Greens dig a deeper hole with Kiwibank

April 8th, 2016 at 12:50 pm by David Farrar

Not content with Dr Cullen slapping them down, the Greens are persisting with some nonsense arguments. James Shaw blogs:

It will be easier for the Super Fund and the ACC Fund to sell off their shares in Kiwibank than it would have been for the government to privatise the bank. These funds’ decisions aren’t made by ministers, whereas with 100 percent Government ownership ultimately any decision to privatise Kiwibank would have been made around the Cabinet table.

Part of the deal will be that ACC and the Super Fund can’t sell their shares for at least five years though. After five years, the Government will have the have the first right to buy back Kiwibank shares if the Super Fund and ACC want to sell them. And Bill English has promised to exercise that right if it comes down to it.

But Bill English almost certainly won’t be the Finance Minister in five years’ time. Labour and the Greens have both promised we’d buy Kiwibank back if there’s a threat of it being privatised. But who knows what a future National Government might do?

It amazes me James can not see the flaw in his argument.

Under the status quo any decision to privatise Kiwibank would be made around the Cabinet table.

Under the Cullen proposal any decision not to buy any shares offered by the two funds would be made by a future National Government. And how do Governments decide things? Around the Cabinet Table!!

1/10 for logic.

That’s the billion dollar question. NZ Post will get about $495 million for selling Kiwibank shares. But we’ve done the numbers and if Kiwibank keeps growing the way it has in the past (and we hope it does), then those shares will be worth between $800 million and $1.1 billion in five years’ time.

So basically selling 45 percent of Kiwibank for $495 million today could mean buying it back in five years for double that amount.

This argument is even worse!

James is worried Kiwibank may be successful and grow in value. So any future purchase of shares would cost the Government more to buy them back.

But they will be buying them off two funds they 100% own!!

Let’s say the shares cost $400 million more. NZ Super Fund and ACC gain $400 million and the Government spends 400 million (more). The net change for the Crown is zero!

Sounds like the worst pawn-shop deal ever.

Sounds like the worst financial argument ever.

Probably not. Kiwibank’s problem is that it needs capital to grow, so it can compete with the big Aussie banks. The Government’s new plan won’t actually see Kiwibank get any new capital right now.

The proceeds from the share sale will go to NZ Post, and NZ Post will give most of them back to the Governmentas a special dividend. If Kiwibank wants more capital, it’ll need to ask for some from its new shareholders, the ACC and Super funds.

Missing the point that they have lots of capital to spare if they think it is a good investment. NZ Post does not.

Cullen slaps down Shaw

April 7th, 2016 at 9:00 am by David Farrar

Stuff reports:

Green Party co-leader James Shaw said the move opened the door to partial privatisation. 

“This deal makes it harder for the Government to use Kiwibank to drive competition in the banking sector, as the Green Party announced we’d do, because the Government can’t direct the Super and ACC funds in the way it could have directed Kiwibank,” he said.

The Greens announced last week they would inject $100m of capital into the bank, and allow it to keep more of its profits to foster a faster expansion. 

“The fact is the Government forced Kiwibank’s hand and today’s announcement will make it easier than it was before to move Kiwibank into private ownership.”

But Cullen said Shaw’s argument, that the Government was able to direct Kiwibank, was “completely incorrect”

“Kiwibank is a 100 per cent owned subsidiary of New Zealand Post but in terms of the Companies Act and Reserve Bank requirements it must act independently in terms of its activities.

“The Government cannot direct New Zealand Post, nor through New Zealand Post can it direct Kiwibank.”

It is a worry that James Shaw doesn’t even know this basic fact of company law.

It is also a worry that Shaw is complaining that politicians like himself won’t be able to make banking decisions.

45% of Kiwibank to be sold by NZ Post to Govt funds

April 6th, 2016 at 10:49 am by David Farrar

Bill English has announced:

NZ Post’s proposal for the Accident Compensation Corporation (ACC) and the NZ Super Fund (NZSF) to purchase part of Kiwibank will ensure the bank remains wholly owned by the Government, Ministers Bill English and Todd McClay say.

Kiwibank is currently a subsidiary of NZ Post. If the proposal goes ahead, a total of 45 per cent would be owned by the two additional taxpayer-owned shareholders.

“Kiwibank will remain 100 per cent Government-owned – that is a bottom-line,” Finance Minister Bill English says.

“To ensure this occurs, the proposal includes a right of first refusal for the Government over any future sale of shares – which we would exercise.”

State Owned Enterprises Minister Todd McClay says that the proposal, which values Kiwibank at $1.1 billion, could see benefits for Kiwibank, NZ Post, ACC, NZSF and taxpayers – but needs to stack up for all parties before it proceeds.

“When NZ Post’s Chair Sir Michael Cullen approached Ministers with the proposal, he explained it could give Kiwibank access to extra sources of capital for future growth and broaden its exposure to commercial expertise,” Mr McClay says.

Very interesting.

This is a proposal from NZ Post to the Government, not vice-versa.

On first glance it seems an improvement on the status quo. The NZ Super Fund and ACC have highly skilled investment staff who would be very good at weighing up decisions around future capital for Kiwibank to grow.

NZ Post has limited capacity to invest more in Kiwibank, as its main business line is fading.

Personally I’d sell both NZ Post and Kiwibank, but that is politically not going to happen.

“NZSF and ACC would have an investment in a profitable local company. NZ Post would receive a return for the shares, some of which would be used to repay debt built up to support Kiwibank’s expansion and some would be paid to the Government as a special dividend.”

NZ Post, NZSF and ACC are currently in discussions over the details of the transaction. A final decision about whether it goes ahead will be made later this financial year.

I can’t see any reason to say no, so long as the price for the shares is fair.

Kiwibank censured by Reserve Bank

October 28th, 2015 at 4:00 pm by David Farrar

The Herald reports:

The Reserve Bank says it has issued a formal warning to state-owned Kiwibank for failing to comply with sections of the Anti-Money Laundering (AML) and Countering Financing of Terrorism Act.

In a statement, the Reserve Bank said it had “reasonable grounds” to believe that for various periods of time between June 30 2013, and June 2014, that Kiwibank did not fully meet all the requirements in respect to the following customer due diligence obligations under the act. …

The Reserve Bank said Kiwibank had not collected addresses of customers performing occasional transactions, as required by the act.

It also said Kiwibank did not always take reasonable steps to verify information relating to the source of funds or the wealth of the customer and did not consider terminating customers’ accounts in response to its ongoing non-compliance.

This is pretty serious stuff. I can’t recall the last time a major bank was formally censured by the Reserve Bank.

Why NZ Post is struggling – Kiwibank!

December 7th, 2013 at 7:39 am by David Farrar

Brian Gaynor writes at NZ Herald:

Why does New Zealand Post continue to flounder while Deutsche Post, the German postal provider, has significantly outperformed the Frankfurt sharemarket in recent years and Royal Mail, the UK mail operator, has just had an extremely successful IPO?

A brief assessment of the three post providers shows that the two European companies have clear e-commerce driven parcel and logistics growth strategies whereas New Zealand Post has been adversely affected by the requirement to contribute substantial capital to Kiwibank, its 100 per cent owned subsidiary.

Kiwibank has never paid a dividend, off memory.

Royal Mail’s core operation is the collection, sorting, transportation and delivery of parcels and letters in the United Kingdom. This service operates under a “one price goes anywhere” principle on letters and parcels within the domestic market.

It also owns GLS (General Logistics Systems) which operates a substantial parcel business in 22 European countries.

Royal Mail, like Deutsche Post, has taken advantage of the huge increase in online purchases by individuals and businesses.

That is the future. Not letters.

Royal Mail’s share price closed at 5.96 on Thursday giving IPO participants a capital gain of over 80 per cent and resulting in a sharemarket value of 5.9 billion.

Austrian Post, PostNL in The Netherlands, bpost in Belgium and SingPost in Singapore are also listed on stock exchanges.

Unfortunately the story in New Zealand is far less optimistic even though New Zealand Post reported net earnings, before one-off gains from the sale of assets, of $45.4 million for the June 2013 year. The problem is that the group’s core postal services reported a net loss of $51.5 million for the latest twelve month period (see table).

The focus is on Kiwibank:

No one would argue against the importance of parcels but what investments has NZ Post made in this area? What has it done to capture the e-commerce trade?

For example, parcels were mentioned only thirteen times in the group’s 2011 annual report whereas Kiwibank was referred to 197 times.

One of the problems with NZ Post is that Kiwibank is soaking up most of the group’s surplus cash and seems to be squeezing out the traditional postal services.

A possible solution:

The reality is NZ Post is asset rich but cash poor because Kiwibank, the group’s best performing operation, doesn’t pay a dividend and will require $100 million of additional capital. As a consequence NZ Post does not appear to have invested heavily in its parcel business, which has the best long-term postal growth prospects.

Thus the company has two choices. It can either focus on Kiwibank and let its postal operations decline with more and more branch closures and staff layoffs.

The other alternative is to partially monetise its Kiwibank shareholding by selling a minority stake to the Crown, a trade buyer or through an IPO. This would give NZ Post cash to invest in its parcel business, fund its ongoing commitment to Kiwibank and pay a higher dividend to the Crown.

Sadly, will never happen.

Poto wounds the KiwiAssure policy

November 29th, 2013 at 9:00 am by Jadis


Poto Williams’ hasn’t exactly run a strong social media campaign through this by-election.  Given we are into the final day of campaigning it was good of her to put up a new facebook post (her first since 23 October). To be helpful I’ll post it here:

poto Poto

There is one little problem with Poto’s statement “KiwiAssure will compete with the big insurance companies and get a better deal for local people just the way Kiwibank does.”

Kiwibank has recently been added to the “Fair play on Fees” class action.  It is the second bank to be added after ANZ.

We now have a sufficient number of Kiwibank customers to take their complaint to court and fight to get their unlawful penalty fees back.  We expect thousands more Kiwibank customers to join the campaign as a result of today’s announcement and encourage them to do so before the court documents are filed.

The launch of Fair Play on Fees has seen more than 35,000 Kiwis sign up to date, of which over 6,000 are Kiwibank customers.

So I guess Poto wants KiwiAssure to potentially charge unfair fees just how Kiwibank does.  Great policy that one!

Another capital hungry SOE

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

Jason Krupp at Stuff reports:

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.

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.

NZ Post

April 25th, 2012 at 2:34 pm by David Farrar

Vernon Small at Stuff reports:

NZ Post has warned 2012 is crunch time, with the state-owned enterprise needing hundreds of millions of dollars in capital for subsidiary Kiwibank as well as flexibility to cut store numbers and halt post delivery on some days.

I’ve always wondered if Kiwibank actually delivers a return on capital greater than the cost of capital. What would be very interesting is an analysis of Kiwibank’s profits since inception, compared to the cost of capital (Treasury bond rates). Ideally such an analysis should exclude profits from the bill payment service they operate, as that was operated by NZ Post before Kiwibank was set up.

A key element would be a review of the Deed of Understanding (DOU), which stipulates NZ Post must maintain six-day-a-week delivery to most of the 1.9 million “delivery points” and operate a network of no less than 880 outlets.

I’m okay with fewer delivery days and fewer stores.

However, mail volumes are in free fall. It had forecast a drop of 5 per cent a year as the long-term trend to electronic mail bit. But in the six months to the end of December 2011 the decline had steepened to 7 per cent; the fastest ever, “which may be the new norm”, Cullen said. “The trend will not reverse and cannot be ignored.”

it is a dying business model.

But while a cut to delivery days is not imminent, the NZ Post board is keen for planning to start. A shift to deliveries every second day could be on the table over the next two to three years. Cullen said the DOU, as it stood, limited the changes that could be made.

Monday, Wednesday, Friday would be fine. If anything is needed the next day you tend to courier it.

So far the NZ Post parent has poured $550m into the bank, but as its own profitability declines that is seen as unsustainable.

Again, an analysis of returns vs cost of capital would be very interesting. If Kiwibank’s profits do not exceed the cost of capital, then the taxpayer us effectively subsidising Kiwibank customers.

“Our preference would be for the Crown to inject capital, providing we are able to satisfy them that they will get a long-term return on that capital, which we believe they will, and that it fits with the Government’s overall economic strategy.”

One source of new capital could be the proceeds from partial asset sales.

That would be ironic. I’d love to see Labour complain about that.

Vernon Small on Kiwibank

November 23rd, 2011 at 1:09 pm by David Farrar

Vernon Small writes:

I am as mad as hell and I’m not going to take it any more.

Ok, that might be going a bit far.

I admit I’m not one to get especially outraged by political spin – or to be surprised that an election campaign will bring out the worst lies, half-truths and statistics.

But with just three days to go, here are the top five things I am sick of hearing from politicians, press releases or “loyal” supporters.

1) National will sell Kiwibank

No it won’t. Certainly not in the next three years – quite the reverse. in fact if it has any intention of winning in 2014 it would be nuts to even try, and frankly it is a bit soon to be fighting the 2014 campaign.

This is Labour’s latest lie. This is despite John Key saying National will never sell Kiwibank while he is Prime Minister. Labour can’t win on the truth.

The other four things Vernon is sick of hearing is:

  • The after-tax wage gap with Australia has closed
  • The number of people leaving for Australia is/was better/worse under Labour/National
  • There is a $16 billion hole in Labour’s fiscal plans
  • Labour will only borrow an extra $4b
  • Winston Peters’ voters are dying out

I’m pleased to see that Vernon’s estimate of extra debt under Labour is close to mine. I make it $12b and Vernon says “about $10-12b”.

Of course that is just Labour’s extra debt. You have to add on the billions to appears Greens, NZ First and Mana also.

Editorials 26 May 2010

May 26th, 2010 at 12:00 pm by David Farrar

The Herald supports a float of Kiwibank:

The Prime Minister has indicated that any part-sale of the bank would be a public float aimed chiefly at mum-and-dad investors, not a trade sale, and that the Government would want to retain a majority shareholding.

As such, he is extolling the idea of a shareholding democracy, a concept that has flourished in Britain and Australia but which enjoyed a regrettably brief currency here.

Floats of the likes of Vector, Contact Energy and Auckland International Airport proved, however, to be hugely popular with Mr Key’s target shareholders, who recognised the opportunity for steady incomes and long-term returns from such utilities. …

The bank’s success means it needs substantial amounts of capital to grow further.

A cash-strapped Government would be an unwilling source. Nor would it be likely to be able to orchestrate a trade sale because potential buyers have their eyes fixed on the burgeoning Asian market.

Indeed, the Government might even see a rationale for keeping Kiwibank in New Zealand hands, if only to provide consumers with choice in a market dominated by Australian-owned competitors.

Everything, therefore, points to a float. The Government should not hesitate to confirm as much in the most unambiguous of terms. And to state that, finally, the country will have the chance to fully embrace the benefits of a shareholding democracy.

Hear hear.

The Press tuts tuts Fergie:

A British tabloid newspaper reporter, Mazher Mahmood, had revealed a sting operation against the duchess, in which she was filmed demanding, anything but selflessly, NZ$1.074 million from an undercover reporter in return for access to the Duke of York, Prince Andrew, who is her former husband.

The cash-strapped but big-spending duchess has subsequently apologised for what she called her serious lapse in judgment. But no apology can undo the damage this affair has done to her own reputation and possibly to that of the prince.

The duchess has long been renowned for her gaffes but this scandal is far more serious. She was trying to exploit her position as the prince’s former wife and use him to gain financially.

Very tacky.

The Dom Post talks Auckland super city:

The Government’s efforts to assuage concerns about the Auckland super-city by strengthening the transparency and accountability of the organisations that will run much of the city deserve support.

Change was needed in Auckland. Local government there was a fractured mess. Planning on Auckland-wide matters such as transport continually foundered on the egos of local body politicians.

One council, and the move to council-controlled organisations, should help break the jam and start solving Auckland’s massive infrastructure problems. …

Allowing Auckland Council to require them to hold meetings in public will go some way towards that, though those who follow local body politics know that it is all too easy for even elected councils to dodge transparency by going into committee and shutting the doors on the public.

Making the CCOs subject to strategic plans set by the council means setting overall goals is the job of those who must answer directly to voters. That is what is needed in a democracy.

In a few years Aucklanders will wonder what all the fuss was about, and why id they wait so long to rationalise their local government structure.

The ODT looks at the oil spill:

The news from the Gulf of Mexico is not good, and there are lessons to be learnt in New Zealand – and, more specifically, Otago – from the oil disaster and its subsequent handling.

Foremost among these are the very real economic and environmental dangers associated with deep-sea drilling such as that which has been mooted for the Carrack/Caravel site off the coast of Dunedin. …

You have to feel sorry for Louisiana especially.

Second term asset sales

May 22nd, 2010 at 8:26 am by David Farrar

New Zealand is the only country in the OECD that has a ban on asset sales. Even socialist governments throughout Europe have sold assets where there is no need for the state to own them, or at least own 100% of them.

A welcome sign that National may go into the 2011 election with a more flexible policy is reported by the NZ Herald:

The National Government has given its strongest indication yet that it will sell state-owned assets should it get a second term.

Finance Minister Bill English yesterday singled out Kiwibank as a particularly attractive asset for buyers.

But he said the Government would not sell assets without a mandate from the public.

The public will get to decide.

Mr English, fresh from delivering the 2010 Budget, told a gathering of South Island business people yesterday that the Government might consider a change of policy “to free up capital and put product on the market for Kiwi mums and dads”.

Kiwibank was a good example of an asset that needed to be dealt with. It had reached the size where it needed either a Government guarantee or an “awful lot of capital”.

“If there’s any asset that’s regarded as risky by credit rating agencies, it’s a small, fast-growing bank,” he said.

“So one option would be to go to the market and raise capital. Keep majority Crown ownership, but raise the rest of the capital from the market.

Makes sense to me.

Labour leader Phil Goff said state-owned asset sales were “absolutely all on” if National won a second term, “and they might not even wait until then”.

Mr Goff should know all about selling assets without a mandate. However National has made it very clear they will only sell or part sell significant assets with a specific mandate.

Glender Fryer campaigning

April 28th, 2009 at 1:39 pm by David Farrar

Labour aspiring candidate for Mt Albert Glenda Fryer put out a release yesterday:

After receiving news that francisee Chander Satija was to have the Sandringham Post Office and Kiwibank closed down, Cr Fryer wrote a letter to NZ Post and met with Auckland representatives to ask them to reconsider their decision.  NZ Post undertook to do this.  NZ Post have yet to give Mr Satija their final decision. …

Concludes Councillor Fryer “ I know the franchaisee Chander Satija   has given NZ Post over 500 letters from local people saying how much they depend on the services of the post office and bank.  Many locals feel they also want to show their faces and stand behind the only bank in Sandringham to tell NZ Post they love their local services and don’t want them closed down. “

So that evil NZ Post is closing down the Sandringham Post Office and Kiwibank. Maybe Glenda should lobby some of the Directors. Perhaps a Mr Shale Chambers? It should be fairly easy for her to lobby him, as he is her husband.


August 4th, 2008 at 7:47 am by David Farrar

Secret recordings seem to be the in thing at conferences this year. We had Mike Williams at Labour’s conference, and now Bill English at National’s. English was asked (not during a session, but over coffee it seems) about whether National would sell Kiwibank and he replied “Well eventually, not now”.

Now in one sense, his response is quite unremarkable and consistent with National policy which is not to sell any state asset in their first term of office. And it can be no surprise that as Bill voted against the establishment of Kiwibank, that he doesn’t see any long term reason for keeping Kiwibank – why should the state own a competitive trading enterprise? Why not own New World also?

Now the reality is that if National does get elected, it won’t sell Kiwibank in its first term, and if it wants to sell it in its second term it will have to get re-elected on a policy allowing it to do so. National is not going to break its policy on asset sales, if elected later this year, as they have no desire to be a one term Government.

But the politics are of course a different issue. Bill will be kicking himself for his response, as it means the focus shifts from the infrastructure announcements to Kiwibank. And there will no doubt be many patsy questions to Dr Cullen in the House tomorrow on the issue.