The Wall Street Journal has the details of the $1 billion dollar loan Goldman Sachs made to Banco Espírito Santo which just cost the New Zealand taxpayer $200 million:
Goldman and Espírito Santo eventually settled on the creation of a company, Oak Finance Luxembourg SA, to raise $835 million for Espírito Santo from Goldman and outside investors. Goldman Sachs International co-heads in London, Michael Sherwood and Richard Gnodde, were briefed on the large transaction, according to a person familiar with it.
Oak Finance’s purpose—providing vital funding for a project aimed at increasing Venezuela’s refined-oil output—also checked off a box for Goldman as it tried to expand its relationship with the Venezuelan government, people familiar with the matter said.
Before the money was raised, Espírito Santo’s problems started intensifying. Its parent company was struggling to repay billions of euros to its creditors, including the bank and its clients. Facing potential losses, the bank was having trouble raising money from traditional market sources.
Goldman, meanwhile, was buying Banco Espírito Santo shares. Regulatory filings show Goldman amassed 2.27% of the bank’s shares as of July 15. It looked like a vote of confidence in the Portuguese bank, whose shares rallied 20% on July 23, the day the holdings were disclosed.
So the New Zealand Super Fund loaned money through a Luxembourg shell company created by a US investment bank to a Portuguese bank to fund the Venezuelan state oil company. Awesome.
The Super Fund gets pretty good returns so we don’t want to second-guess them too much, but related third party loans through tax shelter countries to banks that collapse amid accusations of fraud and tax evasion don’t seem like an appropriate way for a state investor to conduct itself, even if the money doesn’t get wiped out.
Prime Minister John Key said one of the choices that today’s Budget surplus would present was the possibility his party could promise tax cuts in the campaign for the September 20 election.
He even suggested any tax cuts could be aimed at middle New Zealand which “pays a fair bit of tax and often doesn’t get a lot in return”.
Key and English promised ‘tax cuts for middle New Zealand’ in 2008 but went back on that promise as soon as they were elected and in 2010 they bought in tax cuts for high income earners and increased GST for everyone, the great ‘fiscally neutral’ tax switch that cost a billion dollars a year and boosted growth to a staggering 1%. So I’m not going to get too excited here.
Also, when English stopped paying into the superannuation fund back in 2009 – a decision Treasury estimates will have cost the country about $50 billion dollars by 2050 – he promised that payments into the fund would resume when the books got back into surplus. So which takes priority: tax cuts or payments to the super fund? My guess is that Key thinks the idea of paying into the super fund is absurd. Where’s the political benefit to him if some future politician has more money to fund superannuation in a couple decades time? So it’s gonna be tax cuts.
I was involved in a twitter discussion yesterday about Treasury’s economic predictions and how they tend to be overly rosy, and I wondered if that was the case back when Labour were in power. Or were Treasury growth pessimists under a Labour government?
Well here’s the answer, sourced from the HYEFU stats at Treasury. They are mostly pessimists under Labour and mostly optimists under National. Or, to put it another way: when Labour were in government the economy grew faster than Treasury predicted, and under National it under-performed their forecasts. Not consistently though. How about that forecasting for 2010? Dead accurate!
Talking and thinking about the government’s asset sales – sorry: partial privitisation – policy this weekend, the following points seem valid:
- The partial privitisation policy is the Key government’s flagship policy for this term.
- It is a disaster.
- There isn’t much comment on this in the media
Maybe I’m wrong about point 2 or 3? But looking back at the pre-election promises, the intent was to raise up to $7 billion dollars. It looks like Key and English will end up spending hundreds of millions more on the sales process than they promised and end up with less than $5 billion, which is less than their lowest estimate. And yes, you can point to reasons it’s been a disaster. Solid Energy was supposed to be worth billions but is actually worthless, Meridian’s major customer is threatening to close down, and extorted the government out of $30 million dollars, the Greens and Labour have sabotaged the economy by failing to support the privitisation process and having energy policies of their own. But Key and English are supposed to be financial super-geniuses: couldn’t they have NOT, say, mis-managed Solid Energy into the ground, or anticipated the Rio Tinto problem? Like I said, this is their flagship policy, and the last two years have mostly consisted of National failing to anticipate really obvious problems – like the opposition opposing it – until they blow up in their face and cost the taxpayers tens of millions of dollars.
And maybe I’m just being a biased left-winger here, but I don’t really see much media commentary around the signature failure of the government’s signature policy. Seems that if a left-wing government’s biggest initiative fell over this horribly to the tune of billions of dollars it’d be a really big deal.
I think there’s some conventional wisdom involved: the general media impression of Key is that he has magic powers, at least in financial terms, while English is a ‘safe pair of hands’, also ‘dour’, ‘Scottish’ a ‘Southlander’, ‘frugal’ and so-on. The reality seems to be the exact opposite: they’ve hemorrhaged taxpayer money while botching their flagship policy. (If you add up the amount of money ‘dour, frugal’ Bill English has simply given away to the commercial sector in the last five years it’d probably be close to the two billion dollar mark.) But commentators would have to challenge their core assumptions about contemporary politics before the scale of the failure here became obvious.
The Herald reports:
Retail investors in Meridian Energy will pay $1 per share as a first installment and no more than 60 cents per share as a second installment – up to 30 cents less than institutional investors.
At a .30c price differential ‘Mum and Dad’ retail investors would be crazy not to buy a couple of thousand dollars worth of Meridian shares and then flick them on as soon as they float, If you buy $2000 worth of shares and sell them the day of the float at the institutional price you make $400, no risk. Minimum. The shares are probably undervalued, so will probably go even higher than that.
It’s a big loss to the taxpayer of course. Millions of dollars thrown away for nothing except, crucially, Bill English and John Key will get to put out a press release citing the huge number of New Zealand ‘Mum and Dad’ retail investors who pre-bought Meridian shares.
The very pragmatic, fiscally sensible government led by very serious experienced businessman John Key has announced it will extend interest free loans to investors in Meridian Energy for 40% of the share value. Because giving people interest free loans to buy your own dividend returning assets off you is how things are done in the real world.
If you take a look at the share price for Mighty River Power you can see why they’ve come to this:
This also seems like a good time to revisit John Roughan’s column urging the Herald’s readers to buy these shares:
Investors in Mighty River Power should send the champagne next week to Russel Norman, Green Party, Parliament Buildings, Wellington.
The stock looked a good buy even before he talked the Labour Party into threatening price control on electricity. It looks an even better one now.
I hope Roughan put his money where his idiot mouth is and invested heavily.
Ten days ago National’s Housing Minister announced an inquiry into the cost of building materials:
Nick Smith, speaking on “The Nation” said there was significant concern that items “the likes Batts, likes of Gib and concrete” were more expensive than what they were in Australia.
Batts and Gib are Fletcher’s brands and the company is a major concrete supplier.
Here’s what’s happened to Fletcher’s share price over the past thirty days:
According to the Steven Joyce/Fran O’Sullivan theory of political sharemarket vandalism, Nick Smith has ‘destroyed’ about $260 million dollars worth of wealth in the last ten days. I look forward to their columns/press releases warning of capital flight, skies raining blood etc.
I’ve just watched the Q & A section on the Labour-Greens power policy, in which Susan Wood agonised over the massive financial destruction the announcement visited on all the ordinary New Zealanders who have investments in KiwiSaver (and, indirectly, in the Cullen Fund and ACC), so have lost hundreds of millions of dollars over the last week because of the massive market crash.
This is a talking point the government’s shills have been throwing around all week – Hooton claimed the total loss was in the ‘billions’ on National Radio – so I thought I’d take a look and see how the NXZ has actually been performing recently. The red line is April 18th, the day Labour and the Greens launched their announcement.
NZX data on Contact Energy’s share price, which – according to Matthew Hooton and the Herald’s Liam Dann has suffered an unprecedented form of destruction in the wake of the Labour Green power policy announcement:
So Contact’s shares are at their lowest level for like, seven weeks! And still way above their historic average! Hooton is paid to regurgitate preposterous bullshit, and he’s pretty great at his job, but the Herald’s business editor should be a little less gullible.
You can critique the Labour-Greens power-policy on a number of levels. Where do they pluck their estimates of 5000 jobs and $450 million dollar boost to ‘the economy’ from? What happens if our power companies respond to reduced windfall profits by sacking all their staff and scrapping expenditure on the maintenance of their assets?
You can even claim that it amounts to nationalisation of the energy sector and ‘North Korean style economics’, if you don’t actually know what nationalisation is and think that North Korea is a country where publicly listed companies own the electricity infrastructure and pay dividends to private shareholders.
But you can’t fault the politics. The government needs the partial sale of Mighty River Power to succeed. It’s their signature achievement. English needs the cash, and Key has bled so much political capital and invested so much time on this policy that it has to work. And now the shares are finally on sale to New Zealand buyers. It lists on the NZX early next month. They must have felt like they’d finally made it.
But now Labour and the Greens have announced that if they’re elected dividends from these companies will be minimal. How do you quantify that if you’re a risk analyst for an investment fund? No wonder National are furious, and Simon Bridges was close to tears in Parliament yesterday spluttering about the decline in Contact Energy’s share price.
Maybe the market won’t care, and the float will be a success. But if it isn’t, I don’t think the public will be sympathetic when the government blames the opposition. This is an unpopular policy, and government Ministers blame Labour every time they spill their coffee. It’ll also leave English trying to raise money, either through borrowing, spending cuts or tax increases, all of which would kick in in 2014. Election year.