Steve Jurkovich: Kiwibank CEO chats scrapped $500m capital raise

Kiwibank has scrapped it's plans for partial privatisation after the Reserve Bank announced it's reduction of the amount of capital it requires banks to hold to protect their depositors in the event of a crisis.

The bank had been talking to investors, seeking a $500 million capital raise after the Government gave it the green light to raise money to become more competitive. 

Kiwibank CEO Steve Jurkovich talked to Andrew Dickens about the change and the future of the market. 

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Episode Transcript

Speaker 1 (00:00):
Kiwibank has announced its five hundred million dollar capital rays
is off. The bank's been talking to investors since the
government gave it the green light to raise money to
make the bank more competitive, and that was all go.
But then earlier this week the Reserve Bank announce the
banks will need to hold less capital for a worse
case scenario. So, all of a sudden, two days later,

(00:21):
we find out that the five hundred million dollar capital
raise is off. So joining us now is Steve Jakovic,
who is Kiwibank's chief executive. Afternoon to you, Steve, Good afternoon,
So why have you decided you now don't need to
raise this new capital.

Speaker 2 (00:37):
Well, I mean, the work that we've done over the
last twelve months or so has really been about just
making sure that we had all our options open, that
Kiwibank would never have to slow its growth and so
will There's been a lot of consultation and a lot
of work done about the capital rules. We didn't really
know how that was going to play out until literally
this week. So one of the things a bank has
to do is make sure it's got its options open,

(00:58):
and so one of the options that the government was
happy with was that we sought external investment, and so
we you know, you need to kick that process off,
and that's not a you know, that's not a trivial process.
It takes a bit of time. But ultimately, by the
time we got to the Reserve Bank announcements, it seemed
pretty clear that the best option was going to be
following the capital rules and that actually we were going
to have plenty of horsepower for the future.

Speaker 1 (01:18):
Okay, the Reserve Bank under announced those rules two days ago,
so was so you made the decision very quickly. Was
the capital raise dead in the water before them.

Speaker 2 (01:29):
No, it wasn't. It was still ongoing, but it was
it was becoming apparent that it was going to be
quite tricky. And also the closer and closer we got
to seeing what was proposed, because remember, while the final
decision was made this week months ago, it was signaled
what it was likely to be about, and so we
had a very high level of confidence that, you know,
some of the changes that were signaled were going to happen,
and so the amount of capital we have to hold

(01:51):
for particular assets and risk was going to drop materially. Now,
as it turned out this week it actually went down
further than we we had anticipated. We also went out
and raised four hundred million dollars worth of capital from investors,
and we were really oversubscribed at that on a good price.
And so both those factors meant that by the time
we got to today and yesterday, it was time to actually,

(02:13):
you know, agree that the best course of action was
to stop the offer.

Speaker 1 (02:16):
So the four hundred million you did actually get, or
not actually get, but you know, got some advice that
will be taken. Did that show to you that investors working.

Speaker 2 (02:28):
Yeah, well, I mean, as I can say, the four
hundred million dollar offer, I mean, we originally said that
we'd raise sort of two hundred plus what's called over subscriptions.
We end up raising four hundred at some of the
best pricing that you know, we've seen in a long time.
So that gave us confidence that you know, external professional
investors were very interested, remembering that the offer that we

(02:48):
had the other way, Andrew was in fact, you know,
that was selling shares, not issuing debt. And they're quite different,
all right.

Speaker 1 (02:54):
Nikola Willis sold a capital raised as the answer to
the pillow fight between the big four banks. Did she
over egg that idea?

Speaker 2 (03:01):
No, I don't think so. I mean, it was very
clear that the Commerce Commission, Nicola is, the Minister of
Finance and others see that the best way to try
and disrupt, you know, a billion or two billion dollars
worth of profit going across the Tasman each year is
about making sure that we've got a competitive market in
kee events the best option for that.

Speaker 1 (03:21):
So earlier this week Anna Bremm, who is the new
Reserve Bank Governor, told the market, which was quite surprising
in itself, in an unscheduled announcement, that it had over
reacted with their rates in response to what the RB
felt about the future and where our rates are going
to change. What are you doing with your rates?

Speaker 2 (03:42):
Yeah, so we will be signaling that, like many others,
those wholesale rates going up means that we are going
to have to push up blending rates and turn deposit rates.
So we're announced, we've announced that we're making a change
from today. So, I mean, what happened in what she
was really trying to do and I think this was
you know, this was really refreshing that she did this,
Which was the previously communicated information was that this was

(04:04):
the last of the cuts. What happens when people hear that,
they go, oh, that means the only way is up,
and that meant that rates rally really fast because everyone
knows there's no downside, there's only upside to the rates.
That's very unconventional to say that. And so I think
the new Reserve Bank governor coming out and saying, hey, look,
this economy is still pretty fragile. This dog could be

(04:24):
more cuts or maybe one just means that. The market
then has to think about hold on, is it going
to be another cut? All? The next one? Beer right?

Speaker 1 (04:33):
See Jukovic Chiev, Executive of Keeping Bank. Thank you for
joining me and Merry Christmas for more from Heather Duplessy
Allen Drive.

Speaker 2 (04:40):
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