Bryce refers to a social media comment from me back in May. My “End of Alchemy” Substack post uses the same Banana Republic word pair. The post mentions two government “ideas” about what to do with our smaller banks. One is the plan to nationalise the Bank of New Zealand and merge it with Kiwibank. It was floated in May, but I have not heard a lot since. The other “plan” was to make Kiwibank the home of TSB Bank. These plans come on top of an earlier plan to designate Kiwibank as a disruptor bank, which, thank the Lord, never materialised. Banks should not disrupt for disruption’s sake; it is just bad for financial stability.
Willis’s Cakeism
More concerning was the Minister of Finance's support for the amalgamation of TSB Bank, a private sector organisation, with Kiwibank, which is state-owned. This is the same Minister of Finance who two years ago got excited by the idea to “create a pathway that would allow Kiwi mums and dads to find a KiwiSaver account to beef up Kiwibank.” She cannot have it both ways: an exit relying on ownership by mums and dads, and an exit that hands a large stake to one owner, Toi. (It is not uncommon for a target to be paid in shares of the new combination instead of cash, so a stake for Toi, the owner of TSB, in the combined bank is plausible.)
The Drip-feed of “Ideas”
My overall concern about these initiatives is that they are the result of the lack of an exit strategy for Kiwibank and, more broadly, the lack of a realistic and coherent strategy for our banks. In the absence of such strategies, any idea to woo the electorate, or to make a politician or government official, or director of a government-owned organisation, better off at the expense of current or future taxpayers is fair game.
Mergers and acquisitions are risky and not always successful. The success of state-owned banks is patchy. There is a real risk that the constant drip-feed of “ideas” for our smaller banks will backfire. Investors and owners who dislike the uncertainty will pull out, as they did with Kiwibank. This will open the path to further bailouts, as our Minister of Finance alluded to with her support for a merger between Kiwibank and TSB. And in fairness, what else could she say in the absence of a clear exit strategy for Kiwibank? That the bank should grow only organically?
Lack of Direction
Bryce’s definition of a banana republic is one where the right institutions exist on paper, and none of them get in the way of the people running things however they like. The FMA saga shows that at the regulator. The drip-feed of Kiwibank ideas shows the same pattern in bank ownership: no stated strategy, no exit plan, the reign of the flavour du jour. Our financial system doesn’t need a coup to earn the label. One only needs cluelessness and a lack of direction.
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