HOT TOPICS:   Migration  |  Mortgages   | Inflation                                                   RESOURCES:    Economic calendar   |   Term deposit calculator

The comment stream

Reader poll

Join the Interest community to be a registered commenter so you can:
- Edit your comments
- Avoid the CAPTCHA
- Vote on comments
Register Here

Already registered? log back in here ..

Forgotten your password? No problem! Click here

Uncalled capital facility provided to NZ Post to prop up credit rating

Posted in News Updated

The government has backed down on its call for Kiwibank to pay dividends and will provide capital backing if needed.

The government has agreed to a request from NZ Post to provide an uncalled capital facility valued in the "low hundreds of millions" of dollars to the group to help maintain its AA- credit rating and enable subsidiary Kiwibank to expand.

(Updated with lower Kiwibank profit, full media powerpoint pack, comments from conference call on capital facility being in "low hundreds of millions" and announcement of Knowles' successor being 2-3  weeks away, also Kiwibank planning to raise a about NZ$250 million through bond issues overseas, plus news conference quotes from Brian Roche and Sam Knowles.)

Finance Minister Bill English and SOEs Minister Simon Power said the move followed a request from the NZ Post board for support from shareholding Ministers to enable the company to preserve its credit rating while Kiwibank continues with its current growth-focused business plan.

"We're confident this provision of uncalled capital, on commercial terms, will give NZ Post and Kiwibank the financial certainty they need to pursue their plans," English said.

English and Power said the move sat alongside other government measures such as allowing Kiwibank to retain profits and requiring a lower dividend from NZ Post. The exact size of the facility will be reviewed over time in line with the needs of NZ Post.

NZ Post will be able to call on the capital only in certain defined circumstances, such as Kiwibank experiencing a substantial shock event beyond its own resources and beyond the resources of its parent.

NZ Post said the uncalled capital was a vital plank in maintaining an AA- credit rating with international credit rating agency Standard & Poor’s that enables it to compete with Australian owned rivals ANZ, ASB, BNZ and Westpac. S&P rates both NZ Post and Kiwibank AA- with a stable outlook.

“That rating is required if Kiwibank is to continue to grow and expand,” it said.

Amount not agreed yet

English and Power said the uncalled capital provided stakeholders with the assurance the government was providing the financial support the NZ Post Group required, while maintaining a prudent approach to injecting new equity into Crown companies.

In a news conference NZ Post CEO Brian Roche said the final detail of much the backstop facility would be was still being worked through with the government.

"But it is in the low hundreds of millions. We think that’s going to be sufficient. We’ll continue to work with the government on the facility over time," said Roche.

Kiwibank's soon to depart CEO Sam Knowles said the credit rating would have come under threat over time if Kiwibank continues to grow at its current level. There hadn't been an immediate threat of a credit rating downgrade.

"The rating agency would’ve said 'do you have enough shareholder support to continue that growth'?" Said Knowles. 

Roche said NZ Post wanted Kiwibank to expand into new sectors such as business banking. He said the group didn’t require a direct capital injection from the government and Kiwibank had sufficient capital for immediate growth plans, aided by the raising of NZ$150 million of tier 1 capital through a preference share issue earlier this year. Roche said the money couldn’t be called on for support in circumstances such as cyclical deterioration of earnings or to fund growth activities.

NZ Post was working with the Crown Ownership Monitoring Unit (COMU) to finalise the terms and conditions under which the facility will be provided. It could only be used in an external event beyond the control or resources of Kiwibank and the New Zealand Post Group.

“The recent Global Financial Crisis has highlighted the need for groups active in financial services to have various mechanisms in place that can be accessed in the event of shock events,” NZ Post said.

“Uncalled capital is one such mechanism that is not the final answer to shareholder support, but one that provides a degree of certainty and timeliness in the group’s ability to respond rapidly to potential issues.”

Kiwibank profit falls

Kiwibank said it made an after-tax profit of NZ$45.8 million for the year ended 30 June 2010, down 13% on the previous year.

Knowles said the results were “solid and consistent with a tough environment”.

He said the bank had emerged from the world recession in strong shape and was on track to increase profit over the coming year. In the last year, Kiwibank increased lending by 23% to NZ$10.4 billion while increasing retail deposits by 3% to NZ$6.9 billion. It said only 0.3% of loans were impaired.

Knowles said the bank’s performance was affected by very strong competition in the domestic retail deposit market with both the amounts deposited and margins affected.

Core Funding pressure

Knowles said the deposit market had been affected by the Reserve Bank’s core funding ratio requirements. Banks must secure 65% of their funding from domestic deposits and bonds with terms of more than one year. This led to the Australian-owned banks competing more vigorously for deposits in the New Zealand market.

During the year Kiwibank raised $A250 million ($NZ309 million) through a bond issue and NZ$150 million of Tier 1 capital through a share issue by a related company, Kiwi Capital Securities Ltd.

In May Knowles announced he would resign from the bank once a replacement was found. The announcement of a replacement had been expected this week, but there has not been an announcement with this result or the capital support news.

Media conference update

Meanwhile NZ Post CEO Brian Roche later told a news conference the uncalled capital facility would be valued in the "low hundreds of millions" of dollars and that a successor for Knowles would be named in the next two to three weeks.

Meanwhile, Knowles told the conference Kiwibank planned to raise about another NZ$250 million overseas through a range of loan facilities and bond issues.

Your views? Comments below please.

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

We welcome your comments below. If you are not already registered, please register to comment in the box on the right or click on the "'Register" link at the bottom of the comments.

Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current Comment policy is here.

47 Comments

Where is the level playing

Where is the level playing field

Why not support TSB, SBS as well

They are community owned as well - and in the case of TSB controlled by the government

You have some good points.

You have some good points. This is another example of how the govt makes a mess when they involve themselves in the 'market economy'.

Pfft, this government doesn't

Pfft, this government doesn't need your fancy "invisible hand". It has a big clumsy fist it can poke into things. We're fine, now get back to work.

Haha, well put.

Haha, well put.

So TSB will be annoucing a

So TSB will be annoucing a similar news release soon?

  Government guarantees

 

Government guarantees bank. What can possibly go wrong?

I have no doubt at all that

I have no doubt at all that Kiwibank will now hit the market with a round of advertising designed to flog residential mortgages and pork the property bubble.

If Kiwibank cuts rates

If Kiwibank cuts rates aggressiveley and the Aussie owned banks are forced to follow suit then the government will have acheived its aim ....

So they cut their rates to

So they cut their rates to induce more competition for lending that is not needed - make less profit, lend to more dodgy propositions, therby loosing more money - and even more capital is required.

The capital constriant is a good discipline to ensure good prudent business practices - Kiwibank no longer has that discipline

Wait - they will have to be bailed out next!!

Kiwibank don't lose money -

Kiwibank don't lose money - they make profits.  They also have one of the best bad debt ratios of all the banks. 

Sorry to let some facts ruin your rant

Updated with media pack

Updated with media pack attached and detail from Gareth reporting on the news conference call going on at the moment.

Includes Knowles saying Kiwibank plans  new overseas bond issues of NZ$250 million and Roche saying the government backstop is likely to be in the 'low hundreds of millions.

Also Knowles' successor likely to be announced in the next two to three weeks.

cheers

Bernard

the capalist capal system is

the capalist capal system is dead

Hooray. This makes sense. A

Hooray. This makes sense. A business as young as Kiwibank in a competitive sector is never going to be able to both grow and return a reasonable dividend to its owners.

What you are witnessing is

What you are witnessing is the financing of a spring offensive to be carried out by Kiwibank into the residential mortgage market....the aim of the govt is to pork activity long enuff for them to get passed the election. Expect follow up measures by Cabinet to further boost the govt loans to first home buyers. It amounts to a scam ...it is not about encouraging lending into export sector enterprise, but just good old fashioned manipulation of the voting public. The tide has gone out and we can see,not a member of the govt is wearing a bloody thing.

FYI, I have updated the story

FYI, I have updated the story again, adding quotes from Brian Roche and Sam Knowles made at a media conference.

If its a Kiwi owned bank, why

If its a Kiwi owned bank, why go offshore to raise a measly $200 million? Only reason I can think of is that they'll pay less for the debt than they would if they undertook a retail bond issue here in NZ. Pity really, because there'd be alot of Kiwis ready to invest in a good bond issue.

Part of the reason might be

Part of the reason might be price, but it's more that they're looking to Australia for diversification of their funding.

In my life time the Govermant

In my life time the Govermant of the day has bailed out the BNZ TWICE, so why not another bank. As i get older i get more suspicious and i suggest we are seeing sour grapes from the "other 4"

BNZ?! And before your

BNZ?! And before your lifetime ,as well, Mark. Check out the BNZ history, and see how many times 'we' have bailed out 'our' bank, no matter what it was called. Kiwi bank just seems to be 'it's current name.

Mark is right been bailed out

Mark is right been bailed out 2x in my lifetime to.

And this is not a bail out, but rather a injection for further expansion into the business sector....The Aussie bank are being rather tight to invest in NZ business, so lets have our bank do so....nothing wrong with that

What a crock! I seem to

What a crock! I seem to recall the BNZ costing us taxpayers $1 Billion not too long ago.

Kiwi Bank and the BNZ fiasco are Anderton ego fetishes that will end up costing us ( taxpayers) all dearly

Anderton was such a ... Him and Muldoon what a team!

 "Kiwi Bank and the BNZ

 "Kiwi Bank and the BNZ fiasco are Anderton ego fetishes"

If it wasnt for Anderton, we wouldnt have a NZ bank at all and how does the BNZ fiasco reflect on Andrerton??

I seem to remember Ron

I seem to remember Ron Brierley was Board Chairman and various ex-politicians were on the board. FayRichwhite were their consultants and Lindsay Pyne was CEO(appointed on FRs advice) A great example of why NZ has never had enough credabilty to attract large sums to a capital market

Your Kidding Steptoe!  But

Your Kidding Steptoe!  But dont take my word , try googling it must be all on line somewhere.

Essentially the BNZ was lined up for sale in Eighties to an Aust Bank and Anderton single handedly pulled the pin on the deal. Less than 12 months later as I remember it was discovered the BNZ needed $1Billion injection to keep it afloat! 

I would love to know the

I would love to know the level of cross-subsidy provided by NZ Post to KiwiBank for the use of its counters and staff.  Is it co-incidence that NZ Post has just lifted its postage rates?

KiwiBank uses the cross-subsidy to undercut its competitors.  Plus,  it is not providing a dividend to its shareholders (us) where its competitors do.

Perhaps you'd prefer that NZ

Perhaps you'd prefer that NZ Post sat on its chuff and did nothing while it died a lingering death? There's a pretty clear synergy between the businesses that they are leveraging. I'm quite happy to see them undercut the big 4 - that's just good business. By undercutting them they have grown. So what.

As one other poster suggests, I sense sour grapes from the Aussie banks. I knew a bank manager for one of them who gave me chapter and verse about how Kiwibank couldn't succeed in retail banking because there was no money in servicing the clients they began with. He maintained that they weren't worried, the real money was in mortgages/business banking - and this was right at the beginning. When I suggested that he must know that if he was right, then Kiwibank couldn't stop - that inevitably it would expand into mortgages and business lending, he had to admit that this was a concern. He's now the head of lending for an entire state in Aus.

As to the retained dividends vs taxes paid by the others: what taxes? Are we supposed to feel grateful to them for the way they underpaid their taxes for years? Or for the fact that they begrudgingly gave us back some of the extra profits that their cosy cartel generated??

We took the free markets too far in the 1980'sand ceded control of our banking system to others that are not interested in our welfare. Since we're dredging up the past - let's chuck the whole Ansett/Air NZ/Qantas saga into the mix. Care for some Kiwi apples in Aus?

Kiwibank has led to lower interest rates, higher returns on savings and lower fees for everyone who banks in NZ. I don't believe this would have happened without their presence, I don't care whether we're playing fair (no other country does) and I'm proud to support them. Can you say the same about your bank?   

No i wouldnt ; privatise it!

No i wouldnt ; privatise it!

I just want to say: well

I just want to say: well said, gnomey. I was going to add a reply at the bottom of this thread but you have expressed just what I would have said anyway.

Anthony  you are factually

Anthony  you are factually incorrect  The BNZ was partially sold to the NZ public in March 1987   There was never any discussion around selling it to an Australian Bank at that time .

The real issue in this story is the true profitability of Kiwi Bank - or lack of it and any board worth its salt would have long since seperated it out from NZ Post so that the true state of both can be seen.

 

No Richard you are ignorant :

No Richard you are ignorant : do  some research. Im not here to school you and your like

"Kiwibank don't lose money -

"Kiwibank don't lose money - they make profits.  They also have one of the best bad debt ratios of all the banks. 

Sorry to let some facts ruin your rant"

 

There is only one reason that Kiwiban's impaired asset are lower than the other banks, they provide minimal support to the business comminity for their borrowing requirements

"They provide minimal support

"They provide minimal support to the business community...."

Which is why they need the uncalled capital to enable them to grow so that they can provide support to the business community

enable them to grow so that

enable them to grow so that they can provide support to the business community 

Lending to individuals for houses is a relatively homogenous product. Kiwi is clearly very good at it (or, at least very competitive).

Lending to the business sector is a different kettle of fish altogether. The four major banks have built up intellectual captal and knowledge of their customers over the last decade, which Kiwi will find hard to match, without an huge investment in people  - whom they'll have to headhunt from the big-4!

Kiwi is an individual/household bank - it won't be seriously competing in the SME sector for a loooong time yet.

Is noone concerned that

Is noone concerned that without Kiwibank, almost our entire banking system is an arm of Australia?

Believe me, if the proverbial hits the fan, then the Aussies will look after themselves and we will be left in a massive depression. And hasn't the last 3 years taught us that Black Swans are real.

(As an aside who were the idiots who allowed an Aussie bank to take over National Bank further increasing our exposure? ... probably the same ones who permitted our supermarket duopoly)

 the Aussies will look after

 the Aussies will look after themselves and we will be left in a massive depression

There are lots of conditions with registering a bank in NZ. Some are specifically designed to stop exactly that behaviour.

Legally, the Australian owners can't pull capital out of NZ and leave us in the lurch.

Eurokiwi you are wrong wrong

Eurokiwi you are wrong wrong wrong.

The ANZ Bank through it forerunners have been in NZ since the 1840s and have provided unbroken banking services since.  The same applies to other so-called Aussie banks,  which incidentally were originally English banks.  They have paid their taxes,  employed locals and also found the capital to enable us to borrow to develop this country.  Learn your history! 

I would argue that the Aussie banks for the most part have been model corporate citizens. 
There is no suggestion they would leave us in the lurch as you seem to imply.  On what do you base that?  During this last recession when foreign banks - US, UK and elsewhere have fallen like flies and needed massive capital injections of government funds,  the major Aussie banks have been ranked amongst the best in the world.  And incidentally the NBNZ was wholly owned by LLoyds Bank (UK).

So you have shown your ignorance and prejudices.  Just another kiwi yokel.  Eurokiwi? What a joke.

Anonymous at 9.11 Nice touch

Anonymous at 9.11

Nice touch throwing Ghandis cloak over the Aussie Banks. They didn't follow their overseas counterparts down the road to perdition is beacause they were a cosy protected cartel whose  margins were so good due to lack of competition they were not impelled to seek risky investements such as CDO's. Quietly thank our lucky stars they were not under revenue pressure to emulate their offshore colleagues, thank prudential oversight preventing them from doing so but please don't attribute their survival to  ' model corporate citizen' attributes. If they were in the shoes of their Yankee or Brit cousins they'd have done exactly the same.

I won't mention tax and court actions. 

Arrant nonsense middleman, 

Arrant nonsense middleman,  you don't know what you're talking about.

Cosy protected cartel? As if.  I haven't heard the ASIC compaining about bank cartels,  or our own ComCom for that matter.  Have you heard of the four pillars of banking in Australia? Thought not.  Banking in Australasia is extremely competitive, so much so that cross-subsidy has been driven out of the industry.  Australia has an active derivatives market,  but I don't expect you would know that.

You could argue that good management and oversight has kept losses (which were bad enough) to a level that could  be sustained through this recessionary period,  and good corporate legislation has helped,  unlike the poor standard evident in the US and beyond.

Your fanciful exaggerations bear no relation to the facts.

 

Good to see both lovers and

Good to see both lovers and haters of the Ozz ( NZ) banks - today I heard they're still lending here in NZ on residential property with only a 10% deposit.

I wonder what both sides will think about the banks rocksolidness and good management when/if house prices drop 20% in price?

Anonymous - take a few deep

Anonymous - take a few deep breaths.

At no point did I say that Aussie banks are bad corporate citizens (although they only paid their taxes in full when taken to court), but if a disastrous black swan strikes their economy make no mistake they will look after their domestic economy 1st.

In fact their regulations specify that they should pay out Aussie depositors before any others and hence the 'kiwi yokel' regulator RBNZ has been forcing them to incorporate in NZ and carry sufficient capital here. But a big lesson from the GFC is that banks carry insufficient capital for a black swan.

BTW in what way does the Aussies surviving the last crisis -through a mix of good policy, good luck and massive government support- guarantee that they will never have a full blown crisis?

And I know the NBNZ was UK owned - THAT WAS MY POINT - we now have nearly all our eggs in one basket.

NZIER economist NZIER

NZIER economist NZIER economist Shamubeel Eaqub said  "For investors ... current rents do not stack up. Either rents have to go up or house prices have to fall," he said. "We do not believe there is much room for significant rental increases. Instead, frothy house prices may adjust lower."herald  herald

Or in simple words....the property bubble is dying fast. If you are thinking of selling, don't be last!

For the savers out there who waited out the stupid times...do not rush in because bubbles always correct back to below the averages. Expect 2002 prices to be reached sometime over the next decade. The declines will vary across the country and locations for obvious reasons. Carry on saving. Do not be put off by the waves of BS coming from the RE mob, the banks and the media.

You are now the market. They want your munny.

Wolly.. are you a successful

Wolly.. are you a successful investor?

If so, what have you invested in?

Have you created reasonable wealth via your investment activity?

Or have you lost money?

What experience do you have investing in property?

If so, have you been successful as a property investor? (examples)  

Possibly anon...hard to know.

Possibly anon...hard to know. Why would you want to know?

To back up your forecasts and

To back up your forecasts and predictions mate. Seems like a load of dribble.

Oh I see...you are appointing

Oh I see...you are appointing yourself as moderator...a sort of self styled boss on the thread...you must need to replace your hat quite often!

The answers to your questions are personal and not for posting on a public thread, especially with so many nasty little shites out there.

Suffice to say I do not need to work and have not been employed since the age of 52...but I enjoy a healthy nett income and I am pleased for any others who bought into pna when it was in the low 40s, although I did suggest they sell now before the Fed arranges another market gut spewing event for the benefit of the us$.

You may take whatever you wish from my comments on property. I couldn't give a rat's arse!

As I expected, the fools in

As I expected, the fools in the Cabinet have decided to run with a policy of porking the bubble to win the election instead of acting to promote affordable homes and bring long term stability to the economy.

 http://www.radionz.co.nz/news/business/54604/kiwibank-plans-up-to-$500m-new-overseas-borrowing

 

"Several hundred million dollars of new capital will be put on standby for the Kiwibank in the case of severe shock that neither the bank nor its parent New Zealand Post can cover.

The capital should bolster Kiwibank's credit rating and make it easier to borrow offshore.

Chief executive Sam Knowles says up to $500 million of new overseas borrowing is planned to support new lending to customers.

A spokesperson for financial website goodreturns.co.nz, Philip Macalister, says the move should increase competition in the home loan market and lower interest rates."

The next Cabinet move will be to boost once again the welcome home to greater debt loans in an effort to pork some activity in the building sector.

This economy already has an Elephant sized mortgage debt squashing the life out of it. Now we have the idiots in wgtn moving to boost that level of debt for short term electoral gains.

Is this the start of National

Is this the start of National taking over KiwiBank ?