By Gareth Vaughan and Alex Tarrant
Kiwibank says it's buying Gareth Morgan Investments (GMI), including the Gareth Morgan KiwiSaver Scheme, as the state owned bank moves to expand its wealth and KiwiSaver operations.
No price for the deal, which sees Kiwibank's KiwiSaver funds under management jump by NZ$650 million to more than NZ$700 million, has been disclosed. Kiwibank CEO Paul Brock would not give a ballpark figure on the purchase, which he said Kiwibank would fund through "internal facilities" and would have a positive impact on earnings from day one.
The purchase would boost Kiwibank to being the country's sixth biggest KiwiSaver provider, Brock said.
Gareth Morgan himself will remain as a major client of GMI and a member of the investment strategy team. Morgan and fellow director Andrew Gawith will remain GMI directors alongside two Kiwibank-appointed directors.
GMI, which manages about NZ$1.5 billion of which NZ$650 million is KiwiSaver related on behalf of around 57,000 clients, will operate as a stand-alone entity from within Kiwibank's wealth and insurance unit. Brock said it was yet to be "worked through" as to whether GMI would keep its own branding.
The Kiwibank CEO said the acquisition was a unique opportunity to rapidly grow the bank's wealth and KiwiSaver operations.
“GMI’s core values of trust and honesty; transparency; respect for clients’ interests; and the continual pursuit of excellence mirror Kiwibank’s values of doing what’s right; making it easy; and raising the bar,” Brock said.
Kiwibank's own KiwiSaver Scheme started accepting members and subscriptions on July 1, 2010 and has 15,000 customers. The bank's KiwiSaver funds, aside from the Cash Fund which is managed by Kiwibank Treasury, managed by AMP Capital. As of September 30, 2011 Kiwibank's KiwiSaver funds under management stood at NZ$56.3 million, up from NZ$8.3 million a year earlier. See details of all KiwiSaver schemes here.
“We started our own KiwiSaver scheme just over a year ago and while the growth has been impressive we were aware of the need to extend our investment management capability. Our plan to do this looked very much like what GMI has developed," added Brock.
The "aligned values" of the two businesses reinforced the decision to buy rather than build. Both Kiwibank and GMI will continue to challenge the status quo, Brock added.
Kiwibank's chairman is Rob Morrison who last year teamed up with Morgan and other investors to buy the Wellington Phoenix football club from Terry Serepisos.
Morgan said he had initiated the sales process due to GMI's strong growth.
"It's quite a big company, we've got 50 people," Morgan said.
"I don't want to have to run 50 people, that's too many," Morgan added. "My passion in this space is investment portfolio strategy. GMI was started to look after my own money and just sort of grew."
'Credible succession'
Morgan said the decision to sell was driven by the need for credible succession plan for GMI.
“I intend to remain very closely involved with the business, being both a director and a core member of the investment strategy team,” Morgan said.
“However, to future-proof the care of clients’ portfolios I have to be responsible and make sure the firm is well-positioned for life after me.”
“This change will give me more time to focus on investment strategy and innovation, roles that really are of foremost importance to me and the business.”
Morgan said he and other GMI directors liked the way Kiwibank worked.
“If we were selling it needed to be to a party that understood, accepted and was capable of reinforcing the core values of our business: trust and honesty; transparency; respect for clients’ interest; and the continual pursuit of excellence," he said.
“While the ownership of this business is changing, my wealth, and that of a number of other founders of GMI, will be staying right where it is because a key element of the deal is that the business’s values and approach to managing peoples’ savings will remain the same.”
Morgan said he started GMI because he couldn’t find anyone to look after his savings with the degree of reporting and accountability that he needed.
“There was, to be honest, a major gap in the market on these factors which led to erosion of trust in the industry and consequent attention from regulators.”
S&P comments
Standard and Poor's said the acquisition would not affect Kiwibank's AA- credit rating.
It said the deal would have an insignificant impact on Kiwibank’s capital position.
"We continue to expect that Kiwibank’s capital position would be managed at about 10.1%–10.5% over the next 12-24 months," S&P said.
"We also anticipate that the acquisition would accelerate Kiwigroup’s wealth strategy, and contribute to the diversification of the earnings of Kiwigroup and NZ Post."
(Updates with Brock not giving ballpark figure on sale price, details on Phoenix link; comments from Gareth Morgan, Kiwibank to be sixth biggest KS provider, video of press conference, Morgan on fees; S&P comments)
Morgan on fees
17 Comments
What prevents Kiwibank using Kiwisaver funds to pump their own balance sheet to enable them to flog more credit into the housing market.....nothing. It's as simple as a book entry to invest a fat chunk of KS $ into KBank bonds. Hey bingo $100 million in means $900 million to lend...safe as houses.
The reality in NZ is that our banks are not constrained by needing reserve funds to forward credit, our banking system is "self regulated" in that way, in reality banks make the loans then buy the reserve requirement after the fact.
Its an obvious deal when you think about it really, Garath cashes up at the top and KB increases its market share bigtime.
GMI KS accounts have pretty much 0% hedging for a currency event.
I think you'll find that the cash funds that will comprise a relatively small portion of the funds under management are not alowed to be used as 'deposits' in the true sense of the word - this issue was highlighted a couple of months ago and on the the Aussie banks commented on this very issue.
A red herring if ever there was Wolly.
Wolly you are surely not accusing NZ institutions of heading down the rocky road of re-hypothecation? Do we have laws to prevent this or is it open season just like the US and UK and to hell with the investor's money? And the prospect of an open bank resolution haircut?
Don't get your knickers in a twist Wolly (after all - some of the gold coins you hide down there might go missing somewhere awkward) - those funds will be of different types (conservative, 100% equities, etc), so even if KiwiBank did try to do what you're suggesting, only the funds that are flagged to be invested in fixed-interst products would be eligable. (That proportion is probably higher than it should be, but Kiwis and financial knoweldge, right....)
I'm more annoyed that Gareth Morgan, king of talking a big game and winning uninformed hearts and minds (and KS accounts) as a result is once again demonstrating that he looks out for number one by selling his poor performing fund management business. He slams others for selling out overseas, but was happy to take a cheque from Fairfax for his considerable interest in TradeMe. Then, he publishes books about the evils of manged funds and potential KS mismagement...only to create his own fund which then performs pretty poorly. What staggers me is that he's still considered a saint in this country.
Oh and Wally, it looks like you're still in the days of fractional reserve banking. NZ dropped that nearly 30 years ago. Under Basel II, that multiplier would be around 40x - residential mortgages get a risk weighting of around 30%, from memory, which then needs an 8% capital buffer. So, if KiwiBank did get $100m one way or another, in theory that could support $4b in residential lending.....
If it's 40x then I stand corrected but OMG....4 billion...
Be good to get some detailed info on this as I seriously suspect KB is looking to use the KS dosh for this.
Toss in the 500 million euro the BNZ has just borrowed and multiply that using the same formula....
Are we not looking at a property bubble here...more of the same stupidity under Clark...same RBNZ attitude...
It doesn't take much of a fall in property prices to put at risk the banks' set aside capital and those KS depositors funds.- just a measly 2.8%. Such a shambles and those who profit from it have no shame. Just got to keep praying the mortgage fools never hand in their keys and go abroad.
Is that the same Kiwibank who Mr Morgan kept backing and telling the rest of us to pull away from the Aussie owned banks?? A bit of a funny smell eminates from THIS deal! Methinks it has been in the pipeline for a while and GM has made a nice little earner out of it. I never trust anybody that keeps telling me that other investments are bad and the only place to put your money is into his investments - but there are a lot of fools over here that swallow it all up and rush to send GM their money - they see it as a safe bet after following celebrity based advertising previously headlong into Finance Companies - I bet a lot of them pay Cigma subscriptions too, buy Deer velvet and have a Dan Carter Heat Pump!
GM set up in this business with a promise to NZ that he would win against the crooks and robbers in the insurance and funds management industry. He made all sorts of representations to attract members to join his scheme - but now the reality is, as with so many of his representations, they were all false. He never stood up against the industry or the insurance crooks and banksters. What he did was plan another astute business sell off just as happened with TMe. He planned to use the KiwiSaver as an excuse to pool people under his name and umbrella and then sell it off - all those people who pay his business fees for managing their money simply set GM up in business while he pulled the wool over their eyes.
Good timing Mr Economist - Euroland crisis and a global economic melt down on the horizon warns the World Bank and so timely-Gareth runs for the hills and takes his cash just like Sir Norris who jumped ship before the banking sector gets hit. Only what GM forgot to do is get all his KS members out on the sidelines before performance drops and he breaches his obligations to protect their capital. GM first and the rest of us left in the dust for having remained loyal and supporting the GMI fee structure being a percentage of FUM.
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