South Canterbury Finance CEO Lachie McLeod 'required to take risks that were not appropriate'

With the news yesterday that South Canterbury Finance CEO Lachie McLeod has resigned, today some comments are emerging about the reasons why he's leaving, but also some of the factors that contributed to SCF's agressive expansion strategy under his leadership that have lead to heavy losses and a change of strategy toward retrenchment today.

Chris Lee, a Kapiti Coast based financial adviser who had put client funds into SCF, is quoted as saying:

He said one of the company's worst mistakes in recent years was lending Mr McLeod $15 million to buy shares in the company.
"He's a good bloke and a good dairy farmer, but that loan meant the company was required to take risks that were not appropriate in the last few years."

As I have commented before, this loan is secured against shares in Southbury Group, and could go real bad real fast should Southbury be successful in raising capital, since it would be at a steep discount to the value of the shares used when the loan was made (and the situation appears no better if SCF and/or Southbury are not successful in recapitalising).

Chris Lee's comments, however, open up a new issue: the motivation for aggressive expansion during the last several years under Mr McLeod's leadership.Perhaps this serves as a warning for any financial institution with a history of rapid expansion: this strategy carries a high risk, and investors should be aware that even the best performing and best managed companies can get into trouble by expanding rapidly for long periods of time.

The expansion strategy has spent Mr Mcleod's strength (he was quoted as saying he had run out of petrol), but also South Canterbury Finance's, and Southbury's as well. It has probably spent Mr McLeod's personal finances as well, leaving him with a $15m debt backed by assets that have little value left.