NZ First’s BNZ buy-up plan dubbed an unrealistic headline-grabber; big bucks needed to get Aussie parent to sell

“There will be diplomatic engagement under the Closer Economic Relations framework, presenting the transaction as a structured, friendly transaction rather than a hostile expropriation,” the spokesman said.

“This should not have to be nationalisation. This should be a negotiation, not a confiscation.”

Speaking about the cost of buying BNZ on Newstalk ZB on Monday morning, NZ First leader Winston Peters said: “It could be in the range of between $7.5 billion and $12 billion – maybe $15 billion, possibly much less than that.”

Asked by the Herald to explain how NZ First came to these figures, the spokesman referred to a 2020 Stuff article.

The article quoted Simplicity founder Sam Stubbs saying BNZ could be worth between $10b and $14b, with Massey University professor Claire Matthews noting it would need to be more than the shareholders’ equity, which was $7.9b at the time.

BNZ’s shareholders’ equity (or net assets) is currently much higher, at $13.7b.

This is equivalent to 18% of NAB’s net assets. Similarly, BNZ’s cash earnings are equivalent to 17% of NAB’s cash earnings.

Using these numbers, the Herald estimates BNZ could be worth about $24b, which is 17.5% of NAB’s market capitalisation (the value of its shares).

A Forsyth Barr analyst ran some numbers and said this estimate was “broadly fair”.

Westpac’s former treasurer, Jim Reardon, told the Heraldthat when Westpac looked at selling its New Zealand business (which is smaller than BNZ) about six years ago, it was thinking of a price north of $15b.

To put these figures in context, $24b is the same as what is being spent on New Zealand Superannuation this year, and is about five times what is being spent on Jobseeker Support and the Emergency Benefit combined. The largest company listed on the NZX that isn’t a bank, Fisher & Paykel Healthcare, has a market capitalisation of $19b.

Should NAB agree to sell BNZ, the Government would need to borrow more to pay for the purchase.

NZ First said it would also direct the Accident Compensation Corporation (ACC), which makes investment decisions independently of the Government, to invest in the bank.

It said the point of buying BNZ, which used to be owned by the Government, would be to keep its profits and capital in New Zealand.

Indeed, NZ First has long been of the view that the Government should invest more in Kiwi businesses and assets.

Its coalition partners, National and Act, rubbished the policy, with Prime Minister Christopher Luxon calling it a “fanciful” Labour Party kind of idea.

Craigs Investment Partners investment director Mark Lister believed it was an unrealistic, emotive headline-grabber.

Lister recognised the Government couldn’t force a company, listed on the ASX and owned by investors around the world, to sell a part of its business.

So he believed the Government would need to offer NAB a lot for it to sell BNZ, or force its hand by changing the law to somehow make it difficult for NAB (and not the other Australian banks) to do business in New Zealand.

Lister said that going down this route would be hugely problematic. It would erode property rights and have a chilling effect on investment in New Zealand.

He said the Government would be better off allowing private sector investment in Kiwibank, so it had the capital needed to keep growing to better compete with the Australian banks. This could involve listing Kiwibank on the NZX.

Reardon, who has been consulting since leaving Westpac, also saw growing Kiwibank as a more sensible way forward.

He believed the Reserve Bank’s December decision not to tighten its bank capital rules by as much as planned would enable banks to report higher returns on equity than would have been the case if they had to hold more costly capital.

Hence, Reardon didn’t believe there was as much appetite among the Australian banks to get rid of their New Zealand operations as there had been in the recent past.

He believed the Australian banks weren’t in such urgent need for capital as they were a few years ago. They were also no longer looking to expand as aggressively in Asia.

Reardon said NAB would ultimately need to consider whether there was a better use elsewhere for the capital it had tied up in BNZ.

As for Kiwibank, looser Reserve Bank rules have freed up capital for it to use to grow in the near-term.

Longer term, it will need more capital to grow. The Government is once again considering how it could facilitate this without it pumping more capital into the state-owned bank itself.

Jenée Tibshraeny is the Herald’s Wellington business editor, based in the parliamentary press gallery. She specialises in government and Reserve Bank policymaking, economics and banking.