David Hargreaves wonders how this Government will find a good solution for Kiwibank when the previous Labour Government appears to have turned its back on the best solution - and that was already halfway in place

Well, you could certainly see this one coming.

It didn't look like a good idea when the Labour Government announced in 2022 that it was using taxpayer money to take 100% control of Kiwibank. I expressed my opinion on it at the time.

I think the shortest explanation you could give for the Labour Government's actions were that they reflected a type of ideology.

Just as I think you could now put current Finance Minister Nicola Willis's rather strange flagging of the idea of flogging off at least part of Kiwibank - (almost throw-away-like comments in the midst of a speech to National Party faithful at the party's annual conference) - down to ideology. But very different ideology.

Hence we have different ideologies coming into play from two different governments within the space of two years that could - I think - have the potential to deprive taxpayers/superannuitants of maybe hundreds of millions of dollars. 

Now, I can never back up that claim because I can't construct a meaningful counterfactual of what could have happened if Labour hadn't done what it did two years ago.

But in essence, the NZ Super Fund, that body that is charged with helping us out with our future pension requirements, was prepared to take ownership control of Kiwibank - but only if it was able to employ an exit strategy of bringing in outside investors. So, Labour did what it did.

I admit to being an unabashed fan of the NZ Super Fund and what it has achieved. I trust the judgement of the highly skilled people within that organisation. The unpleasant truth is that if those people could not see a way of maximising returns from Kiwibank that DIDN'T involve an exit to a third party then there probably WASN'T a good way of getting good long term returns from the day-to-day running of bank.

So, this idea now of Kiwibank somehow as a 'disruptive competitor', a maverick bank that's going to roll up its sleeves and get a better deal for all consumers - I just don't see it. As my colleague Gareth Vaughan recently canvassed, the obvious difficulty is trying to balance the cash hungry requirements of a growing bank with the cash hungry (for dividends) wants of any outside shareholders that might be brought in.

It would be an unsolvable riddle. You could not balance pumping in the sort of capital required to grow a bank - that by implication is going to be 'competitive' and therefore undercutting other banks in what it charges - with the 'need' to pay dividends. Not happening.

While the current Finance Minister couched bringing outside investment into Kiwibank in positive terms as something that would enable this 'disruptive competitor' role, I suspect a bigger consideration is for this Government to avoid as much as possible having to pump more taxpayers' money into Kiwibank - as it would otherwise have to do on an ongoing basis. 

This of course is a Government that through ideological reasoning has given us symbolic tax cuts that the current fiscal position says we arguably cannot afford. So, yeah, stumping up more money to bankroll the bank that the previous Government saddled them with could be inconvenient.

Hence then the ideologically suitable idea of bringing in outside shareholders. 

While it all might sound good, I think the reality is that this would probably, eventually, lead us to Kiwibank being bought by one of the existing big banks. The below chart, taken from the Reserve Bank's 'financial dashboard' shows quite clearly that while Kiwibank is 'number 5' in terms of size, it's a long way behind 'number 4'.

Now, okay, it's possible there might be an overseas bank somewhere not currently with a presence here that's interested in getting into New Zealand and might be keen on Kiwibank. That would be good for us. Great. Increased competition and all that. But really, why would some offshore bank be enthusiastic about getting into a new, small, market and being only 'number 5' in that small market? That's nowhere city, as far as I can see. Why would you bother? 

More likely, as an ultimate outcome, is that someone - and probably one of the 'Big 4 Aussies' - would be interested in picking up Kiwibank's mortgage portfolio, which as of March of this year was worth about $26 billion.

Another chart from the RBNZ's dashboard shows the Kiwibank mortgage portfolio in comparison with the other banks. And you can see from this that the Kiwibank mortgages would be an attractive pick-up for one of the big four.

This would likely result in dismantling of Kiwibank as it is now.

Of course, this wouldn't happen overnight. If Kiwibank were to be swallowed up for its mortgage portfolio then that would only occur after the Government had first opened up ownership of the bank. And this would have to assume as well that there wouldn't be at some stage another change of Government and a reversal of of ideology into one that says thou shall not sell state assets. Again.

If that were to happen, I think it would be a double blow to the NZ taxpayers.

As I said at the top of this article, I think with NZ Super in the Kiwibank driver's seat the taxpayers and superannuitants might have stood to benefit well from an eventual sale of Kiwibank. It would have been carefully phased, it would have been well done. We could have done well out of it.

I don't think the same could now be said of what might likely happen in a sell-down process with a Government that's trying to avoid having to pump in capital to Kiwibank.

To me it just highlights the perils of moving rapidly from one ideology to another and the kinds of financial wastage that can occur as a result. If there is a plan, stick with it. To keep chopping and changing is only going to waste time and money. Our money.

Assuming that this Government does push ahead with the idea of a selldown of Kiwibank, I hope it's very carefully examined first. I hope that outside expert advisers are brought in to have a very good look and to see just what exactly is feasible. I don't sense that the Government has a realistic view of the situation at the moment. 

For the record I'm not supportive of the Government simply retaining ownership of Kiwibank. That's not unless someone decides that there really could be a public benefit in running a bank that does undercut other banks - and is therefore probably marginally profitable at best. If we took that course we would have to believe that the using of taxpayers' money in such a way was sufficiently worthwhile. But would it be? We would in my view have to tolerate losses. Would we be prepared to do that? 

The big danger is that with any sale of Kiwibank that might be conducted, the taxpayer will not get an adequate return. And let's face it, this kind of thing happens too often. What do they say? Privatise the profits and socialise the losses?

Personally, I think for an issue such as this it would be very good to see support across both sides of Parliament before anything is done. It would have been a very good idea for Labour to have done this (seek cross-party support) before deciding to saddle the Government/taxpayer with an ongoing future liability just two years ago.

As for trying to make the best of the current situation, I actually think the best course of action from here would be for the Government to simply look for a 100% sale and see what sort of bids are attracted. 

That's not an ideal solution by any imagination. But as I say earlier up the article, I think the previous Government chucked away the best solution - certainly in terms of potential cash in our pockets - two years ago.

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