KiwiBank Must be Sold Off

Terms of Sale Are Critical

Well it looks as if the New Zealand Government is serious about seeking a mandate at the next election to sell off non-core government owned businesses. The opposition socialists are salivating at the prospect of campaigning on this because they believe the public is viscerally opposed to selling state owned companies.

They may be right. Kiwis tend to be neither intelligent nor rational when it comes to economics and the legitimate role of civil government. We are all socialists now--at least 99.99% of us. But it is possible that if the National-led Government identifies the assets to be sold in advance of the election and commits to restricting its sales activity to those identified, then a more rational discussion can be had come election campaign time. The Government has already built up credibility of keeping its word on at least this issue. The socialist opposition will be forced to argue why company X ought not to be sold, and why it is essential for the government to own it. Forcing them to argue thus binds them into the principle of selling state assets when appropriate.

And it continues to baffle us why we-the-people need a state-owned airline, state-owned dairy farms, and a state-owned vehicle testing business.

At the head of the list for sale is likely to be KiwiBank. This is a strange malformed child. It is the spawn of arch-chardonnay-socialist Jim Anderton. Its raison d'etre is a malformed mix of economic populism and nationalistic romanticism. KiwiBank has positioned itself as the only New Zealand owned bank. The rest of our high-street banks are all Australian owned. Anderton prattles on about profits from KiwiBank staying in New Zealand, whereas (those rapacious) profits from every other high-street bank go offshore to the dirty Aussies.

When the register of assets owned by MPs was published the other day it was a bit embarrassing for Anderton to have to disclose that he continues to be a shareholder in the Commonwealth Bank of Australia. He is aiding and abetting one of those nasty foreign owned banks--he owns it in part. All of which highlights the economic ignorance parleyed by Anderton, disguised through a heavy cloak of simplistic populism. If he really is concerned about "all those bank profits" being repatriated to Australia, then surely he ought to be out front cajoling New Zealanders to buy shares in Commonwealth, Westpac, ANZ, NAB, etc. Then those profits are going to circulate right back to New Zealand shareholders. Jolly good, right?

But, no, Anderton's infantile populism requires that the government own a bank. Somehow that fits with the New Zealand psyche--and, on this, we have to admit he is right. The evidence for this is the large number of New Zealanders who have voted with their chequebooks and opened bank accounts at KiwiBank. Anderton has clearly tapped into a deep vein of nationalistic romanticism cocooned in a profound ignorance of economics. Now we should hasten to add that the other (Aussie) high-street banks have quietly celebrated the emergence of KiwiBank. A significant proportion of bank customers are actually unprofitable: KiwiBank has resulted in a large number of those unprofitable customers to move and become KiwiBank clients, to the benefit of "those Aussie banks", making their business in New Zealand stronger as a result. The smart Aussie banks have cried crocodile tears as customers closed accounts and headed over to open them at KiwiBank, all the while rushing to show them the door. Ah, the law of unintended consequences!

Right from the start, KiwiBank has been protected from competitive market realities. Owned by NZ Post, its earnings have been subsidised through piggy backing on NZ Post. Without shovelling some revenue which used to be in NZ Post's Profit and Loss account across to KiwiBank, it would have been a persistent loss making business. So the "profitability" of KiwiBank has been a sleight-of-hand. But now NZ Post is facing economic constraints of its own now, under the onslaught from electronic communication and fierce competition in the courier industry. Snail mail is fading away, going the way of the horse and the cart.

If KiwiBank is to grow it needs more capital--which its ultimate owner, the NZ Government, does not have. It is here that Anderton economics unravel. Like all socialists, Anderton's "bright business idea" using other peoples' money is going eventually to run out of money.

So, it needs to be sold off. Anderton froths at the mouth at the mere mention of the "crime". He predicts that his beloved KiwiBank will be bought up by those dirty Aussie banks (which he must secretly be hoping for since he will likely benefit personally through his CBA shareholding). No doubt thousands upon thousands of KiwiBank depositors and customers will feel the same.

This is why how Kiwibank is to be sold is really important. The process will either spike Anderton's populist guns or it will provide him with blustering high-explosive ordnance. We advise the Government to state its strong preference that KiwiBank remain in New Zealand ownership. Then, it should announce a process of up to four sale tranches, with shares-on-offer being spread across all four.

The first tranche should be to existing KiwiBank customers. This would help ensure that KiwiBank's ownership would remain in the hands of mom and pop Kiwis. KiwiBank customers could subscribe for as many of the shares as they wished. The second tranche, say a month later, would be made available to all employees on the government payroll (including teachers, public health employees, and so forth), and all current and former MP's. Once again, there would be no limit upon subscription, whilst unsold shares-on-offer remained.

The first two tranches would spike the populist anti-sale, knee-jerk reaction. If it really is a genuine concern amongst New Zealanders that KiwiBank be kept in Kiwi hands, then the cardigan brigade would have had the opportunity to put their money where their mouth is. We expect that Anderton would become a big shareholder--but then again, maybe not. Socialists as a rule are full of "do as I say, not as I do" bluster. And we note that when Anderton has been asked about shares being sold to mums and dads he has dismissed it, arguing that eventually these Kiwis would become turncoats and would sell their shares off to the Aussie banks. Ah--how ante-diluvian socialists despise and mistrust the people whom they profess to care so much about.

The third tranche, again about a month later, should be offered for sale exclusively to KiwiSaver funds. Then, finally, the fourth tranche of any shares left unsold would be offered to all remaining New Zealand residents and NZ registered financial institutions.

If, after this sale process, the required stipulated minimum number of shares had not been subscribed, the Government should wind KiwiBank down, and eventually liquidate it. Clearly, New Zealanders would have demonstrated that they do not want to own a local bank. But if the minimum number of shares had been bought, then we would wish the new shareholders well.

There is no justification whatsoever for the New Zealand government to own a bank.