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Record $60m Credit Sails deal almost paid out

December 9, 2013

Record $60m Credit Sails deal almost paid out

 10 December 2013

Tim Hunter


A record $60 million settlement fund has been almost completely paid out to investors in a failed financial product called Credit Sails.

Of 2218 investors owed money, just one owed $17,000 could not be found and repaid. The money was obtained by the Commerce Commission from the firms involved in marketing Credit Sails – sharebroker Forsyth Barr and multinational bank Credit Agricole – who agreed to pay $60m to settle a claim they had engaged in misleading and deceptive conduct in breach of the Fair Trading Act.

The firms have never admitted liability.

Commission chairman Mark Berry said that completion of the payment process, organised by the Public Trust, was a fantastic for investors. “Most of the investors in the fund were elderly, and it was important for the commission to settle this in the most advantageous way for these people,” Berry said.

“Hopefully, having the money returned to them will have a big impact on the quality of their lives.”

The payout represented reimbursement of about $870 for every $1000 lost when Credit Sails failed in 2006. “Without the settlement reached by the commission investors may have only received $20 for every $1000 invested,” he said.

Credit Sails were issued in 2006, raising $91.5m. They were marketed as high- yielding capital-protected notes, but their complex structure using bond insurance derivatives led to virtually total losses. Fairfax NZ

Forsyth Barr makes Credit Sails Claim

June 17, 2013

Forsyth Barr makes Credit Sails Claim

By: Tim Hunter, Fairfax NZ News Media, 17 June 2013


Sharebroker Forsyth Barr has made a claim on its insurer AIG relating to a $60 million settlement for investors in failed financial product Credit Sails.


It is understood AIG’s insurance investigators have begun interviewing investors to help assess the merits of the claim.

The record settlement in December last year ended legal action by the Commerce Commission alleging misleading and deceptive conduct in the product’s marketing.


The $60m payout was agreed by Forsyth Barr and subsidiaries of French bank Credit Agricole, who were responsible for offering Credit Sails in New Zealand. It is not known how much each contributed to the payout.


AIG declined to comment on Forsyth Barr’s claim but confirmed it was being considered.


In a statement, AIG said it was not involved in the settlement.

“It is Forsyth Barr’s loss that has resulted in the current open claim with AIG Insurance New Zealand Limited,” the company said.


“The commercial and contractual business relationships that AIG has with all its customers involve a due process for all parties to follow to conclusion.


“This process does not allow for comment on open claims.”

Forsyth Barr managing director Neil Paviour-Smith could not be reached for comment.

Tribunal says estate’s claim not for them

May 29, 2013

Tribunal says estate’s claim not for them


Last updated 12:39 27/05/2013


The Disputes Tribunal has refused to hear a claim for investment losses against financial adviser Forsyth Barr, recommending it should instead be heard in the District Court.

The claim arose from the firm’s handling of investments for an elderly couple, Ivan and Muriel Nicolson, of Alexandra, both now deceased. Their estate has alleged Forsyth Barr failed in its duty of care to the Nicolsons, whose age and infirmity made them particularly reliant on financial advice.

It was alleged disastrous investments made by the firm in the preference shares of South Canterbury Finance and Strategic Finance, as well as a complex derivative product called Credit Sails, were inappropriate.

Losses were $8000, $5000 and $7000 respectively. The claim was limited to be within the tribunal’s $15,000 maximum jurisdiction.

Speaking on behalf of the Nicolson estate, son-in-law Ollie Turner said the hearing had been scheduled for May 13 but the tribunal had declined to hear it after receiving a letter from Forsyth Barr.

“It was just an ambush,” he said.

In the letter presented to the tribunal referee on the morning of the hearing, Forsyth Barr head of private client services Shane Edmond said he was putting forward the firm’s view “in order that the Disputes Tribunal is not ambushed at the hearing”.

“The essence of our position is that the estate’s claim is not suitable for hearing in the Disputes Tribunal, and should not be heard.”

Edmond said the claims were not minor and needed proper legal discussion because there were complex financial issues involved. The claim related to a “tort” of economic loss over which the tribunal had no jurisdiction, he said, referring to an aspect of the law covering general wrongs as opposed to breach of contract.

He also requested Forsyth Barr critic and investor advocate Greg Marshall of Logic Funds be barred from the hearing. “The claimant’s request for Mr Marshall’s presence is said to be in order that he may speak to some of the materials provided. This is problematic: Forsyth Barr’s view is that the additional materials provided by Mr Marshall are wholly irrelevant to the issues at hand.”

Turner said the estate was seeking advice on whether to apply for a rehearing in the tribunal or proceed to the District Court. “Our claim is simply one to do with poor service,” he said. “Financial services are not some special category that should be exempt from the same checks and balances that apply to everyone else. If Forsyth Barr think we will walk away they are seriously deluded.”

Forsyth Barr managing director Neil Paviour-Smith said it was important to note the Nicolsons’ portfolio had risen in value overall while the couple were clients of the firm, despite the losses incurred in individual stocks.

– © Fairfax NZ News

Forsyth Barr executives exposed in emails published by Commerce Commission: “We catch more flies with honey than vinegar!”; “We’re not selling bloody cigarettes!”

March 7, 2013

Forsyth Barr executives exposed in emails published by Commerce Commission: “We catch more flies with honey than vinegar!”; “We’re not selling bloody cigarettes!”

March 7, 2013

By Bernard Hickey

The Commerce Commission has lifted the lid on what Forsyth Barr was talking about internally and to its customers in the lead up to the doomed sale of NZ$91.5 million of Credit SaILS notes in 2006.

It doesn’t make pretty reading and will cause many to question whether Forsyth Barr is a fit and proper brokerage to be helping the Government sell Mighty River Power to a generation of investors who are reluctant to trust the stock market.

Every investor who is a client of Forsyth Barr or has been a client should read the full report from the Commerce Commission, which says Forsyth Barr and Calyon, the French investment bank that created the notes, engaged in “deceptive and misleading” behaviour.

The Commission estimated losses of NZ$70.7 million out of the capital investments of NZ$91.5 million. Eventually, Forsyth Barr and Calyon settled and contributed NZ$60 million to a fund for investors. But both maintain they did nothing wrong and don’t believe any court action would have been successful. Forsyth Barr Managing Director Neil Paviour-Smith was not immediately available for comment today on the report, but has previously denied responsibility and the Commerce Commission said in the report Forsyth Barr does not accept the Commission’s view.

The details of the report are damming.

Forsyth Barr and Calyon promoted the notes as ‘capital protected’ and ‘safer than a term deposit in a bank’, yet it was effectively a derivative on top of a derivative of toxic Icelandic and US banks. What’s more revealing is how aggressively Forsyth Barr pushed Calyon and the Companies Office to allow it to keep the ‘sizzle’ in the prospectus and the marketing material for the sale.

Here’s an un-named Forsyth Barr employee in an email cited in the report:

Calyon has made further changes to the offer document which in my view detract from the “sizzle” of the offer. I would like your views on whether we should hang tough on their reinsertion. On page 5 we have some language talking about modern yacht design.. blah blah blah making an analogy with Credit SaILS, stating “… Credit SaILS! an AA principal rated investment producing 8.5% interest payments.” This was big and bold but has been removed by Calyon so there is now no reference in this page to the returns.

In the “What are Credit SaILS” there was an analogy between the Credit Strategy and fire insurance. Calyon have removed this. I felt (as author) this was very useful in understanding how credit swaps work and how the income and risks are generated through a comparison with normal household insurance.

Later Forsyth Barr sent Calyon an email asking to leave in the comments with more ‘sizzle’.

[The external legal adviser] has forwarded me the last night’s version with further deletions and changes made by you. One of the deletions we feel is harmful to the marketing of this offer.

Remember we catch more flies with honey than vinegar!

On screen 7 this is pure marketing spiel. We want the retention of some statement here about the returns. This is entirely consistent with the offer and makes an eye catching initial statement which we think is very important as investors seldom read in detail beyond the first few pages.

Then Forsyth Barr asked Calyon to take out graphs showing lower returns than Forsyth Barr expected:

We would very much wish for the section on back testing to be removed the graphs in particular show a large number of incidences were (sic) the returns are materially lower than we expect which is a big marketing negative, and there is no obligation for you to include this information anyway.

Later the Companies Office asked Forsyth Barr to tone down the prospectus, triggering an internal debate at Forsyth Barr about how much they should change the marketing material for the sale process:

“Here is the marked up version of the advertisement, basically reflecting the CO’s required comments, as you can see, they don’t look good.”

“I say we flag the advertising and work on media interviews and articles to convey the message.”

“[The] suggestion is to take out the 8.5% to get rid of the negative language and go with a smaller schedule (maybe two placements?) A further alternative is to replace the language relating to 8.5% with the marketing spiel at the front of the offering document.”

“Why can’t we put the 8.5% in there with a tiny (1) next to it and then at the bottom in tiny text next to the (1) we put all their dumb language? This would be workable. We’re not selling bloody cigarettes!”

This suggests Forsyth Barr were that keen to get around the prospectus amendments and promote the message of capital-guaranteed returns of over 8.5% they were looking at using other channels such as the media and were prepared to use asterixes to cover themselves.

It’s the sort of tactic a payday lender or door-to-door vacuum cleaner salesman would use.

The rest of the details in the report are almost as damming. They show other banks and brokers thought Credit SaILS was too risky to sell to retail investors. It shows Calyon only allowed the product, which was a derivative layered on top of at least five of the world’s most toxic banks, to be sold to retail investors in one other country — Taiwan. It shows Forsyth Barr as the party pushing Calyon hard to sell the product in New Zealand.

Here’s an email from one executive:

“Did they (Calyon) knock on our door. Not really, the courting went the other way and it took considerable effort to get them to entertain doing a retail issue in NZ. Other than ABN this is the only major international bank to promote such a structure for retail. This structure is not new, ANZ “inflicted” exactly the same deal on its middle market & institutional clients last year. We consider that an endorsement of the structure as these types of investors are sophisticated….the key guy running things is the Calculation Agent Calyon. They run the strategy”

They show Forsyth Barr consistently pushing the boundaries of what it could say and get away with.

It also shows Forsyth Barr’s brokers didn’t even understand the product, but were happy to foist it on their clients or put it into their discretionary portfolios.

Forsyth Barr has form and denies everything

Forsyth Barr had a difficult 2006. That was the year Feltex collapsed, costing many investors who had been convinced by Forsyth Barr to invest, as Gareth Vaughan reported on in 2011.

Witness June Goldstein. A Christchurch widow then in her eighties, Goldstein told me in 2006 she had invested NZ$15,000 in Feltex after a Forsyth Barr adviser (Forsyth Barr was co-lead manager of the Feltex float with First NZ Capital) convinced her Feltex was a “long time, reliable firm” and a better bet than children’s clothing retailer Pumpkin Patch which she had planned to invest in.

Within 27 months of its June 2004 IPO that raised  NZ$254 million at NZ$1.70 a share, Feltex was gone,  brought down by too much debt and, in my opinion, dismal management.

Where’s the acceptance of responsibility?

Forsyth Barr has never accepted responsibility for misleading investors or doing anything wrong.

Paviour-Smith even said in a 2010 interview with Gareth Vaughan of  that the prospectus or the way it was marketed by brokers was not Forsyth Barr’s responsibility.

Paviour-Smith said then that Forsyth Barr’s role as lead manager and underwriter of the Credit Sails issue were “completely separate” to the involvement of the firm’s advisers in discussing the securities with their clients, and how they represented the security offering to their clients. This was the same as how other brokers discussed and marketed Credit Sails.

“That means that if broker XYZ misrepresented Credit Sails to a client it does not mean Forsyth Barr is at fault just because we were the lead manager,” Paviour-Smith added in 2010.

“As regards the offer documents etc these were all the responsibility of the issuer/promoters IE Calyon Bank.”

However, the email trails disclosed by the Commerce Commission show Forsyth Barr was up to its neck in the design and content of the prospectus, and was actively working to ensure plenty of ‘sizzle’ was in the prospectus, not to mention there was plenty of ‘sizzle’ and honey (rather than vinegar) in all the marketing material.

The ‘sizzle’ included that Credit SaILS were “safer than a bank term deposit,” were “capital guaranteed and would return 10% on average.”

Forsyth Barr should be barred.

Forsyth Barr’s role as a retail broker in the Mighty River Power float is now untenable, in my opionion. The government should remove Forsyth Bar from the panel.

One of the major drivers of the ‘Mixed Ownership Model’ (MOM) process was to introduce a whole new set of investors to the stock market and to win back the trust of many who abandoned it after the 1987 crash and the many scandals that followed, including the collapses of Feltex and Credit SaILS.

Forsyth Barr’s behaviour has been described by the Commerce Commission as ‘misleading and deceptive’. Forsyth Barr has not accepted this or apologised to its investors.

It should be removed from the MOM process to retain the confidence of Mums and Dads.

Paviour-Smith’s role as a director of the NZX should also be questioned. How can he credibly remain as one of the guardians and representatives of the New Zealand stock market when he has denied responsibility for what New Zealand’s regulator of fair trading has judged ‘misleading and deceptive’ behaviour?

Leaders take responsibility for their mistakes. Forsyth Barr has gone part of the way by contributing in some way (we don’t know how much) to the NZ$60 million settlement.

If it is serious about maintaining the confidence of its clients and the wider market it should accept responsibility and pay its penance from withdrawing from both the Mighty River Power float process and the NZX board.


Commerce Commission Credit Sails Closure Report

March 7, 2013

The Commerce Commission announced on 7 March, 2013 their official closure report on Credit Sails.  It is very interesting reading and we recommend all Credit Sails investors view this material.  Forsyth Barr and Credit Agricole have provided responses to the statement, which are also worth reading.  On top of this, we have provided a list of media resources covering this.


Commerce Commission Credit Sails Closure Report 
Forsyth Barr Response to Commerce Commission Closure Report
Credit Agricole Response to Commerce Commission Closure Report



8 March 2013 – Business Day  – Brokerage Sails pitch condemned, by Tim Hunter and James Weir

7 March 2013 – – Credit Sails’ oldies save Forsyth Barr, Credit Agricole from courtroom

7 March 2013 – MSN – Regulator Justifies Credit Sails Deal

7 March 2013 – MSN – Forsyth Barr criticises regulators’ report

7 March 2013 – National Business Review – Only expert investors should have put money in Credit SaILS – ComCom, by Blair Cunningham

7 March 2013 – National Business Review – Credit SaILS report creates ‘imbalanced impression’ – Forsyth Barr, by Paul McBeth

7 March 2013 – RadioNZ – Commission happy with debt securities settlement

7 March 2013 –  NZ Herald – Credit Sails report holds ‘factual errors’ – Forsyth Barr

7 March 2013 – – Forsyth Barr executives exposed in emails published by Credit Sails, by Bernard Hickey

7 March 2013 – – Com Com slams Forbar over Credit Sails, by Niko Kloeten

7 March 2013 –  3 News NZ – Forsyth Barr ‘misleading’, ‘deceptive’ – ComCom, by Emma Jolliff

7 March 2013 –  Business Day –  Credit Sails emails exposed, by Tim Hunter

Credit Sails emails exposed

March 7, 2013

Credit Sails emails exposed


Business Day

A Commerce Commission report into failed investment product Credit Sails has exposed damning internal emails on how the product was to be promoted to retail investors.

In one to Credit Sails arranger Calyon, a Forsyth Barr executive complains that the “sizzle” is being deleted from offer documents.

“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 said.

Another seeks removal of data on returns.

“We would very much wish for the section on back testing to be removed – the graphs in particular show a large number of incidences were [sic] the returns are materially lower than we expect which is a big marketing negative.”

The report, released this morning, provides further background on the commission’s investigation into the marketing of Credit Sails, a complex derivative product that failed in the financial crisis, causing 100 per cent losses for investors of $71 million.

The investigation found the marketing of Credit Sails was likely to have breached the Fair Trading Act.

In particular, the commission found representations by Forsyth Barr and Calyon about the product were misleading and deceptive.

The description of the product as being “protected” was misleading and the collateral that “protected” the product was in fact its greatest risk.

The commission said that although the product was unsuitable for retail investors and both companies held information confirming its unsuitability, retail investors were targeted.

As a result of the probe, Forsyth Barr and Calyon – an arm of giant French bank Credit Agricole – agreed to pay $60m into a fund to compensate investors.

The report notes concern at Forsyth Barr over issues raised by the Companies Office relating to the offer document.

One email complains: “Why can’t we put the 8.5 per cent in there with a tiny (1) next to it and then at the bottom in tiny text next to the (1) we put all their dumb language? This would be workable. We’re not selling bloody cigarettes!”

The report places equal responsibility on Forsyth Barr and Calyon for the way Credit Sails was structured and sold, although the commission agreed not to publish documents and emails from Calyon because they were provided voluntarily by an overseas company over which the commission had no power.

Nevertheless, there was evidence in the report that Forsyth Barr had pushed Calyon to make Credit Sails available to retail clients in New Zealand.

An internal Forsyth Barr email notes: “Did they [Calyon] knock on our door. Not really, the courting went the other way and it took considerable effort to get them to entertain doing a retail issue in NZ. Other than ABN this is the only major international bank to promote such a structure for retail.”

The commission found Calyon had arranged a Credit Sails product in 21 jurisdictions, but only two of those involved an issue to retail investors – New Zealand and Taiwan – and New Zealand was the only jurisdiction in which Credit Sails with a collateralised debt obligation as collateral, was offered to retail investors.

Commerce Commission Advice

March 6, 2013

The Commerce Commission is advising the finance sector to take note of the lessons to be learned from its investigation into the marketing and sale of the failed investment product Credit SaILS.

The Commission has today released its Investigation Closure Report in accordance with section 6 of the Fair Trading Act 1986 regarding publishing information that affects the interests of consumers. The release of the report also answers a number of Official Information Act 1982 requests to the Commission by members of the media.

The report summarises the evidence uncovered in the Commission’s investigation of five companies associated with the marketing and sale of the product to investors.

Investors in Credit SaILS have the opportunity of being returned around 85% of the capital they lost, as a result of a $60 million settlement reached between the Commission and the five companies; Forsyth Barr Limited, Forsyth Barr Group Limited, Credit Agricole Corporate and Investment Bank, Credit Sail Limited and Calyon Hong Kong Limited.

“This investigation has some important lessons for the industry. There are actions the industry can take to ensure they don’t mislead investors,” said Dr Mark Berry, Chairman of the Commerce Commission.

The Commission offers the following guidance, in line with the Financial Market Authority’s guidance, to those involved in the marketing and sale of financial products.

– All information conveyed to investors must be accurate. This applies to information in a prospectus, offer documents, marketing materials and things said verbally by financial advisers.

– All key terms must be disclosed up-front. Anything significant about the offer – its upside, downside, costs, term etc – needs to be highlighted early on.

– It is possible to mislead by silence. What you leave out or obscure can mislead, as well as what you choose to say. Ensure that all relevant information is provided.

– Give prominence to representations that investors will care about. In the Credit SaILS case, we thought that there was a disproportionate and misleading prominence given to the potential benefits of an investment in Credit SaILS. The risks were found on pg 42 of the offer; we say that is so unbalanced and lacking in prominence as to be misleading.

– Claims of capital protection and capital guarantee should be avoided unless they are perfectly true. Investors in this case thought that ‘capital protection’ meant that the capital was guaranteed against loss. This is what ‘protection’ means to the average non-expert investor.

– Use plain English, not technical jargon. Investors will take different meanings from the language than financial institutions and brokers. For example, investors in Credit SaILS understood the phrase “Capital protected by AA Rated collateral” to mean that their capital was effectively guaranteed against loss.

– Financial advisors are a critical source of information for investors. Whatever the documents say, advisors can mislead investors by what they say. Where products are new or highly complex, promoters must ensure that all intermediaries who sell the product are given genuine grounding in the products and thorough information. Otherwise selling agents can be put in a position where they mislead investors.

– Sellers of investment products should ensure that investments are suitable for the investors to whom they are offered. Complex and difficult to understand products should not be targeted at unsophisticated retail investors. Marketing and sales should be tailored to appropriate buyers and buyers given accurate information in an even-handed way.

– Investments made on behalf of others must be consistent with the risk appetite of the investor. Where financial advisers are in the position to make investments on behalf of others, they must be absolutely confident that they are investing consistently with the express risk profile of the customer. This necessarily means being fully familiar with what they are selling and all its attendant risks.

– Creators and promoters of investment products may have liability even where they are not named as an ‘issuer’ or ‘promoter’. Liability is determined by the substance of what companies do and say, not by their roles as they choose to designate them.