Credit Sails report creates ‘imbalanced impression’, Forsyth Barr says

Forsyth Barr, one of the lead managers for the sell-down of MightyRiverPower, has criticised a Commerce Commission report into the broker’s role in the sale of complex and ultimately toxic securities, saying its creates an “imbalanced impression” and “contains factual errors.”

In December, the broker and French investment bank Credit Agricole cut a $60 million settlement giving investors in NZX-listed Credit Sails notes 85 percent of their principal back, heading off a potential law suit from the Commerce Commission and avoiding any other liability.

The antitrust regulator today published full findings from its probe, including a series of emails between Forsyth Barr and Credit Agricole subsidiary Calyon painting the firms in a less than complementary light.

“We note the commission’s statement that was restrained to only presenting information that had been obtained from Forsyth Barr and that this may create an imbalanced impression as to our role and responsibilities with Credit Sails,” the broking firm said a response published on the Commerce Commission’s website.

“While we do not agree with parts of the report, which contains factual errors and statements taken and presented out of context, we have taken on board the commission’s feedback and comments,” it said.

An email from a Forsyth Barr worker to Calyon over some changes to the offer document made by the Credit Agricole unit said “one of the deletions we feel is harmful to the marketing of this offer. Remember we catch more flies with honey than vinegar!”

The email stressed the importance of a flashy opening in the material as “investors seldom read in detail beyond the first few pages.”

Credit Agricole said the report “represents solely the commissions’ view of the issues” because it wasn’t tested in court.

“The extracts from the evidence gathered by the commission which are included are highly selective,” it said in its response to the report.

At issue was the claim in marketing material that the notes were “capital protected”, a term that was frowned on by the Companies Office at the time of the offer and largely removed from the prospectus, and the complexity of the securities, which the regulator said should only have been offered to institutional or sophisticated investors.

Chairman Mark Berry defended the settlement over prosecution, saying the size of it “speaks for itself,” at a briefing in Wellington.

“I don’t think it is insignificant to note that any company having to assume paying $60 million is any light matter,” he said. “While they may not have gone to a trial situation or had a finding of liability or penalty, bear in mind the impact it has on a company in having to front up with $60 million.”

Berry was reluctant to comment specifically on the internal communications cited in the report.

“I can’t comment on how they choose to communicate amongst themselves, that’s a question you should really put to Forsyth Barr,” he said.

The index-linked notes were promoted by Calyon Hong Kong and the sale managed by Forsyth Barr in 2006, raising $91.5 million at $1 apiece from 3,000 investors on the promise of 8.5 percent interest and capital protection. The notes failed in 2008.

The notes were backed by a portfolio of corporate debt from 125 firms, and came unstuck as the global financial crisis knocked out portfolio members including Lehman Brothers, Washington Mutual, three banks in Iceland and Idearc, the publisher of America’s Yellow Pages.

They were delisted from the stock exchange’s NZDX debt market after the settlement was reached.

Forsyth Barr will be in court later this year as one of a group of players facing a class suit from shareholders in failed carpet maker Feltex over the company’s public offer in 2004. Credit Suisse which offered Feltex for sale, joint lead float manager First New Zealand Capital and the former Feltex board are also part of the class action.


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