Taking Stock 20 November 2025

IF Chris Luxon’s theory, that you measure progress by the increases in consumption and credit card use, can be assessed next year as succeeding, then within a few months the Reserve Bank would have a new mindset.

Countries like the UK, USA, Australia and New Zealand seem certain that a better life follows constant increases in consumption and the use of debt. I am not so sure.

Economic activity lifts in such times. Jobs follow. Don’t worry about stupid destructive consumption (amphetamines) or debt (borrowing for holidays in Paris), we are told.

This is relevant to our clients, because if consumption rises in coming months the Reserve Bank will be looking to reverse, or at least pause, interest rate reductions.

Perhaps this implies that, by 2027, deposit rates, bond yields and mortgage rates will have reached their nadir, and will be ready to rise.

If we are to have 12 or more months of watching rates fall, that might be why the latest Kiwibank subordinated (Tier II) notes are in such demand.

Kiwibank is to offer a note, likely to be repaid (at Kiwibank’s option) in 2031. It will pay interest at a rate of perhaps 4.75% and will be tradeable. The issue will likely open on 1 Dec.

Kiwibank is likely to pay the transaction cost. The security will have a credit rating of investment grade.

My guess is that demand will swamp the size of the offer, possibly limited to $300 million (including over-subscriptions). No similar security currently matches the predicted yield.

For Kiwibank, this will be a much cheaper source of money than raising funds from its shareholders. Equity is expensive and possibly unavailable, anyway.

If the Reserve Bank reduces the overnight cash rate again this month, there would be further falls in bank deposit rates, and bond yields.

It is somewhat ironic that long-term, high-quality corporate bond rates often yield less than the rates offered by the US, UK and NZ government bonds of 10 years or more.

Very clearly, investors in 10-year securities believe rates will reach higher levels well before the next decade.

Kiwibank’s need to grow, to be effective competition to the Australian banks, is obvious.

Its market share is low.  Politicians seem wary of listing some of its shares on the NZX, fearing widespread voter anger. Internal forum groups matter more than optimal solutions.

Kiwibank seems unaware of the opportunity to convert to a much better NZ bank by listing some of its shares and buying SBS, TSB and Heartland Bank, all of which could fit neatly into Kiwibank’s range of products, greatly enhancing its profitability and market share. Even the Cooperative Bank might be a credible acquisition.

If only Kiwibank had better owners!

Yet I applaud the effort made by Kiwibank’s people who have made a decent purse from a sow’s aural organs.

When the commercially goofy politician, the late Jim Anderton, 30 years ago proposed a government-owned bank, his helpers made countless errors that seem destined to constrain Kiwibank to the equivalent of the old Public Service Investment Society (now the Cooperative Bank) or the Post Office Savings Bank (now integrated into ANZ).

Kiwibank started its public visibility in the counters of the drab NZ Post Offices. Its staff were kind but novices. Its services were more suited to Russia than NZ.

It happily marketed itself as a bank for social welfare beneficiaries, meaning average deposits were extremely low, and loan applications were often from the desperate people that private banks avoid.

Enter an excellent charismatic CEO, Sam Knowles, son of the admired economist Bernie Knowles, his dad an old timer with an understanding of most sectors of society.

Sam Knowles provided panache, confidence, kindness and patience, gradually converting Anderton’s naïve plans into a vision that staff, customers and, eventually, politicians could understand and improve.

He attracted a group of bank executives that understood the international language of bankers.

Kiwibank shifted from impersonal, far from confidential, Post Office counters to much more edifying premises, and it introduced modern products like credit cards, with the features that attracted a wider range of clients.

It bought and sold (profitably) Gareth Morgan’s wealth management business, further lifting its profile with a wider range of customers.

It has regularly found solutions to the constraints placed on it by its political owners, raising quasi capital with notes made complex because of its ownership structure.

All of this has enabled Kiwibank today to issue a complicated tier two note at a rate that will be sought by institutions and wealthy investors. In practice, it is likely to be seen as a five-year note, paying a respectable rate, easy to trade.

Of course, Knowles has long gone, but the late Anderton, were he able to, should be tipping his hat to Knowles, who translated Anderton’s woolly idea into something that has served hundreds of thousands of New Zealanders.

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IF Knowles knew how to combine banking knowledge with social services, he would contrast strikingly with Patrick James, the idiot who has cost naïve lenders billions of dollars, in America.

Any regular readers might recall that Taking Stock recently discussed First Brands, a huge American auto parts company built on the equivalent of a tidal sand bank by James.

Exploiting the greed and stupidity of modern American money lenders, Patrick James raised around $12 billion of debt, claiming company stock and receivables would secure these loans.

Taking Stock noted how James refused to allow lenders to audit his claimed stock levels, and how he double pledged receivables to raise cash flow that “disappeared”.

We now know some detail, after the receivers arrived and appointed a new CEO and a new Chief Financial Officer (CFO).

In court (in the USA) last week, the new CEO and CFO described what they had found in First Brands, that led to the showering of loans (other people’s money) on First Brands, without even elementary due diligence.

The disgraced previous leader had: -

1. Falsified invoices and then sold these faux “receivables” to factoring companies. (Factoring companies buy invoices at a discount, effectively providing cash for a future receivable.)

2. He had then duplicated and triplicated the faux invoices and sold the copies of the phonies to private credit companies and other factoring companies, thus raising money against the security of very thin air.

3. The new CFO had uncovered instructions from James to the previous CFO, demanding that $700 million of company funds be paid to James personally, enabling him to shift this overseas, and then transfer the money into cubby holes that currently have not been traced. He issued this instruction in the days leading up to the company’s collapse.

I will put to one side the crimes of James and his dishonest team.

To me, the most concerning issue is the blind eyes of his bankers, who must surely have observed the transfer of the money to James.

The “don’t want to know” attitude of those who bought the false invoices is staggering. One bank CEO described First Brands as a cockroach. One hopes the world is not about to watch an infestation.

Though it is decades ago, I still recall easily the efforts we made to validate invoices when factoring was popular in NZ in the 1980s, and when money lenders did not receive bonuses.

At the very least, one contacted the name on the invoice and asked for confirmation of the details, and on delivery of the service billed by invoice.

It is staggering that auditors – a big-time international accounting group – found nothing to stop a clean audit report of First Brands. One wonders what the audit fee might have been.

It is evidence of abject stupidity that these types of deals are not the subject of credit rating agency reports.

It is astonishing that banks, private credit companies, and factoring companies would allow First Brands to barricade the warehouses, denying inspection of the assets when lenders arrived.

All of this points to quite appalling lending standards, exactly of the type of “liar loan” that preceded the global financial crisis, and exactly of the type that evolves when the lending focus is on short term money lending (faux) profits that feed quite socially destructive “bonuses”.

If the USA had morality or ethics in its White House, I would expect the American constitution to demand a display of leadership that would address these signs of decay.

The word “if” seems to begin to explain the problem.

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THIS banking behaviour in the USA was similar to the behaviour recognised in Australia during that dreadful period that led to a commission of enquiry, just a few years ago.

The New Zealander, Ralph Norris, was cheered on by our media for his success in obtaining the A$7 million top job at the Commonwealth Bank of Australia (CBA), which owns the ASB in NZ.

Norris will be remembered as the chairman of Fletchers when it made the most obvious error of appointing Mark Adamson as CEO, leading to a period when Fletchers was all but destroyed, Adamson, demonstrably, an utterly unsuitable leader, yet one who “moved on” with multi-million farewell gifts.

Norris was CEO of CBA when the commission of enquiry discovered the termites in Australia’s banking structures, many of the quite dreadful practices stemming from sales targets, rather than sustainable practices or client service. Customers had become victims because of the CBA’s greed and poor leadership. The banks’ leadership was ridiculed by the commission of enquiry.

The other main banks were not exactly cleared of ugly cheating, and just recently the ANZ was fined $240 million for some behaviour that reflected very poorly on its leadership and governance in Australia.

Well, here is the good news that the American bankers of First Brands should file away.

The ANZ board in Australia this month cancelled executive bonuses in Australia and backdated the cancellation to the escrowed bonuses that had been accrued, but not paid, for some previous executives.

The ANZ executives in New Zealand, who had not replicated that behaviour, received their bonuses in full.

Somebody, somewhere, is learning.

The ANZ in NZ has had some hopeless directors and at least one hopeless CEO in NZ, entitlement dominating as it did in the years that led up to the collapse of the BNZ 28 years ago.

Taking Stock has previously recorded its opinion of many bank directors, often, it seemed, appointed for political reasons rather than relevant experience, strategic thinking and commitment to sustainable practices.

I have described banks internationally as having a foreign exchange traders’ mentality, which is an eon away from the mentality that bred trust in customers, and sustainability in leadership standards.

I am therefore delighted to record that the ANZ decision to cancel bonuses is refreshing and admirable.

May this mindset permeate banking leadership, indefinitely.

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Kiwibank Tier 2 Note Offer

Kiwibank has announced that it is considering an offer of up to $200 million of Tier 2 Notes, which will carry an investment grade credit rating.

The notes have a final maturity date of 12 March 2036 but are likely to be repaid at the first reset date on 12 March 2031. Similar notes from major banks, including Kiwibank, are typically repaid on the reset date.

Based on current conditions, we expect an interest rate of around 4.75 percent. Investors are unlikely to be charged brokerage, as Kiwibank is expected to cover these costs. Final details will be confirmed later this month.

If you would like to be added to the list for this offer, pending further details, please email us with your CSN and an indicative investment amount, and we will contact you once the details are confirmed.

We are expecting this issue to open on 1 December, with payment due around 10 December.

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Travel

5 December – Christchurch – Chris Lee

8 December – Christchurch – Chris Lee

Chris Lee & Partners Ltd