Banks 'let off hook' over job summit plan

Rob Cameron. Photo / Kenny Rodger

New Zealand banks say they have not walked away from a job summit proposal for a $2 billion joint equity fund between themselves and the Government to help recapitalise struggling local businesses.

Prime Minister John Key yesterday said the banks had been unwilling to participate in the proposed scheme because of their concerns about the impact on their capital ratios.

However, the Business Herald understands the banks were effectively let off the hook by the Government because the Treasury, which administers the Government's wholesale and retail funding guarantees for the banks, got cold feet over the equity investment scheme.

The investment fund would have seen the Government and banks as a group put in up to $1 billion each to establish a pool of capital that could be injected into large companies that were stressed by economic conditions but essentially sound. The fund would have purchased equity stakes in companies rather than lending them money.

Investment banker Rob Cameron, who chaired the job summit's "firm funding stream", yesterday confirmed the proposal was unlikely to come to fruition.

Key yesterday said the Government had been committed to the fund "if the banks had been willing", but they had not.

"My understanding is that because it was equity not debt, it had implications for their Tier One capital." Tier One capital is the most basic ratio of reserves banks must hold as a buffer against adverse market conditions.

But a well-placed banking industry source said the banks have backed off from the proposal largely at the Government's wish.

"There were, subsequent to the summit, some meetings between Treasury and the banks. Ministers came to indicate through Treasury that they weren't that fussy about the banks participating because it was likely to have an effect on Tier One capital."

The source said the banks' view was that Government had "pulled the plug" on their participation for that reason.

Nevertheless, a spokesman for the Bankers Association said New Zealand's banks "have not walked away", and were now "taking a watching brief".

A spokesman for Finance Minister Bill English said he was not aware that Treasury had advised the banks on aspects of the proposal.

"It seems that they [the banks] actually pointed out that if they put the money into the proposed fund they wouldn't have it to lend as they normally did to businesses."

Labour Party leader Phil Goff said the fund's failure to get off the ground was "a further sign that National's results aren't matching its rhetoric in trying to protect New Zealand jobs".

Cameron said work done evaluating the proposal had not been wasted and had been valuable in terms of addressing local firm's need for capital.

He said investment institutions had woken up to the "significant number of opportunities around in the area of providing services and capital to distressed companies and recapitalising companies that are less distressed but have good prospects".