Chris Lee & Partners Ltd

Taking Stock 24 July 2025

ONE does not need to be a PhD student in modelling economics to ponder why some countries with minimal natural resources do much better than others.

Someone like me will wonder whether the explanation is location, better government, better corporate governance, a greater focus on education, better social values, or just a better gene bank.

For decades my Maltese wife and I have spent weeks in Malta, in their summer, and often I have written about anecdotal events. I have been encouraged to do this by the response of the Taking Stock audience, which I guess enjoys a moment of respite from the constant focus on business, investment and financial market development.

My circle of friends in Malta includes business leaders and retired senior government officials so it is natural that I learn.

This week I share in Taking Stock some data which might explain the surprising news that this tiny country, not yet grown to 600,000 people, is the world’s 33rd on a GDP per capita basis.

By way of comparison New Zealand, with far broader natural resources, is 24th highest, but only marginally better in only a few areas, certainly not in productivity.

Countries like Spain, Saudi Arabia, Kuwait, Portugal, Greece, Slovakia, Poland, Croatia, Turkey, Chile, Russia, China, Argentina and Malaysia trail well behind Malta.

Turkey, for example, has GDP per capita less than half that of Malta, as does Chile, China, Argentina, Malaysia, Brazil, Libya and South Africa, all of which have more natural resources.

So, what is Malta’s secret? The weather is a starting point. In June 2025, Malta’s first month of summer averaged an idyllic 26º, and there were on average 12 hours per day of bright sunshine, with breezes barely noticeable, and no rain. July, August and September would usually be warmer, still without rain, temperatures during the day averaging 30 degrees.

As a result of the weather and the relatively high safety factor, Malta attracted 374,000 tourists in May and 1.4m in the winter/autumn off-season. They spent on average six days holidaying here and spent around NZ$320 per day. Ninety percent stayed in hotels or other rental accommodation.

Nearly half the tourists came from Britain, Italy or France.

As there is little evidence of a boozing culture in Malta, the tourists do not include the British football crowd. Families find this an attractive factor.

Britain, with a population heading to 70 million, has 43 million tourists and believes this figure is too high and should be controlled by levies, perhaps set by individual councils.  The figure implies a little more than half a tourist for every Brit. NZ’s figure is similar to Britain.

Malta, by contrast has six tourists for every local, with the annual number of tourists now exceeding 3 million.

It seems remarkable to me that Malta’s infrastructure - airport, ports, roads, sewerage, water, accommodation, rental cars and restaurants - copes so well with such a tourism bulge.

In the first six months of this year tourism numbers are up 14%, from two years ago. Next year’s forecast is 4 million. Tourism has boosted GDP.

In 2023, Malta’s GDP was NZ$36.3b. The forecast for 2025 is NZ$39.2b, growth over two years of nearly 10%.

Within Europe Malta lies 10th in GDP per capita at around NZ$78,000, Europe’s average being NZ$75,000.

For comparison NZ’s GDP per capita is close to the Maltese figure.

The growth in GDP comes from tourism, precision engineering, pharmaceuticals and construction, the latter related no doubt to growing tourism.

About the physical size of greater Wellington, Malta currently has literally hundreds of cranes in sight working six days a week. Wellington might have ten.

The services sector accounts for 60% of the workforce. The government accounts for 9%. (NZ is at 14%.)

Unemployment is currently 3%, having fallen from the average of 5.4% for the years 1991-2015.

Government debt was NZ$20.1 billion in the last released figures, a similar level to New Zealand’s on a per head basis.

Malta offers a top tax rate of 15% to non-domiciled residents, a strategy that has captured wealth from many countries, some of this fuelling the construction industry, and thus the tourism figures.

Malta exports more (by 20%) than it imports. Tourism, engineering skills (it services Lufthansa planes), software technology and education are major earners.

Oil and natural gas are by far its biggest import cost, as is the case in NZ.

Curiously, Malta’s GDP per head is the 33rd highest in the world (NZ is 24th). Poland (43), Turkey (51), China (54), Russia (63), Mexico (64), South Africa (96), Indonesia (106) all have natural resources far beyond those of Malta.

Malta’s education and health systems are delivered with style that most rich countries would envy. The Maltese government fully funds undergraduate courses at the University of Malta, the Malta College of Arts, Science and Technology, and the Institute of Tourism Studies.

Tuition is free for Maltese and EU students. International students pay fees of up to NZ$24,000 per year, and more for post graduate fees.

The university teaching of medicine and dentistry is among the highest ranked in the world.

Secondary school education, conducted solely in English, attracts thousands of Europeans, most seeking to be employable in countries where English is the standard language.

The Maltese language is still spoken and taught but clearly a blockage for students who seek a career outside of Malta.

The excellent daily newspaper, Times of Malta, is published each day in English and Maltese and is of a standard well beyond the NZ newspapers. I note its columnists are people of achievement, making their views informed and worth reading.

The Maltese health system is amongst the best in the world, stemming from its excellent universities and its government focus on health. Hospitals are excellent and free. Although the Maltese grizzle about waiting times of sometimes a whole hour, the service is by most standards wonderful.

It is said that if you need a dentist, you will be in a dental chair within 15 minutes.

The road surfaces have greatly improved and are generally better than those in Wellington. Cars are small. Distances are short. The Maltese drive on the left and compete with New Zealand to buy second-hand cars from the likes of Japan.

Public transport is provided by modern buses.

The ancient city of Valetta is small. It is a walking-only city, sitting above the world-class harbour, flanked by walls built hundreds of years ago.

The harbour, of course, was once a sanctuary for British vessels in WWII.

With no natural resources like rivers, minerals or oil, little arable soil, bottled or desalinated water only, and no forestry, Malta’s success is at least partly due to its focus on education, health, engineering, lawful behaviour (the outcome of centuries of religious leadership), and a mindset that has no obsession with consumerism.

New Zealand would do well to send over observers and investigate how an educated public, with a work ethic, can achieve so much, with so little.

_ _ _ _ _ _ _ _ _ _

HAVING written all of that, I need to record a balance.

High growth in salaries, GDP and in tourism numbers have attracted the criticism in Malta that Malta’s traditions and spaces are being compromised by too many tourists.

The level of distrust in the government is now similar to New Zealand’s over the past decade.

Corruption is suspected by the majority.

A Sunday Times of Malta article sarcastically queried the extraordinary 400% increase in disabled people on the island of Gozo, if measured by the growth in disabled car stickers. The article did note that the Labour government politicians had authorised the issue of thousands of such stickers in the past three years. A disabled car sticker allows the car owner to park outside his/her house. Labour voters appear to be a high percentage of those with a sticker.

There is a call to limit tourism numbers to avoid the type of water pistol attacks now common in Spain.

Much is still said of the Labour government led by Joseph Muscat ten years ago. It drove the growth. It also discovered the value of Panama trust law.

Malta has also had to reverse its policy of selling its passports to rich people. The policy contravened European Union rules.

For decades, waterside workers have been allowed to hand over their job to a family member when retirement beckoned. Indeed, within our own family there is evidence of three generations having transferred their well-paid, union-dominated jobs to sons or daughters. The EU is seeking to halt this tradition.

Rapid growth of immigrants has led to the population reaching 550,000, and projected to reach 600,000 in coming months, as more troubled parts of Europe, like Hungary, Romania, Albania and Georgia generate a stream of applicants for a Maltese work visa.

However, none of this dissuades me. Malta has a far better use of its resources and people than any other country I visit.

NZ would be wise to examine the Maltese formula especially in education, health, lawfulness and in keeping government out of the economy.

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Travel

Our advisors will be in the following locations on the dates below.  Please contact us if you wish to make an appointment:

25 July – Auckland – Edward Lee

20 August – New Plymouth – David Colman

21 August – Wairarapa – Fraser Hunter

28 August – Christchurch – Fraser Hunter

Chris Lee

Chris Lee & Partners Limited

Taking Stock 17 July 2025

IF ONE is still young enough to be influenced by the musings of our mainstream media, one might believe that the results of All Black test matches shape the country’s mojo.

My hope is that the adults in the room are more attentive to issues like our terms of trade, our output of food, wine, timber and technology, and our subsequent standard of living, but as a cliché the moods of New Zealanders allegedly are set by a sports result.

By contrast here in Germany, a nation of skilled pragmatic people, the mood of the country correlates to the success of its technology-driven, engineering-driven automotive industry. Cars mean jobs, profits, salaries, taxes, and maybe national pride for those who want to simplify matters.

Each year, for at least two decades bar the Covid years, I have enjoyed mixing with people in Germany’s big cities, learning from business leaders and observing the changing settings between confidence and concern.

Former Chancellor Angela Merkel presided in most of those times, facing growing challenges before her time was up. She noted that major conundrums included: -

1. Changes in demographics; astonishing drops in birth rates of German-born women.

2. Threats to energy supplies, with demand growing, while environmental concerns grew.

3. Retreating status of auto production, a major factor in Germany’s trading balance.

Her response to the first issue was to open the borders to non-German people, beginning with refugees from places like Syria and Turkey.

A birth rate of less than 2.1 per woman means a population falls unless there are immigration offsets.

A birth rate of less than 1.0 results inevitably in a massive change to the country’s gene banks, as immigrants dominate new births while homegrown German women practise childless lifestyles.

Dramatic falls in population sabotage the work force and the tax base.

Merkel’s idea of creating “new Germans” failed.

She coaxed Germans to be kind to refugees, accommodating them in warm, refurbished converted shipping containers and providing them with money, and thus food, necessities not evident in their lives before reaching Germany.

Her idea was to coach them in the German language and the culture, paying them daily to attend lessons. Happily, they attended. Gratefully they accepted the money; sadly, they paid little attention to the teachers.

This expensive failed experiment infuriated the local population, the anger intense when there were incidents of extreme rudeness towards German women, culminating in mass molestation in Köln one New Year’s Eve.

Merkel’s solution for energy began with a plan to disestablish Germany’s nuclear plants in favour of: -

a) Green energy, windmills, solar etc.

b) Extensive use of Russian gas, imported via Austria in cannisters, and via the North Sea in pipes.

c) Obtaining a supply underwrite from France, secured by its nuclear plants. (The cost of energy in France is around half the cost in Germany.)

There should be little need to elaborate on the failures. Decommissioning nuclear plants led to greater reliance on Russia. Sanctions have undermined that strategy. Nuclear plants are now being restored to the energy agenda.

Yet it is the demise of the automotive industry that dominates conversation now. Merkel had no sustainable policy to reverse the decline of a sector not exactly helped by laboratory cheating to provide faux statistics on matters like diesel pollution.

BMW, Mercedes and Volkswagen still dominate sales in Europe but are being tariffed out of market share in the USA and are being annihilated by the superior quality and much lower process of the state-sponsored BYD company in China.

Europe has responded with the very short-term strategy of applying tariffs to block BYD from European markets, the locals unable to compete on quality, technology or price.

This demoralises the locals more than any All Black loss might affect New Zealanders.

BYD (Build Your Dreams) is a creation that could have only happened in a command-economy like China’s. The Chinese government provided billions to help build this remarkable company.   BYD dominates all car sales, far outsells Tesla in electric cars, and is impressive in other segments, like SUVs.

Tesla’s Elon Musk loudly proclaims there will be no effective competition to BYD, with or without tariffs.

How did BYD so quickly gain this dominance, so rapidly surpassing the German dominance in technology and engineering?

The obvious answer is free money, access to the best minds, and no timelines to build an enormous, vertically-integrated company. BYD owns the whole deal, from steel plants, battery manufacturers, rare earth mines, right through to purpose-built shipping lines.

US auto dealers concede that a BYD car, some costing less than US$10,000 in China, is a superior vehicle in every respect to Tesla. The high-end BYD models offer a full-battery recharge in five minutes, a comparable fuelling time with a fuelling exercise of an ICE car.

For the German people the inability to maintain previous sales volumes in China or the USA is almost beyond comprehension.

The government response has been to bypass its constitution so Germany can borrow hundreds of billions more for use in new or renovated infrastructure, and to accelerate growth in an arms industry (for obvious reasons).

A consequential problem has been finding a suitable work force, immigration not necessarily the answer, given the new levels of violence towards women. Indeed, many councils now provide10 Euro vouchers to women to subsidise cab rides after dark.

If it is not immigration or higher birth rates, what will fuel the German recovery in infrastructure, with the implied boost to economic recovery?

And who will apply for the 100,000 vacant jobs in the armed forces? Twenty-five years ago the German armed forces employed 300,000 people. Today that number is 180,000. Current talk is of a new era of compulsory conscription, a concept that might as easily fit the mindset of today’s youth as a law banning electronic devices.

Mutiny or emigration might result!

There is also talk of recruiting seniors – people in their 60s - where work ethic and nationalistic fervour might reside.

Germany is the world’s fifth biggest economy, behind USA, China, Japan and India.

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LONG-HAUL air travel invites one to read the new book releases, always available at Changi airport.

So it was that I read The Trading Game, an account of an irrelevant FX trader in the London office of a US bank (Citibank), in the era preceding the 2008 global crisis.

I do not recommend the book. It may well be a realistic account of the FX trading game, but it is a crass narrative.

It did, however, confirm what seasoned financial market participants know - that is, that American banks grossly under-train and under-supervise young men, allowing these lads to take huge risks with company money, and then over-reward those who generate short-term windfall profits, seven-figure bonuses being mundane.

Nobody seems to recognise that company money, put at risk, should receive ALL returns just as it pays for ALL losses.

Readers of Taking Stock will not need reminding of the large number of barrow boys who became rudely enriched with money, if not useful social skills, courtesy of the likes of Citibank, Merril Lynch, Lehman Bros and, nearer to home, Macquarie.

Some of these punters retired to New Zealand to enjoy that barrow-load of “beans”.

The book The Trading Game highlights the type of people who revel in this sector and the zero value-add of the activity.  Indeed, the author was once enticed into taking a multi-billion position in Swiss Francs, seduced by a workmate who tipped off the author that the Swiss Central Bank was about to lift interest rates.

In fact, the central bank was moving interest rates to negative levels.  The author burnt multi-millions.  The workmate profited by selling to the author.

One gets a bonus; one does not. Value add?

Mercifully, the author succeeded often enough to fill his stockings with beans and then, struck by the futility of the legal version of Two-up, retired, working long enough to capture his escrowed bonuses.  Two-up involves tossing two coins in the air and betting on how the coins fall.

The author came to notice that the people in the real economy were being burnt by the extravagances of those on the Two-up game.

I imagine most readers will recall how the US government bailed out the likes of Citibank and Merrill Lynch, gifting them collectively tens of billions.

In Merril Lynch’s case around $5 billion of the taxpayer gift went straight into the bonus pool.

The Trading Game was worth the $30 if it did nothing but remind me of the lack of real achievements of those grossly enriched during this era by bank bonuses. The unspoken message of the book was that bank shareholders need far wiser governance than we all witnessed in that era.

Has the day come when FX should trade only in amounts that relate to real trade-related needs?

Ah . . . . derivatives, synthetics etc.

Heaven spare us!

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Transpower Bond Offer

Government-owned Transpower has announced its intention to launch a new senior bond offer to retail investors.

The bond is expected to offer a fixed interest rate of approximately 4.20 - 4.30% per annum, with a 5-year term.

Please note that Transpower will not be covering transaction costs for this offer, so brokerage will apply.

If you would like to be pencilled in for an allocation, pending further details, please let us know.

_ _ _ _ _ _ _ _ _

Travel

Our advisors will be in the following locations on the dates below.  Please contact us if you wish to make an appointment:

23 July – Christchurch (AM only) – Fraser Hunter

24 July – Auckland – Edward Lee

25 July – Auckland – Edward Lee

20 August – New Plymouth – David Colman

21 August – Wairarapa – Fraser Hunter

28 August – Christchurch – Fraser Hunter

Chris Lee

Chris Lee & Partners Limited

Taking Stock 10 July 2025

Fraser Hunter writes:

EARLIER this month, the Depositor Compensation Scheme (DCS) came into effect, offering government-backed protection of up to $100,000 per eligible depositor, per deposit taker.

The scheme has been in the works since 2016, with legislation passed two years ago to bring it into law. New Zealand has historically been an outlier from other developed nations, being one of the last countries not to have some form of deposit insurance.

Eligible deposits are automatically covered, so unlike many reforms, this one requires no action.

The Reserve Bank estimates that around 93% of individual depositors are now fully covered. However, the majority of total deposits by value remain outside the scheme, concentrated in large balances and wholesale accounts.

While the initial impact has been modest, the scheme could have a meaningful influence on how cash positions are structured and managed, particularly by conservative retail investors.

Deposit insurance has long been a standard feature of most developed economies, designed to support financial stability and prevent loss of confidence.  It runs on liquidity during times of stress.

Following the GFC, New Zealand chose a different approach, where it introduced the Crown guarantee temporarily, however this was short-lived and prickly from a political standpoint.

In the years that followed, policymakers opted for a light-touch approach, relying on the perceived strength of the banking system. That left retail depositors exposed to a small but real risk of loss if a failure occurred.

The new scheme addresses that gap. It forms part of a broader regulatory reset under the Deposit Takers Act, which strengthens the Reserve Bank’s oversight of banks, credit unions and building societies. The scheme is not intended to prevent institutional failure, but to reduce the fallout should one occur.

New Zealand’s $100,000 cap looks modest next to comparable countries. Australia covers $250,000 (NZ$270,000), the US covers $250,000 (NZ$410,000), and the UK covers £85,000 (NZ$175,000). Hopefully this is something that is reviewed over time, taking into account inflation or changes in household saving behaviour.

The scheme covers deposits held with all registered New Zealand banks, as well as licensed credit unions, building societies, and some finance companies that meet regulatory requirements. At implementation, 29 companies were part of the scheme, ranging from household names to a few lesser-known entities like Xceda and Welcome Limited, which may require an internet search.

Starting this month, the scheme will be funded via levies ranging from 0.1% to 0.4% of protected deposits, with riskier institutions paying more. The Reserve Bank will assess each institution's risk profile, ensuring costs align with the risks they bring to the system. Smaller credit unions and building societies receive a temporary flat levy until 2028 to ease the transition.

The goal is to build a fund worth 0.8% of protected deposits, approx. $1 billion, over the next 20 years. Should this prove insufficient during major failures, the Crown provides backstop funding through cost-reflective loans that the industry must eventually repay.

Only NZD deposits held with licensed New Zealand entities are covered. Funds placed with offshore banks or through international platforms fall outside the scheme, even if the provider has a familiar brand or operates locally. Foreign currency accounts are excluded.

The payout process is designed to be automatic and swift. When the Reserve Bank determines a licensed deposit taker has failed, the DCS activates immediately, with no need for deposit holders to file a claim. 

The goal is to provide access to protected funds within days, not weeks, though complex cases involving disputed ownership may take longer.

The early impact on offered deposit rates has been subtle but noticeable. Over the past month, benchmark interest rates have declined, yet advertised term deposit rates from the major banks have remained largely unchanged. Most continue to offer 12-month rates of 3.8% - 4.0%.

What has shifted is the margin between major banks and smaller or lower-rated deposit takers. That gap has narrowed significantly. Institutions such as Heartland and Rabobank, which have traditionally offered a clear premium, are now offering rates in line with the majors. 

In effect, some banks appear to be accepting tighter margins to remain competitive and or retain market share. The presence of the guarantee may be reducing perceived risk, encouraging more direct rate comparisons between institutions, particularly among cautious savers.

Investors can significantly increase their protected deposit amounts by spreading funds across multiple licensed institutions. Further protection can be gained by holding deposits under different legal entities, such as trusts, companies, or joint accounts.

However, this approach comes with trade-offs. Managing multiple accounts adds administrative complexity, including the need to track maturity dates, interest payments, and tax reporting across multiple providers. Each account also requires full identity verification under anti-money laundering (AML) rules, which as we know can be time-consuming and frustrating.

The scheme represents progress, but several important concerns remain unresolved. 

The fund will take 20 years to reach its $1 billion target, which leaves it underprepared in the early years. If a large bank were to fail during this period, the scheme would still rely on government and taxpayer support. 

Even at full funding, the target size falls well short of covering a major bank, meaning the informal Crown guarantee still applies to the major institutions. 

There are also concerns about fairness, as the larger banks are expected to provide most of the funding, to the benefit of the smaller and riskier institutions.

Smaller banks may also struggle with the compliance burden and increased levies, while the Reserve Bank will need to scale up its oversight to manage risks across the system.

At the same time, it is hard to feel too much sympathy for the banks, given their dominant market share, strong profits, and longstanding criticisms around weak competition, slow innovation, and poor customer treatment.

Hopefully the scheme may also enable more innovation in how cash is managed. Overseas, aggregator platforms, or money-supermarkets, allow investors to open and manage multiple deposit accounts across different institutions using a single account, helping diversify deposits while keeping them within coverage caps.

In New Zealand, some of this infrastructure already exists. FNZ (the technology provider for Hatch), for example, already can place client funds across several major banks through its platform. Over time, this functionality could be extended to a wider range of deposit takers, offering more flexibility for advisers and investors.

However, consolidator services come with additional costs. That raises the question of whether the investor, the platform or the bank should bear it. Historically, banks have been reluctant to support such models, preferring to retain direct client relationships.

Given we are only in the second week of the scheme, change may be some way off, but investors now have a clear indication of what returns are available for essentially no risk.

Travel

Christchurch – 23 July – Fraser Hunter

Auckland – 24 July – Edward Lee

Auckland – 25 July – Edward Lee

Please contact us if you would like to make an appointment to see any of our advisers.

Chris Lee & Partners

Taking Stock   3 July 2025

Chris Lee writes:

1. If you have money in Senior Trust – read my message.

2. Has the Government been listening to the banking lobby? – Retrospective law is disgraceful.

3. Santana investors face some music – it might be punk rock, but the music has a right to create noise.

_ _ _ _ _ _ _ _ _ _

ANY investors in the retail funding issuer Senior Trust last week had a long overdue heads-up after some discussions between the Financial Markets Authority and Senior Trust.

The heads-up, as I read it, was for investors to notify tomorrow, if not today, that they want their investment deposits to be returned by Senior Trust.

The first to do so may get a position in a queue of which it is better to be in the front than in the back.

Senior Trust has for a decade or so raised money aiming to pay investors 8%, or some similar rate, sometimes 6%. The securities issued were for some time listed on the NZX and sold in piffling volumes, providing a degree of liquidity.

To describe that degree as modest would be similar in exaggeration to describing Trump as “somewhat immodest”.

Some time back, the NZX-listing was ended and for a short while Senior Trust listed on the USX “Unlisted” platform, where the liquidity was even less.

The securities are not listed anywhere now.

Directors wanting to be repaid now apply to Senior Trust, seeking to be repaid if Senior Trust ever has surplus cashflow.

I guess few things are impossible.

Senior Trust uses investor money to own and develop a small number of retirement villages or gated villages of a quality that is doubtless high, though I have never visited such a village. The Trust faces many problems, all stemming from its fundamental design flaw - it has utterly inadequate capital and far too much debt, making it an improbable structure to attract mainstream debt finance.

Accordingly, the “loans” made with the investor money fund a high and rising level of the money needed to build and maintain the villages.

In banking jargon the loan-to-valuation ratio is now high, in some cases beyond what a prudent lender would accept.

Under-capitalised and over-indebted, its second related problem is that it has not received enough interest on its “loans” to enable investors to be paid the intended rate.

So for some years Senior Trust has borrowed more to pay the rate that investors believed they were promised.

Borrowing to pay one’s interest cost is the sort of strategy that usually leads to spiralling, eventually failed, debt. It may not be the same as the strategy that the Italian Charles Ponzi designed in the 1920s. When the securities were listed, and liquidity imagined by new investors buying from existing investors, the term I used was “the bigger fool” structure, rather than a “Ponzi scheme”.

Well, after recent discussions with the FMA, Senior Trust has cancelled any commitment to repay or pay any particular rate, noting it will pay returns and repurchase securities as its financial circumstances allow.

This is an honest and legitimate outcome, reflecting the difficulty of an organisation that, put quite simply, has too many assets based on too little capital, creating too little income to service too much debt.

I do not know any of the investors who fund it and am thus unable to offer personalised advice, but my general advice would be that if a queue of investors is ever repaid, those at the front have more hope than those at the back.

Long-term investors will know that the first iteration of Senior Living was Vision Senior Living, also under-capitalised, also linked to a small number of equity investors supervised by Goldman Sachs.

Vision Senior Living (VSL) survived until the disastrously-supervised Crown Deposit Guarantee scheme, created by Helen Clark’s government in October 2008. By surviving till October in 2008, VSL was included in the guarantee so investors were paid out, courtesy of the taxpayer.

Another Goldman Sachs group later put capital into what is now Senior Living Trust. This amount of capital, I think, was around $30 million, on which balanced what is now some hundreds of millions of assets, at least in part funded by high-spirited investors.

While history keeps repeating itself, the lessons of the past should be heard.

Senior Trust may well survive if it receives a large capital increase and finds staunch lenders willing to wait until cash flow surpluses enable the expectations of investors to be met. My guess is that the FMA will be mindful of its obligations to investors and will be regarding Senior Trust as an entity to be monitored carefully.

_ _ _ _ _ _ _ _ _ _

THE Government’s remarkable decision to surrender to the requests of the ASB and ANZ banks is not unwise simply because of the derision it will attract from lawyers and the commercial sector.

The lack of wisdom, displayed by the Government and the two banks, is certain to raise questions about the lobbying sector and the neutrality of the law-making process. The background is this.

The Credit Contracts and Consumer Finance Act of 2014 sought to tidy up the disgraceful practices of backstreet lenders, who sold loans to desperate people, citing rates of “2% per week” rather than the true cost of such a loan, a three-figure percentage.

The law was bungled and did not differentiate the heavily audited and regulated banks from back street hoodlums.

The penalty for disclosure errors by ANY moneylender was that all interest and all fees must be refunded for the whole of the period that elapsed before the error was identified and repaired.

Backstreet lenders with a 3-month, 2% per week loan, would thus have to return the usurious rate. Good job. The backstreet hoodlums were exploiting desperate people and deserved the penalty. Their disclosure was deceitful.

Banks do not seek to deceive but do make errors and can use software that has flaws and makes tiny calculation errors. Banks naturally would repay any money received that was erroneously charged, and ordinarily would pay a relative compensatory amount, topped up by an apology and maybe a bunch of flowers.

BUT the CCCFA spelt out the compensation formula for the banks. The law was explicit.

A half-intelligent banker would have seen the need to ensure no error was ever made, given the gravity of the penalty.

If 150,000 different people over a five-year period each borrowed $10,000 at 10%, then on average each bank would have lent $750 million for years at 10% per annum. This might have raised $187.5m in interest. (Many variables mean the number is a guess.)

If the banks’ computer described in the loan papers a rate of 9.99%, but charged 10%, the disclosure rate would be wrong, and a full refund of all interest would be required.

Did I hear you say: “Diddums?”

Well, if the banks did not discover the error until five years later, the law would require them to repay the $187.5m (or whatever), effectively giving everyone affected an interest-free loan for several years. In 2019 Ardern’s government was told of the error and changed the law. At that point, it was not known that the banks’ disclosure rates were errant.

So now we move to the present.

Around 150,000 people over the past three years have joined a litigation funder’s case, demanding the two offending banks, ANZ and ASB, pay back the prescribed penalty sum, perhaps around that $187.5 million, the actual figure not known to me.

The law says the banks must pay. There no doubt might be a settlement discussed to reduce the penalty, but the law as it stands defines the penalty.

Here is one of the ugly issues.

The Prime Minister is Christopher Luxon, a man not blessed in the guiles of gotcha politics but an intelligent fellow with highly-developed private sector skills, his previous jobs being head of the huge Unilever company in Canada, and later, CEO of Air New Zealand.

As a person, he rates highly with me. As a politician he is a greenhorn. Yet I am sure he will have absented himself from the lobbyists linked to his former chairman and chairwoman at Air NZ.

At Air New Zealand the board to which he reported was chaired for a while by John Key, and later by Therese Walsh, both very political people, with close connections to the blue hue of politics, both close to Luxon.

Key has been a director of ANZ, indeed chairman of ANZ New Zealand, and Walsh, for reasons that do not need examination, has been chairwoman of ASB. It is irrelevant, perhaps, but I would not have endorsed either of these appointments.

When the banks were confronted by a penalty sum, they met with government departments and sought to have the CCCFA rewritten, RETROSPECTIVELY erasing the penalties defined in the Act, going back to 2014.

The Ministry of Business Innovation and Employment, and Treasury initially ruled out any retrospective clause.

But after bank discussions, the lawmakers relented and right now we await committee hearings in Parliament to discuss the proposed new law, which included the retrospective clause, effectively cancelling the penalty defined by the law, the cancellation applying right back to 2014.

Pretty clearly the banking lobby has been noisy and successful.

I have made my submission, in part because of the misinformation about the potential costs to banks of the potential penalty.

Banks have estimated the potential penalty at around $13 billion, a sum that would indeed badly damage the banks. For that reason alone the law had to be changed, the banks argued.

But there is only one current case seeking to apply the law for the period prior to the 2019 law change.

That case, in full flight but threatened by the retrospective law, might, at most, cost banks around $187.5m, or say, ANZ $100m and ASB $87.5m, in penalties for the five years of not taking sufficient care to obey the law and recheck their interest rate disclosures. That figure is somewhat less than the “nuclear” figure used by lobbyists.

For ANZ, a $100m fine (or $20m for each year), would be around 1.5%–2.0% of its annual profits. The fine for ASB would be similarly undramatic, nothing like the ghost-in the closet figure of $13 billion.

The Government has been subject to scare tactics. One cannot admire such scare tactics.

In my opinion, the banks have responded in a vulgar, careless manner, perhaps believing as Trump would say it, that “MIGHT IS RIGHT”. Lobbyists are by definition not balanced people.

I do hope Luxon’s government has the sense to exclude the existing law case from any retrospectivity clause, as it sets about fixing a law that clearly had unintended consequences but was made and remade (in 2019) without any planned lenience for banks.

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AROUND 20,000 (by my guess) NZ investors have bought shares in the Bendigo gold project being developed by Santana Minerals near Cromwell.

The gold discovery is of world-class dimensions, the grade unusually high, the ore easily able to be realised without the high-energy process of burning off carbon before the gold is heap-leached from the crushed rock.

The investors will be elated that the gold price has risen, converting the modelled production of gold into a giant dollar value, probably exceeding ten billion, over a decade or so.

All of this will be highly relevant to those investors.

Naturally there will be an anti-mining lobby. Quite correctly it will want assurances that the project does not create hazards (for example, water pollution), does not damage any unique flora or fauna, does not ruin the life quality of any neighbours, and does not destroy public playgrounds, like national parks.

The authorities that will assess the project are about to be called into action, the consent application to be filed soon (but no date specified).

Under the previous Act, the Environmental Protection Agency assessed the environmental issues and the economic benefits and released its judgment, approving (or not) the project. Only a court could reverse the EPA decision.

Today, the EPA simply assesses the “completeness” of the application, given 15 working days to announce that the consent is complete or not. A “complete” application respectfully acknowledges the issues, and details how these matters will be mitigated, relying on expert independent consultants.

Santana has spent $6 million, and change, on at least 12 consulting firms, one of which has yet to complete its work; hence the delay.

The EPA would not destroy its credibility by comparing mining disasters in unregulated parts of the world where engineering standards do not exist, and no heed is placed on safety or the environment. Such a scare strategy would be childish and would discredit the anti-mining lobby.

The EPA no longer has the role of assessing the economic benefits and thus is not the judge of the overall case. All it can do is refer the consent back to Santana, demanding it addresses whatever the EPA decides has not been addressed or conclude that the application should be passed on to the Fast Track panel, to approve the project, or not.

The EPA process no longer involves public submissions or public hearings. The Fast-track panel weighs the environmental cost with the economic benefit.

The modelled economic benefits at today’s prices are undeniable.

Annual export of gold – $500m-800m per year

NZ Govt tax and profit share per year – $200m or thereabouts

Jobs – 300 (plus)

Minimum span of the mine – 13 years (probably 15+)

Modelled profitability – billions

NZ ownership – currently 40% plus

To date, 900 people from around Central Otago have contacted Santana applying for jobs.

The objectors have one immutable claim – that the distant valley, on private land, 3.4 kms from any house, and around 6kms from the highway, will end up with a giant hole in it, possibly 2kms long and 1km wide. No doubt soil and rotten rock will be stored and later used, and no doubt natives will be planted later, but a hole is still a hole.

Some of the objectors, holding meetings and attracting media coverage, have badly damaged their credibility with silly stuff, which has encouraged the general public to dismiss the agitators as Wallys.

One angry protest organiser has claimed she will have to look at the mine while she drives along the highway. Her driving licence should be withdrawn if she gazes into the hills looking for a distant valley six kilometres away.

Another, an unwise lawyer, wrote that all the financial benefits will go to the Australians (who own 60% of the project). The tax, amounting to billions, goes to the NZ Government, and 40% of the dividends go to the NZ shareholders. Facts are facts.

But a giant hole is a giant hole so the consenting process will be crucial in coming weeks.

That hurdle to overcome is reflected in the discounted share price, now less than one half of the value of a consented project, and less than a quarter of the value of a producer should the current gold price be stable.

All of this explains the high level of concern of current and potential shareholders. For example, the Australian institutions would rather buy later at double the price than take the risk of the consent process favouring objectors. Aussies have no respect for our anti-mining lobby.

Over the next month all Santana investors will be on high alert.

The NZ Government very firmly wants the jobs, the exports and the tax. The environmental objectors will be noisy and in some cases coherent about their reservations.

Hold on to your hats!

The next month may be a test of the Government’s enthusiasm for mining.

Footnote: Santana has this week updated its feasibility study.  The study is worth reading.

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My next newsletter will focus on Europe. Fraser Hunter will ensure local events are covered.

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Travel

Lower Hutt – 9 July – Fraser HunterChristchurch – 23 July – Fraser Hunter

Please contact us if you would like to make an appointment to see any of our advisers.

Chris Lee

Chris Lee & Partners