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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.

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