Another capital hungry SOE

March 15th, 2013 at 10:00 am by David Farrar

Jason Krupp at Stuff reports:

says its balance sheet will have to wear the $100 million in capital needs to meet its regulatory requirements and replace an ageing banking system.

Testifying before Parliament’s commerce committee today, chairman Sir Michael Cullen said the postal service operator had requested funding from the Government to meet the capital needs of its bank subsidiary, but hadn’t received a definitive answer yet.

The board was operating on the assumption that no further funds would be forthcoming, which is “not surprising in the current situation”, Cullen said.

That meant the state-owned enterprise would have to provide the additional Kiwibank capital, with the lender not yet profitable enough to fund its own capital requirements.

If NZ Post and/or Kiwibank had some private shareholders then they would be able to raise capital without needing taxpayers to borrow money from overseas to fund a competitive risky enterprise.

We should learn the lessons of Solid Energy. Reduce or eliminate the risk to taxpayers.

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21 Responses to “Another capital hungry SOE”

  1. WineOh (603 comments) says:

    How old is Kiwibank now to be needing an overhaul of their core banking systems?? Very short sighted when setting up. Knowing a few people on the inside of KB, they went bargain basement when setting up their systems, and are very limited as a result. Transactional banking systems that don’t cope with 150+ transactions a day per account. The other trading banks have old but relatively stable systems that they work from, and maintain significant IT resources to keep them in order along with all the add-on systems that have been implemented over the years.

    I’d be interested to see a split of what the capital requirements are, and how much is IT system related versus capital requirements for lending growth. Kiwibank’s curse has been the steady rise in ‘assets’ (loans to customers) which means they need to set aside increasing amounts of capital to satisfy international banking requirements. Too successful?? Interestingly, this is the downside of not having a profitable bank, their margins have been too small to be able to fund their capital requirements out of profitability. So what they save customers in small interest costs they cost the tax payer in capital requirements.

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  2. labrator (1,846 comments) says:

    The board was operating on the assumption that no further funds would be forthcoming, “not surprising in the current situation”, Cullen said.

    I wonder who he can thank for that?

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  3. MikeG (412 comments) says:

    “We should learn the lessons of Solid Energy” That’s right – the National Government should not have encouraged SOE’s to take on more debt when it was telling everyone else to reduce debt.

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  4. Tom Jackson (2,504 comments) says:

    We’d end up paying even if it were privately owned. That is the lesson of the last five years. Too big to fail = too big to be privately owned.

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  5. hinamanu (2,352 comments) says:

    Sir Michael Cullen sounds like a rich prick now

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  6. rangitoto (221 comments) says:

    He was always a prick

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  7. peterwn (3,211 comments) says:

    WineOh – Kiwibank procured an ‘off the shelf’ banking system which presumably has limitations which now need to be overcome. Kiwibank would have had to swallow some IT rats at the beginning to get things up and running at minimum cost. NZPost/Kiwibank seems to have implemented its IT systems successfully without the high profile ‘fails’ of INCIS, Novapay etc.

    Kiwibank does have an option – it could lease its IT systems, ATM’s etc avoiding the need for capital expenditure in this area.

    The quirky think about Kiwibank is the matter of Government guarantees. While the Government might claim it does not guarantee Kiwibank deposits, in reality it virtually has no option but to bail out Kiwibank if things turned sour. So the National Government is stuck with something it does not want but is forced to keep for political reasons.

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  8. Prince (92 comments) says:

    Perfect example of why the Government should not run banks. When times are hard, you need to spend on social areas, health, education, welfare – not helping your bank upgrade their systems. That’s how you end up with second rate banks (and previously, outdated telephone companies where your ‘customers’ wait weeks for a phone, and rusty trains going to towns hardly anybody lives in).

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  9. WineOh (603 comments) says:

    peterwn- Yes agreed a customised ‘off the shelf’ but one that wasn’t fit for purpose, so fails the basic procurement test. They had a big opportunity to build a proper bespoke system that they could then leverage as an asset to other banks in NZ & others around the world.

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  10. Cunningham (828 comments) says:

    “We should learn the lessons of Solid Energy. Reduce or eliminate the risk to taxpayers.” good luck slaying that sacred cow. Kiwibank seem to be completely off limits. The obsession with the government owning 100% of Kiwibank is almost like a cult!

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  11. hinamanu (2,352 comments) says:

    ” The obsession with the government owning 100% of Kiwibank is almost like a cult!”

    The obsession with our govts is they don’t want Kiwi’s owning 100% of anything.

    The dangerous thing is we don’t understand that as a nation

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  12. Nigel Kearney (915 comments) says:

    Remember this next time you read that Kiwibank has been a great success, returning healthy profits to the government, while NZ Post is struggling due, of course, entirely to people doing things online instead of by mail. In fact, Kiwibank is no more than a parasite that would have starved and died long ago if it were not allowed to feed on NZ Post.

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  13. Cunningham (828 comments) says:

    hinamanu (2,304) Says:

    “The obsession with our govts is they don’t want Kiwi’s owning 100% of anything.”

    That’s a load of bullshit. Look at the pre reg stats for Mighty River you fucktard. The demand is there from kiwis and Kiwibank would be perfect for a partial float. Unfortunately narrow minded people such as yourself prevent this from happening.

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  14. Cunningham (828 comments) says:

    hinamanu (2,304) I forgot to say having these assest in govt ownership holds them back. If you want Kiwibank to become a big bank then it should be partially floated to allow better access to capital.

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  15. peterwn (3,211 comments) says:

    Nigel – Kiwibank was handed some of NZ Post’s ‘agency’ work (eg utility bill payments, motor registration payments, etc) on a plate when first set up. This ‘agency’ work really belongs to the Postshop profit centre, not the Kiwibank profit centre. Similarly is Kewibank making fair payments to the Postshop profit centre. So Kiwibank might be appearing to perform better than it really is.

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  16. peterwn (3,211 comments) says:

    WineOh – the cops had dreams of an all singing all dancing data system INCIS which they could flog off round the world and it collapsed in a heap of flames. If Kiwibank tried a similar game the odds are that it would have ended in disaster. The procurement criteria would have been for a simple banking system which basically worked, at low cost and with speedy delivery and commissioning. In retrospect the current Kiwiibank met these procurement criteria which were relevant at the time. The objective was to set up a bank, not a software company.

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  17. slijmbal (1,223 comments) says:

    “NZ Post says its balance sheet will have to wear the $100 million in capital Kiwibank needs to meet its regulatory requirements and replace an ageing banking system.”

    exceedingly strange – the big banks generally have core banking systems that are 20/30/40+ years old – they are a major problem for their IT. Most banks would love to have systems implemented in the last 10 years.

    There are capital requirements for a bank that extends its lending book – this sounds much more likely to be the real issue i.e. they are victims of their own success.

    Unlike many here I feel this is one of the few successes of Labour. NZ is poorly treated by the Ozzie banks. The NZ subsidiaries generally are handled as if they cannot be trusted to tie their own laces. The Ozzie banks make a damn site more out of their NZ subsidiaries by relative measures – the bad debts over here are substantially less than in OZ for instance.

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  18. Reid (16,106 comments) says:

    Nigel – Kiwibank was handed some of NZ Post’s ‘agency’ work (eg utility bill payments, motor registration payments, etc) on a plate when first set up.

    It was handed all of those.

    And guess what it showed as its net profit for the first 3-5 years?

    Almost exactly the same amount as those agency fee transfers.

    Gee, what a coincidence.

    But on KB, it’s a different deal from most other SOE’s in that it keeps the other banks honest being the others are all overseas owned. That’s not a bad thing for the consumer and let’s face it, consumers don’t get that many breaks but this is one, in a major the principle area of household expenditure, the mortgage.

    I mean, only free-market fanatics who seem to hallucinate the competition model solves every single thing under the sun would believe that market interest rates would be as low as they were, if every single bank in the market was overseas owned. You only have to look at the petrol prices to see the fallacy of that model. It doesn’t work, it will never work, when you have global suppliers that are only servicing a foreign and tiny offshore market as is the case with the oil companies and which would be the case if all the trading banks were owned offshore.

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  19. Steve (North Shore) (4,522 comments) says:

    Sell it, get rid of it and take the CEO with it.
    This man was always trouble when playing with ‘other people’s money’

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  20. SPC (5,473 comments) says:

    Even with the power companies under 49% private ownership the 51% equity holder would still have use tax revenues or borrow to provide capital – unless they do there can be no new capital (or their promise of majority stake is broken).

    Unless of course the intent is to allow new non voting capital diluting revenues to government.

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  21. peterwn (3,211 comments) says:

    slijmbal – “NZ is poorly treated by the Ozzie banks” – A sobering thought – the Ozzie banks weathered the recession without imploding, needing to be bailed out etc. Prudent management contributed to this. This saved Australia and NZ from the many of the effects of the recession that hurt Europe, USA and other countries. Also about the only part of Lloyds Bank was the National bank subsidiary in NZ before National was sold to ANZ. Perhaps everyone loves to hate banks along with power companies and phone companies.

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