PETER WILLIAMS: A BoNkerZ idea

No Winston, we should not buy a big bank

Since my first vote in 1975 I’ve been pretty much around the party clock, although I never stopped at Green o’clock. Once I even put a tick beside a Social Credit candidate because Muldoon’s National was just impossible to support in 1981.

I’ve been with Labour and National and Act but in 2023 I went with New Zealand First. That’s because they promised us a proper inquiry into the covid response and that they would ensure if treaty principles were not to be defined, they would at least be taken out of most legislation.

The Covid Royal Commission Phase Two was a complete damp squib which New Zealand First lost control of when an Act minister set the Terms of Reference. Treaty Principles clauses remain in the vast majority of our recent legislation, albeit somewhat watered down but written in such a way that activists in the judiciary will probably find a way to incorporate them into jurisprudence.

So New Zealand First was really struggling to keep me on board anyway. Winston Peters latest outburst means I’ll be throwing them into the briny.

The idea of buying back the Bank of New Zealand is just preposterous.

Crazy.

Off the planet loopy.

For a start it’s not for sale.

Even if it was it would cost the New Zealand Government between ten and fifteen billion dollars. That’s a back of the envelope calculation of the BNZ’s worth based on its current owner – the National Australia Bank (NAB) – reporting an annual profit of its New Zealand operation of between 1 and 1.5 billion dollars each year. A company’s worth is based on a multiple of its annual earnings and in the banking industry an earnings multiple of 8 to 10 is considered normal.

So let’s go at the cheap end of the estimate. This country doesn’t have ten billion dollars to buy a bank. The money would have to be borrowed. We can hardly afford the 9 billion annual interest on our current borrowings.

If, God help us, Winston Peters harebrained scheme ever came to some sort of reality and the government decided it wanted to buy the BNZ but the NAB wasn’t selling, then the only option would be to nationalise it – or to put it more crudely, steal it.

Any government that indulges in that kind of behaviour quickly becomes one you avoid doing business with.

Yes, there is a long and storied history with the BNZ. It was founded by privateers in 1861 and was immensely successful for thirty years before it over-extended itself and needed its first government bailout in the 1890s. That led to Richard Seddon’s Liberal government taking a substantial ownership role which the post-World War Two Labour government took one step further and completely nationalized the bank in 1945.

It was successful in this time of heavy regulation and interest rate controls. But when the Rogernomics revolution of the 1980s happened the BNZ was in boots and all, despite it still being government owned.

Inevitably poor management and overly ambitious lending put the BNZ back in a hopeless financial position. NAB came to the rescue and took a majority share in 1989. With more losses exposed after the 1990 election Jim Bolger’s National government sold the rest. The total deal cost NAB about $1.48 billion.

Predictably the BNZ has been an outstanding investment for NAB. But it’s run by bankers who are employed by shareholders.

Governments should not own banks. Exhibit A - Kiwibank. It’s so undercapitalized and so small the government itself doesn’t even bank with it. It uses Westpac.

Mind you there are lots of things governments should not own. Radio stations and TV networks and farms and electricity retailing companies come to mind.

But banking should be top of the list of industries that governments have no business in. In a time of a smaller and more regulated economy maybe there was a case. But that era is not coming back.

New Zealand consumers have massive choice for their retail banking. Sure the big four dominate with an 85 percent market share but whose fault is that?

We must be happy with the service we get otherwise we’d be off to Kiwibank or TSB or SBS or Heartland or Co-operative or even Rabobank. With BNZ, ANZ, Westpac and ASB that’s ten choices we have to save our money with.

I call that competition.

If the government is serious about being in the banking game then sell a decent chunk of Kiwibank, keep a controlling but not majority stake, have it properly capitalized and make it more competitive with the Big Four. It won’t happen immediately but until there’s some serious investment in Kiwibank it won’t make much of a dent in customer share.

So Winston, this plan to buy back or nationalize or steal the BNZ from the Aussies is a pipe dream. We can’t afford it and it’s just bad business.

I do though like your compulsory Kiwisaver from birth idea with the $1000 kick start, even if the second part of that has been tried before. Maybe you can convince your next coalition partners to invoke that policy.

Don’t think I’ll be voting for you again though.

Writer and broadcaster for half a century. Now watching from the sidelines. Subscribe to Peter William's Substack here

Don Brash comments: “Peter Williams wildly underestimates what it would take to persuade NAB to sell the BNZ, and NAB did not take any stake in the BNZ until after the 1990 election.”