Flying into a storm
Ardern in for tough reception from Oz investors
Prime Minister Jacinda Ardern flies to Melbourne at a time when the Reserve Bank’s tussles with Australia’s financial sector have raised questions over whether New Zealand is anti-business. Australian fund managers were shocked at the blocking of AMP’s A$3.4 billion sale of its NZ Life Insurance business this week. Investors have requested the doors be closed
to media at their lunch meeting with Ardern in Melbourne today. Officials confirmed to the Herald that the decision to exclude journalists from the investors’ lunch — apart from Ardern’s opening comments — related to “banking”.
The lunch with 15 investors comes at a time when the Australian financial fraternity — including the CEOs of the four Australian major banks that dominate 90 per cent of the New Zealand market — profess to be “shocked and Orr’d” by the Reserve Bank of New Zealand’s (RBNZ) stance on increasing banks’ capital buffers and AMP’s revelation that the sale of its NZ Life business to British headquartered Resolution Life would also only be approved if it agreed to create separate, ring-fenced assets that will be held in New Zealand for the benefit of New Zealand policyholders.
The initial market response to AMP’s revelation was to send AMP shares down by 14 per cent to an all-time low of A$1.7725.
Sentiment across the Tasman
has been reflected in two Australian Financial Review
columns.
One was headlined “Have the Kiwis got something against Aussie businesses?” by Patrick Commins.
And Tony Boyd’s Chanticleer column says the RBNZ’s desire for greater financial stability in New Zealand is understandable given it is a small economy exposed to international forces outside of its control. “But its lack of trust in the regulatory oversight of AMP Life by APRA should not be conveyed in a way that immediately wipes A$1 billion ($1.04b) off the value of AMP”.
The staunchly pro-New Zealand stance being taken by Reserve Bank Governor Adrian Orr in the wake of the
disturbing revelations at the Hayne banking commission is not well understood in Australia.
It has come as a surprise to the Australian market. Although the financial community understands Orr’s role as central bank governor implies independence from government, they find it more difficult to understand his dual role — via the Reserve Bank — as the key banking and insurance regulator.
Australian-owned banks alone have about $485 billion of liabilities and equity in this country. In Australia, the supervision of banks and insurers lies with the independent Australian Prudential Regulatory Authority (APRA).
The Chanticleer column also called for greater Australian government engagement, calling for the Australian Council of Financial Regulators, which is chaired by Reserve Bank of Australia governor Philip Lowe and comprises representatives from APRA, ASIC, the RBA and Treasury, to encourage the “New Zealanders” to be more open and transparent about changes in their regulatory stance towards Australiadomiciled institutions.
“It makes no sense whatsoever for shareholders and policyholders of AMP to be told about a change in a 150-year-old regulatory practice for life insurance companies in New Zealand through an out-of-the-blue ASX announcement,” the AFR’s Boyd wrote.
Ardern may also face questions over the Government’s planned reforms of the foreign direct investment regime, which are flagged to introduce a “national interest” test.
Submissions on a Treasury discussion paper closed in May. But the portfolio switch from David Parker — who openly advocated for changes while holding the Economic Development portfolio — to Phil Twyford in the recent Cabinet reshuffle appears to have slowed progress down.
Ardern will be looking for Australian investor support for the Government’s infrastructure programme.
Finance Minister Grant Robertson is expected to announce a policy on special purpose vehicles in the near future, which will open the way for more private investment in infrastructure.
Officials last night confirmed the 15 Australian investors who will attend the lunch are actively pursuing investment opportunities or currently have interests in New Zealand. The attendees are senior representatives of the investment community representing venture capital, family offices, private equity, private investment funds, and one corporate.
Of critical concern for funds invested in New Zealand will be the impact on specific sectors such as dairy and SMEs if the Australian banks make good on their threats to reduce their NZ exposures. And the overall impact on the NZ economy.