The New Zealand finance sector union Finsec has cried out in protest to ANZ, Westpac, BNZ and ASB banks paying out large dividends while allegedly making jobs redundant, freezing wages and outsourcing work. According to Finsec, the combined profit in 2009 for the four largest banks was NZD790 million, while their dividend issue exceeded NZD1.7 billion.

In a media statement Finsec said that there is a gross misbalance between the amount of protection the banks have provided to their shareholders, and the amount of assistance they have provided towards New Zealand’s economic recovery. According to the union, banks should be required to maintain local staff numbers in exchange for being underwritten by the Government’s wholesale borrowing and retail deposit guarantee schemes. The media stament went on to say “The Government needs to toughen its regulation of the banks to include social responsibility and national interest measures to stop this immoral preference towards overseas shareholders over the local economy and staff”.

Photo by Finsec

Following a High Court decision in which BNZ bank was found liable to pay $416 million in unpaid taxes and a possible $238 million in use of money interest, thoughts have been centered around how this would affect the banking institution. ANZ bank, Westpac and the owner of ASB, the Commonwealth Bank of Australia are all also entangled in discussion with the Inland Revenue Department about owed taxes.

Moody’s Sydney-based assistant vice-president Marina Ip stated that while significant, the decision would not see the bank pay more than 60% of its expected yearly pre-tax earnings. So, individually this will not decrease its rating, although it is admitted that growth will be affected, it will not see the bank become a non-profitable business.

Standard & Poor’s has already confirmed their ratings of the banks, including BNZ post the High Court decision.

Following a High Court decision in which BNZ bank was found liable to pay $416 million in unpaid taxes and a possible $238 million in use of money interest, thoughts have been centered around how this would affect the banking institution. ANZ bank, Westpac and the owner of ASB, the Commonwealth Bank of Australia are all also entangled in discussion with the Inland Revenue Department about owed taxes.

Moody’s Sydney-based assistant vice-president Marina Ip stated that while significant, the decision would not see the bank pay more than 60% of its expected yearly pre-tax earnings. So, individually this will not decrease its rating, although it is admitted that growth will be affected, it will not see the bank become a non-profitable business.

Standard & Poor’s has already confirmed their ratings of the banks, including BNZ post the High Court decision.

ANZ National Bank, BNZ and Kiwibank have all cut their home loan rates on the 14th and 15th of January, other banks are expected to follow. It is expected by many that the New Zealand reserve bank will cut the OCR by another percentage point in its next meeting. The current rate is 5%. Westpac bank went so far this week as to predict further post January cuts which will see the rate drop to 2.5% in 2009.

The new speculation of cuts is based on economist’s analysis of the New Zealand economy. Even with upcoming tax cuts, newly installed tax credits and the upcoming “Summit on Employment” aimed at stimulating the economy, many predict stark times ahead.

Amidst interest rate cuts from around the world, some analysts are predicting possible deflation in the coming future. Technically, deflation is the opposite of inflation, it is the increased valuation of money, leading to falling prices and decreased economic activity. Subsequently it can lead to increased reliance on debt and in general an unpleasant economic outlook.

At the early stages of the current economic downturn, arguments for or against possible deflation are likely to be moot, as the exact effect of current events is still uncertain, the time horizon for returning to “normality” is unseen and there is little if any event which can be used as a comparison.
The Westpac Economic Overview for November mentions that inflation could reach as low as 1%, but makes no comments to deflation, and predicts that inflation will be in the Reserve bank preferred band of 1%-3% in the near future.

From a more academic perspective, some, like ANZ chief economist Cameron Bagrie have mentioned that deflation is a typical product of an economy moving from the recession state to that of depression. This view is supported by the rapidly decreasing fall in oil prices seen recently, and the current interest rate activity.

Although, the fears of recession could just as easily be placed on the uncharted nature of the current situation and the drastic actions taken by banks and governments. Even ANZ chief economist Cameron Bagrie has said that it would be a big leap to call the current disinflationary environment a deflationary one.

While previous government statements placed the timeline for the scheme as being before Christmas Day. This announcement seems to be a warning or an indication of intent so far, as there were a number of details omitted by Michael Cullen concerning the Bank Deposit Scheme. Predominantly the missing details are those surrounding the involvement and requirements from the Australian government and banks in regards. However, previous statements made by Michael Cullen indicate that there might be a requirement for participating Australian banks to float set amounts of their shares on the New Zealand Stock Exchange.

This quickening of pace is not thoroughly welcome by some key banking figures. ANZ National’s chief executive Graham Hodges, maintained throughout statements made that there is no need to “rush” into the bank guarantee scheme. He also said that the New Zealand market is at a comfortable level of liquidity at the moment, one which did not require immediate action.

Michael Cullen claimed that the New Zealand government has been considering actions such as this scheme for a long time, and would have preferred to announce them at a later point but because of Australia announcing an equivalent scheme, it had to be done now.