Will Aussie-run Kiwisaver funds be welcomed to invest in Kiwibank?
Kiwisaver funds are high on the list of potential investors that Finance Minister Nicola Willis hopes will put money into a beefed-up Kiwibank, but it is not clear whether any invitation will extend to the Australian-run schemes.
Most of the biggest Kiwisaver funds are managed by the big four Australian banks, with which Willis wants Kiwibank to more vigorously compete.
About half of the $112 billion in assets held in Kiwisaver schemes at the end of March was managed by ASB, ANZ, Westpac or BNZ, according to a study published by Investment News on Friday.
The Government announced last Monday that it was consulting with the Treasury and Kiwibank’s holding company on the options for providing more funding for Kiwibank. Its goal is to better enable Kiwibank to disrupt what Willis has labelled “a cosy little arrangement” between the Australian banks. These, she described as putting “profit margins first” and “everyday Kiwis” second.
Sources of new capital for Kiwibank could include “KiwiSaver funds, New Zealand investment funds and investment from everyday New Zealanders,” Willis said.
She would not say whether the Government would be encouraging the Australian bank-owned Kiwisaver funds to participate.
“Conversations will be had with a range of potential investors as to what the terms are on which entities would want to invest.
“All of that we need to work through so that we can bring proposals to Cabinet this year,” she told Stuff.
It is understood that in referring to “everyday Kiwis”, Willis wasn’t intending to suggest retail investors would definitely be able to invest directly in Kiwibank through a sharemarket float., though neither has she ruled that out at some point.
Instead, the Government appears to be assuming any investment by “everyday investors” would initially be indirect, via their Kiwisaver funds.
A bit of a fudge may be neither here nor there, as there is plenty of time to work out the details.
The Government isn’t expecting Kiwibank to be ready for a big capital injection before 2026.
Kiwibank has repeatedly attempted to upgrade its information technology systems so it can address a larger market and it is understood the Government wants to see proof of success before it invites in much extra capital.
The response from New Zealand-run Kiwisaver funds to the prospective opportunity has been warm to polite.
Milford Asset Management marketing manager Sean Donovan says it doesn’t follow Kiwibank closely, so can’t comment.
Ashley Gardyne, chief investment officer of market heavyweight Fisher Funds, appears keener, at least if a float of the bank ensued. “We are interested in the potential for Kiwibank to make a further positive contribution to a more competitive banking industry in New Zealand. We think there would be a lot of interest in an ‘IPO’,” he says.
Gardyne noted there had been a lack of new NZX listings recently, saying “more depth and variety in the capital markets is always a good thing”.
Sam Stubbs, chief executive of midtier Kiwisaver manager Simplicity, says it would “certainly be interested”.
“Banking is a very stable and very profitable industry, so it's a good investment, and there seems to be an opportunity for a beefed-up Kiwibank to make good profits but also provide lower mortgage rates.
“The reason is – by our estimates – the Aussie banks are making about 20% more out of an average New Zealand customer than they are in Australia.”
Stubbs suggests Kiwibank should invite capital in two tranches, tapping local large investors before its technology upgrade is complete, and then listing afterwards.
“Capital is needed to get Kiwibank’s systems up to speed. They still haven't got a good enough core banking system and technology platform. They're putting that in place, but that needs money and time.
“Then, when it's ready to compete, I think it should go to a listing.”
The return investors would expect would be different before and after an IT upgrade, Stubbs says.
Stubbs noted Kiwibank’s previous attempts to upgrade its systems had gone off course. Most notably, in 2017, Kiwibank wrote off $90 million on a failed project to implement a new banking system based on SAP software.
The spotlight is very much on the current management of the bank to make their latest efforts a success, Stubbs says.
The New Zealand Superannuation Fund and ACC, which between them have about $124b under management, remain the biggest chequebooks in town.
ACC says it doesn’t comment on prospective investments, while the Super fund’s head of direct investment, Will Goodwin, says it’s “always keen to explore opportunities in New Zealand that meet our investment criteria”.
“If there was an opportunity to invest in Kiwibank, we would look at it in the same way we would consider any similar proposal,” he says.