Kiwibank shareholders at war over IT dramas

Thursday, 23 August 2018

NZ Post chairman, Sir Michael Cullen, and chief executive, Sir Brian Roche, at a press conference in April 2016 announcing plans to sell a 45 per cent stake in Kiwibank to ACC and NZ Super. The two state-owned funds now allege they were not told of risks posed by Kiwibank's major IT upgrade.

Kiwibank's shareholders could be headed for court, with the Super Fund and ACC filing legal notices to NZ Post over troubles in the state-owned bank's IT systems.

The Guardians of NZ Super and ACC are understood to have filed a notice of claim with NZ Post, alleging NZ Post breached its obligations by failing to make available information which would have disclosed risks with a major upgrade of Kiwibank's core IT systems, known as CoreMod.

NZ Post is said to have responded to the notice by saying it does not believe the claim is valid.

The claim could be a step towards the courts, although NZ Super said court proceedings were not imminent and the parties were in 'discussions'.

Kiwibank was a wholly-owned subsidiary of NZ Post, itself a state-owned enterprise, until a $494 million deal was reached to sell a 25 per cent stake to NZ Super and a 22 per cent stake to ACC. The partial sale was completed in October 2016.

* NZ Post to sell 45 per cent of Kiwibank for $495m cash injection

* NZ Post blames paperwork for delaying partial sale of Kiwibank

Former Kiwibank chief executive Paul Brock blamed changing customer preferences after announcing the bank was writing off $90 million from its troubled IT upgrade.

* Kiwibank value plunges, ACC and NZ Super get NZ Post to sweeten deal with $90m cash**

Problems with the Kiwibank IT upgrade have been slowly unfolding, however the scale of the issues were made clearer in September 2017 when it wrote $90m off the value of its investment in the project.

At the time Kiwibank's then chief executive, Paul Brock, appeared to blame changing customer preferences, as he announced a strategic review of the project.

Three months later Kiwibank announced a further $11m impairment on the project, bringing the total hit to $101m.

'The board decided that the delivery path of the project to modernise Kiwibank's core banking system would not meet its key transformational objectives therefore the project has been closed and alternative options are being considered,' the bank said in its disclosure statement for the three months to September 30, released in December.

After seven years as chief executive, Brock left Kiwibank in late 2017.

NZ Super said in a statement that the issue was 'historic' and involved Kiwibank's shareholders, rather than the bank itself.

'The potential warranty claim relates to matters that occurred prior to settlement in October 2016, and is between shareholders only,' a spokeswoman said. The shareholders 'are working to resolve the matter and are currently in discussions.'

NZ Super said it was 'very happy' with its investment in Kiwibank.

ACC said in a statement: 'The matter is between shareholders and is in the process of being resolved. As shareholders, we are committed to Kiwibank and its future.'

Matt Whineray became chief executive of NZ Super in July. The sovereign wealth fund said it was 'very happy' with its investment in the bank.

NZ Post has not responded to a request for comment.

Both NZ Post and Kiwibank deliver annual results in Wellington on Friday.

Finance Minister Grant Robertson issued a short statement alluding to the dispute, without giving details.

'I am aware of a commercial matter involving NZSF, ACC and NZ Post but I am unable to comment any further on the matter given its commercial nature.'

Since the partial sale of Kiwibank was first announced in April 2016 - which saw it retain full ownership of the Crown and Crown entities - there have been a series of announcements related to its value.

When Sir Michael Cullen first announced the deal he warned that $495m was 'right at the bottom end of our level of comfort and acceptability' for a 45 per cent stake.

The former finance minister was adamant that the sales price would see no new capital for Kiwibank, with the money used to pay down debt as well as dividends to the Crown.

However by the time the deal was completed around seven months later, the terms changed substantially. The sales price dropped marginally to $494m while the stake being sold increased to 47 per cent.

As well as that, NZ Post agreed that $90m of the sales price would be left in Kiwibank as new capital.

This saw the value of Kiwibank to NZ Post drop by around $100m.

Around six months after the sale, Kiwibank's shareholders were forced to tip in another $247m after a disagreement with the Reserve Bank about whether capital notes the bank had sold to investors complied with the central bank's capital adequacy rules.

In April 2017 Kiwibank chairman Rob Morrison and deputy chairwoman Rhoda Phillippo stepped down. Susan Macken, a former long time BNZ director, became chair.

Only one director, former accountant Carol Campbell, predates the partial sale. ACC chief executive Scott Pickering joined the Kiwibank board in late 2016.

NZ Super is a sovereign wealth fund which was established to help manage New Zealand's looming pension costs. It now manages just under $39 billion.

ACC, established to administer New Zealand's no-fault accidental injury scheme, managed around $36b in June 2017.