‘Dog’ proves critics wrong

It’s hard to recall now what a radical idea Kiwibank was. The entire political and policy establishment sneered because state involvement in banking represented the end of the failed reforms of the 1980s and 90s and the restoration of an active role in the economy for the state.

Critics of Kiwibank were fine with New Zealand’s financial system then being 99% overseas-owned. The state could not be trusted to act in the interest of everyday working people the way Australian banks could. Truly, they argued this.

Those friends of the workers from across the Tasman siphon around $7 billion a year out of our pockets. Their profits amount to more than $800,000 an hour, every hour of every day. Profit. Apparently their profits are for your own good, like fasting and doughnut economics. Wealth only gets in the way of your mindfulness.

The Australian banks are among the 10 most profitable in the world. They make more money out of a New Zealand household than they do out of an Australian household. We pay about 20-30% more in fees than Australians.

I was working with Jim Anderton when he first proposed Kiwibank. Then he called it ‘‘The People’s Bank’’. Fans were attracted most to New Zealand ownership, so he started to call it ‘‘a Kiwi bank’’.

Jim argued the bank would re-establish some New Zealand ownership of our financial system, make banking available in more places, provide competition in fees and keep some profits in New Zealand.

Today, Kiwibank has more than a million customers, including 40,000 businesses. We own an asset worth multiples of our money down, and NZ Post, the Super Fund and ACC have all made money out of it. The public enjoys better banking services, and even satisfaction with Aussie banks has risen because they were forced to lift their game.

At the risk of inviting an FBI raid on our lifestyle Mar-a-lago, I possess a copy (stamped ‘‘confidential’’) of the consultant’s report that forecast Kiwibank would fail. Investment bankers, political opponents who called it a ‘‘dog’’, and banking academics were totally, completely, spectacularly wrong at the one thing they were paid to be right about. Woof.

Recent World Bank research found that privatised banks decreased their lending by about 45% compared to public banks, and closed more branches, particularly in low income areas. This led to a contraction in economic growth in areas serviced only by private banks, which in turn led to a drop in employment, hours worked and local wage bills of about 8% below the national trend.

Meanwhile, newly privatised banks experienced a sharp increase in returns of about 7%. I can see what’s in it for the banks.

Critics today attack Kiwibank for not being as profitable as the Aussie banks. They would be even more whiney if Kiwibank was loss-making. The whole point was not to be like them. We have a Goldilocks bank, with returns that are not too big and not too small.

Its problem is that it requires more capital to grow. To be fair, in 2001 officials warned this would happen if the bank succeeded. What a great problem to have, Jim would chuckle.

The bank could sell its mortgage portfolio (perhaps to the Super Fund) to raise funds for growth. That would still mean 100% of the bank in public ownership.

The ambitious option would be to buy Westpac, which the Australian parent was last year rumoured to want shot of (for complex reasons relating to its Australian capital requirements). Buying Westpac’s Kiwi operations would be a large transaction, really a reverse takeover, involving branch closures and staff losses, but it would result in a publicly owned bank of the scale of the Aussies with Westpac’s top-tier management.

I’m told it could be made digestible by selling Westpac’s mortgages, institutional banking and wealth management.

The government would have to cough up capital, but it would get in return a bank that pays a reliable stream of dividends and provides the social benefit of more community ownership of our financial destiny.

In a week in which we’ve seen an expulsion from the Labour Party caucus, it’s worth remembering that in 1988 Labour attempted to suspend Anderton for refusing to vote for the sale of the BNZ. (It failed because you can’t be expelled from the Labour Party for voting for Labour Party policy.)

The following year Jim left anyway. Thirteen years later, he created Kiwibank with the intention it would one day become what the BNZ used to be: our bank.

Having proven itself over 20 years, Kiwibank is now ready to complete the job of putting right the awful mistake that was made when the BNZ was sold.

This ‘‘dog’’ of a bank has succeeded precisely because it’s owned by us. It’ll keep succeeding for the same reason.