anti-mining lobby.

Over the next month all Santana investors will be on high alert.

The NZ Government very firmly wants the jobs, the exports and the tax. The environmental objectors will be noisy and in some cases coherent about their reservations.

Hold on to your hats!

The next month may be a test of the Government’s enthusiasm for mining.

Footnote: Santana has this week updated its feasibility study.  The study is worth reading.

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My next newsletter will focus on Europe. Fraser Hunter will ensure local events are covered.

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Travel

Lower Hutt – 9 July – Fraser HunterChristchurch – 23 July – Fraser Hunter

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Chris Lee

Chris Lee & Partners