The National Government surprised almost everyone this week by announcing that NZ Post, which owns 100 percent of Kiwibank, is likely to sell 25 percent of its Kiwibank shares to the Superannuation Fund and 20 percent to the ACC Fund.
This comes shortly after the Green Party launched a new policy to strengthen Kiwibank so it can compete better with the big Aussie banks. Our policy would drive competition in the banking sector that would lead to lower fees and better rates for all customers of all banks.
It also comes just a week after Metiria Turei got Finance Minister Bill English to rule out privatising Kiwibank or selling it to overseas investors. Technically, this won’t be a privatisation, because the Super Fund and the ACC Fund are public investment funds (they look after the money that people get their pension and ACC payments from).
But is it a step down the road to privatisation?
It’s no secret that Bill English would like to privatise Kiwibank: he was caught on tape in 2008 saying so. So our initial reaction was that this was the first step towards privatisation.
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?
What will it cost to buy the shares back?
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.
Sounds like the worst pawn-shop deal ever.
Will it really help Kiwibank?
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 Government as a special dividend. If Kiwibank wants more capital, it’ll need to ask for some from its new shareholders, the ACC and Super funds.
Will it fix NZ Post?
NZ Post made big changes recently which were supposed to put it on a sustainable footing, including moving to three-day a week deliveries. But those changes don’t seem to have fixed the underlying problem, which is declining mail volumes meaning less revenue.
The Kiwibank share sale is likely to result in some extra capital for NZ Post, meaning NZ Post won’t need a bail-out anytime soon – but at the expense of Kiwibank’s ownership.
What does it mean for Kiwibank customers?
Not much. There is some technical stuff around deposit guarantees that will change, but day-to-day, we won’t notice any difference.
So why have the Greens been making a big deal about this?
Because we think Kiwibank is worth making a fuss about.
Our banking sector is dominated by big foreign banks, who last year sent about $5 billion in profits back to their owners overseas. Kiwibank was originally started with the goal of serving the public interest: to offer low fee, accessible banking to everyday New Zealanders and compete in an uncompetitive banking market.
At that time, the big Aussie banks were buying up their competitors, closing branches down, and charging ridiculous fees like $1 every time you wanted to deposit your own money in your own account. Kiwibank changed all that by offering a better deal, and forcing the big Aussie banks to offer better deals in response.
It could do all this because it wasn’t just another big overseas bank trying to make a profit, it was a New Zealand-owned bank that was given freedom by the Government to serve a public purpose.
If one day Kiwibank gets privatised, the timeline leading up to that privatisation will start this week.