Since Steve Jurkovich became chief executive of Kiwibank, the state-owned bank has adopted a patriotic marketing strategy. Photo / Doug Sherring
Since Steve Jurkovich became chief executive of Kiwibank, the state-owned bank has adopted a patriotic marketing strategy. Photo / Doug Sherring
COMMENT:
When it comes to mega-mergers, some rumours gather momentum because the parts appear to fit nicely, which appears to be the case for Kiwibank and BNZ.
Since late 2019, rumours have been afoot in banking and political circles that accountants were undertaking work towards a sale of BNZ, andKiwibank was seen as the likely buyer.
On face value, combining the two businesses would solve problems for both buyer and seller.
Kiwibank, formed as part of NZ Post, is a plucky local player which has managed to build a competitive position in the retail banking market, in particular for residential mortgages.
But it has been beset with IT troubles which almost saw its shareholders, NZ Post, ACC and the NZ Super Fund, face off in a court battle.
While it promotes itself to small businesses, it does not have the sophistication required to bank most larger businesses.
In the battle for corporate customers, the larger banks do not see it even as a competitor.
BNZ, meanwhile is strong in the commercial and agri lending sectors, with a far larger market share in business than residential mortgages.
Buying BNZ looks like a bridge too far for Kiwibank. Photo / File
For the owners of BNZ, National Australia Bank (NAB), a sale of the New Zealand business would free capital at a time when margins are expected to fall, the Reserve Bank wants the sector to hold more capital and the Melbourne-headquartered bank is dealing with the fallout from Australia's Royal Commission into the sector.
Even the brands align; Kiwibank's already jingoistic marketing campaign already attempts to convince Kiwis to bank locally.
Reinventing itself, literally, as the Bank of New Zealand, would be a logical extension.
But just because something might fit together nicely does not mean it will happen. Buying BNZ looks like a bridge too far for Kiwibank, which is ultimately owned entirely by various branches of the state.
BNZ's profits in 2019, at a shade over $1 billion, accounted for close to a fifth of NAB - which has a market capitalisation of around A$73 billion (NZ$75.7b). It will not provide a sweetheart deal for the benefit of Kiwibank.
The sale price would likely be well north of $10b, even before Kiwibank negotiated to continue to use NAB's technology systems (there is no way Kiwibank could run the combined operation without them).
Despite a selldown, NZ Post remains the largest shareholder. It is facing a structural decline in its core business and struggles turn a profit.
If it was to inject significant cash into Kiwibank, it would have to do so by asking its own shareholder, the New Zealand Government, for the money.
Just because NZ First wants Kiwibank to prosper, the funds required would swamp even the Provincial Growth Fund.
NZ Post is Kiwibank's largest shareholder. Photo / File
The other shareholders also do not have the capacity for such an acquisition.
While ACC and the Super Fund represent tens of billions of dollars of capital, injecting so much into one niche sector - New Zealand banking - would be a reckless concentration risk.
Finally, there is the question of would NAB really want to sell it anyway.
Its new chief executive, Ross McEwan, is a Kiwi. While the former Royal Bank of Scotland boss would no doubt make the decision if it was clearly in the interests of shareholders, it would seem unlikely to be one he would rush to make.
Whatever problems Australia's banks are dealing with across the Tasman, their New Zealand businesses continue to generate profits with very little fuss. Why would any of them be in the mood to sell?
