Knowles to Norris: 'Get your calculator out'

Outgoing Kiwibank CEO Sam Knowles has mounted a spirited defence against suggestions from rival bank boss Ralph Norris that Kiwibank hasn't generated enough capital internally from its own profits. Knowles said Norris was wrong and ought to "get his calculator out.”

Asked about recent comments from New Zealander Norris, CEO of ASB’s parent Commonwealth Bank of Australia, at Kiwibank’s annual results briefing yesterday, Knowles defended Kiwibank’s profitability and the returns generated on the taxpayer funds the state owned bank has received. He said Kiwibank’s June year results had delivered an 11.5% return on shareholders funds at the bottom of the recessionary cycle.

“I think Ralph needs to get his calculator out and actually look at the numbers,” Knowles said.

Kiwibank opened for business in February 2002 with NZ$80 million of taxpayer funding via the government. About another NZ$230 million had been pumped in since, via parent NZ Post. Kiwibank, which has never paid the government a dividend, had also retained earnings worth about $175 million.

“The value of the bank today is somewhere between NZ$800 million and NZ$1 billion,” Knowles said.

“So there’s at least NZ$500 million, if you like, of value that has been created in the eight years I’ve been involved in the bank and that’s a very good return.”

Knowles' comments came after the government announced it had agreed to a request from Kiwibank's parent NZ Post to provide an uncalled capital facility valued in the "low hundreds of millions" of dollars to the group to help maintain NZ Post and Kiwibank's AA- credit ratings and enable Kiwibank to keep growing.

Finance Minister Bill English and SOEs Minister Simon Power said the provision of uncalled capital, on commercial terms, will give NZ Post and Kiwibank the financial certainty they need to pursue their plans and sat alongside other government measures such as allowing Kiwibank to retain profits and requiring a lower dividend from NZ Post.

Norris, formerly CEO of ASB, recently told Radio Live’s Andrew Patterson that Kiwibank had essentially undercharged for too long and was now reaping the fruits of not being profitable enough.

"The situation for any business is that if you're under pricing your products then you're not generating enough capital to grow your business,” Norris said.

“There's always the balance of getting your pricing right in order to make sufficient profit to generate capital within the business."

It was a classic example, Norris said, in a lot of businesses that over-trade.

"They don't have enough equity and therefore they get themselves into potential difficulties because of that. I'm not saying that that's the case in terms of potential difficulties for Kiwibank," he said.

"(But) you've got to make a reasonable level of profit to generate internal capital and that doesn't seem to have been the case with Kiwibank."

However Knowles said, taking the broader banking market into consideration, Kiwibank’s existence had prevented somewhere in the vicinity of NZ$1 billion to NZ$2 billion in profits being sent to Australia.

So all up Kiwibank had delivered a “great return” for taxpayer investment of NZ$310 million.

“I think if Ralph actually went through the numbers he would be quite surprised at the level of return we’ve achieved,” Knowles added.

“What he’s concerned about is that we are a challenger in the market and we are probably stopping him making more profits.”

Norris, meanwhile, did acknowledge the entry of Kiwibank into the market had forced Australian-owned rivals such as ASB to send their customers the message that they were New Zealand banks too.

* This article was first published in our email for paid subscribers earlier today.  See here for more details and to subscribe.

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 or click on the "Register" link below a comment.

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.

5 Comments

It will be interesting to see what happens if NZ house prices fall by 10%.  Kiwibank would be in big trouble because it loaned the majority of the mortgage money at the height of the bubble, at very high LVR, in its race to increase market share.  The Gov't and the RBNZ are now both trying to prevent housing deflation in order to prop up Kiwibank.  

Yep and that's the reason behind the underwriting of the extra foreign borrowing to be done by Kiwibank,,,which will be put through the sausage credit creation machine and spring will see a vast wave of cheap offerings designed to pork the market and prevent the collapse. meanwhile Donkey tells us we are poor savers....go figure!

"... unemployment isn't as bad as anyone thought"....oh dear oh dear another poor fool who believes the tripe from wgtn....the truth about unemployment can only be found out by going to the communities.

If Kiwibank is to be "supported" is it now classed as a "To Big to be Allowed to Fail" Bank

It is also a govt poodle to be used to pump cheap credit into the market right passed Bolly's nose!