Kiwibank has been given the kiss of death. Grant Robertson announced this week the Government has bought full control of the bank, wasting another $2 billion it has taken from you and me.
Why? you might wonder. The short answer is that two of the bank's three state-owned shareholders,NZ Post and the Accident Compensation Corporation, no longer want it. Why? you might ask with more surprise.
The big four banks are currently reporting profit levels commonly described as "eye-watering". What's wrong with Kiwibank? Well, maybe not much. Its third shareholder, the NZ Superannuation Fund, was willing to buy out NZ Post and take a majority stake but its offer came with two conditions that the Government would not accept. Here's where things really get worrying.
The Super Fund's first condition, according to the Business Herald on Tuesday, was that it be allowed to introduce "private sector capacity and governance capabilities", which means finding a private shareholder capable of bringing active oversight and commercial discipline to the role.
The fund's second condition was that it be able to "exit the investment" at some time in the future, which obviously means they want to be able to sell their stake for its full value, not be limited to a New Zealand sale.
These conditions, declared Robertson, "did not align with the Government's commitment to public and New Zealand ownership". No private or foreign buyers will be allowed to touch this poor little bank.
And it is poor, undercapitalised, they say, and little, with just 4 per cent of the market. It is now exactly 20 years since it was set up, reluctantly, by the previous Labour Government as a sop to its coalition partner, Jim Anderton's Alliance.
Since then the bank has made the most of its founding purpose, always presenting itself as a brave little battler against Australian giants, doing its best to disguise the fact that not many Kiwis have put their money where their sentiment was supposed to be.
It's hard to see how it is "keeping the big banks honest". That's a government's job anyway, and governments have more effective tools than owning a bank. That makes about as much sense as the Government setting up a supermarket, which has been suggested, apparently seriously, as a response to rising food prices.
Finance Minister Grant Robertson. Photo / Mark Mitchell
Be thankful this Government has not taken up that suggestion, instead it is putting pressure on the supermarket chains to become wholesalers for the whole grocery sector, which will not lower retail prices. It's a ploy to let the Government talk tough and sound like it is combatting inflation.
If it really had the courage to tackle inflation it would be telling us it has to reduce its spending now, not wasting money for purposes as pointless as keeping a bank in government ownership.
And if it is concerned about the profits the big four publicly listed, Australian-based banks are taking out of New Zealand (which it doesn't seem to be) it should read an article by a former ANZ chief economist, Cameron Bagrie, published in the Herald last week.
He, too, says banks are making "eye-watering returns on equity and profits" but he pointed out that we, New Zealanders and our central bank, are giving them cheap money.
The trading banks' "cost to income ratios look likely to be below 40 per cent, levels thought unachievable in the early 2000s", he wrote. "Term deposits are less than 40 per cent of total bank deposits. They used to be more than 50 per cent. More money sits in transaction and savings accounts. Interest rates on savings accounts sit massively below the (Reserve Bank's) Official Cash Rate."
He said, "Serious questions need to be asked about the Reserve Bank's Funding for Lending Programme – why it was needed and why some banks are still dining out on it. A crisis management tool was put in place when banks were flush with cash."
Kiwibank had an additional advantage over the big banks, it has not had to pay dividends since Labour came to power in 2017. Its profits were effectively annual capital injections. Its chief executive, Steve Jurkovich, was able to dismiss a suggestion in the Business Herald this week that it was having difficulty meeting the Reserve Bank's higher capital holding rations.
"We've had a self-funding capital plan regardless of the change in ownership," he said, "We are not in a position where we are asking for capital." Nevertheless, Robertson said the Government would be "ensuring the bank has access to capital to continue to grow".
A political kiss of death kills a company with kindness, relieving it of competitive demands, covering its failures, keeping a zombie alive to everyone's cost.
