O'Sullivan: Ministers walk into People's Bank with eyes wide shut

The cabinet is primed to fling a minimum of $80 million to the wall by fast-tracking approval for New Zealand Post's plans to launch a new bank.

For months, Finance Minister Michael Cullen opposed Government funding for Deputy Prime Minister Jim Anderton's People's Bank.

But in a political quid pro quo, Dr Cullen has now signed up "in principle" to plans for NZ Post to run a bank using its nationwide branch network, with the unspoken condition that the Alliance gets behind his super fund scheme.

The strength of Dr Cullen's opposition had been so strong that the Treasury was confident enough to include in a July report to the Organisation for Economic Cooperation and Development a statement that "shareholding ministers have already indicated that they will not support a proposal - for a new bank - that requires a crown equity injection or ongoing financial support from the Crown."

Government spin doctors have since pushed the line that the strength of NZ Post's business case has swung ministers around.

But it seems fatuous that NZ Post's shareholding ministers, Dr Cullen and State Owned Enterprises Minister Mark Burton, should push the proposal through the cabinet without an exhaustive testing of the business case by the Treasury, not just NZ Post's independent advisers, Cameron & Associates.

Dr Cullen has made a point of fiscal rectitude, and this is a chance to display a principled approach.

More to the point, it is incredible that a cabinet which includes five ministers who experienced first-hand the collapse of two Government banks during their last term in office should go into this deal with their eyes wide shut. Particularly to the contingent liability risks the Government will incur through allowing NZ Post to enter the banking business.

How does Jimmy's Bank fit into the Prime Minister's larger vision for a society that is wired up, innovative, and accepts no limits on its potential?

Mr Anderton's bank was spawned as a nationalistic throwback in response to the sale of PostBank and the Bank of New Zealand into Australian hands. With a big dip towards the "bankers are bastards" mentality, the Alliance leader has successfully ridden a public groundswell against the level of banking fees.

But there has been little serious analysis of why his preferred option, NZ Post's proposal, should proceed. These are the questions the cabinet must address:

* Why throw good money into a loss-making company like NZ Post?

Frankly, NZ Post is a dog. It cannot make headway against its opponents in the deregulated market.

It recently posted a loss of $3.8 million for the three months to June 30. The company has changed its balance date, so strict comparisons cannot be made with the previous full year's $23 million profit, but what is clear is that without acquiring new revenue streams, NZ Post's future is questionable.

The cabinet must consider whether leveraging NZ Post's branch network to provide banking services is the answer to the company's financial future. Another alternative is to sell it to the private sector.

* What safeguards will we put in place to corral any losses from Jimmy's Bank?

Five ministers know full well that banks easily get into trouble - particularly when they are used to fulfil social purposes. DFC New Zealand backed proposals that the trading banks would not touch. When it collapsed, the Government found itself back in the firing line.

NZ Post expects its bank to make initial losses - but will the Government extend an open chequebook to cover the losses, or put in place rigorous controls?

* Is the bank in step with the Prime Minister's ambition for a truly upmarket, First World economy?

NZ Post now indicates that its bank will move into business banking - and possibly internet banking - which takes it further towards the vision Helen Clark charted at the e-commerce summit. But that is a long way from the basic deposit and withdrawal services that Mr Anderton foreshadowed.

The cabinet must ask whether NZ Post can acquire the core competencies to launch such a banking operation off the $80 million NZ Post wants raised.

* What came first, the chicken or the egg?

Bank bashing has occupied media space this year and has certainly contributed to public dissatisfaction with banks. But the cabinet has to consider how much of that is attributable to the Alliance's building a constituency for the new bank.

Ask whether the demand would have existed without it, and how much is attributable to loss-making NZ Post seeking to get itself out of financial mire.

* Will this deal stand up if exposed to sunlight?

The most important issue is whether the deal will pass the 6 pm news test. Would it be applauded if all its ramifications were exposed to public scrutiny?

If not, then the cabinet should walk away. It would simply not be on to take a cynical view that any negative ramifications are likely to occur on the next government's watch, even if that would simply be a carbon copy of the last Labour Government's stance on the Bank of New Zealand.

* Fran O'Sullivan welcomes comment at: fran_o'sullivan@wilsonandhorton.co.nz