Analysis - One of the country's best performing banks has had the "for sale" sign hung in the window, why would Australia's Westpac want to sell one of its golden eggs?
Westpac Bank is reviewing the future of its New Zealand operations. Photo: RNZ / Dom Thomas
Australia's Westpac Banking Group has said it is reviewing the future of its New Zealand operations.
It said it wanted to simplify its business and structure, and had been rationalising its overseas operations.
But it also cited increasing pressures from the Reserve Bank of New Zealand, which will force it to increase the amount of capital for the local operation and separate its New Zealand business from the Australian operations.
How big is Westpac NZ?
Financially, Westpac NZ has been a solid earner for the parent group. It is the third-biggest retail bank in New Zealand, with about 20 percent market share, a nationwide branch network, and a full range of services such as KiwiSaver, insurance and advisory services.
It is also the Crown's banker, handling the bulk of financial transactions for government agencies.
At the last annual result it reported assets of $113 billion, net loans of $89m, and a net profit of $681m.
On most measures the New Zealand operations equals or outperforms the Australian operations. Before the Covid-19 pandemic the Australian and New Zealand retail banks were among the most profitable in the world.
Does Westpac have issues with the Reserve Bank of NZ?
It's more the other way round.
The RBNZ regulates the banking industry, and in particular the role and behaviour of the four big Australian owned banks - Westpac, ANZ, BNZ, and ASB. It calls them systemically important banks because they control about 85 percent of the local banking market.
In the early 2000s, the RBNZ revamped the sector rules, requiring the New Zealand operations to be structurally and operationally independent of their Australian owners. That was driven by a desire to stop the New Zealand branches being "raided" by their parents if they were in trouble in Australia.
Westpac resisted the move strongly, wanting to do its own thing. The RBNZ wielded the big stick and Westpac reluctantly fell into line.
In 2017, the RBNZ ordered Westpac to beef up its finances after discovering it was using unapproved methods to calculate how much risk it was under.
Earlier this week the RBNZ said it had ordered Westpac to hold more cash because it was not complying with liquidity rules.
Westpac says the RBNZ's delayed rules forcing the big banks to hold more capital in case of financial catastrophe could cost it between $1.6bn and $2.2bn.
On top of that it faces more spending to split the Australian and New Zealand backroom operations.
Does Westpac have issues in Australia?
Westpac Corporation was battered like the rest of the big Australian banks by the Royal Commission into banking conduct, forcing it repay hundreds of millions of dollars to cheated customers.
Last year, it copped $AU1.3bn in penalties for breaches of money laundering rules.
What are the options for spinning off Westpac NZ?
Anything is sellable if the price is right.
But what price for a fully established, slightly scratched, one-owner New Zealand bank? A ball park price of $10bn to $15bn has been mooted - it's a big ball park.
A trade sale: Find another bank, big investment company (or group of companies) to buy it. Almost certainly such a deal would be to another overseas bank with deep pockets. New Zealand banking is profitable and, in good times, a licence to print profits, but perhaps not alluring for a stranger. Any move by one of the other big banks here would hit the substantial brick wall of the Commerce Commission and competition issues.
New Zealand buyers: The first local names to leap to the lips were Kiwibank, NZ Super Fund, and ACC. The latter two already own part of Kiwibank, they have big investment funds, but looked less than 100 percent enthusiastic when they saved NZ Post's financial blushes five years ago.
The rest of the New Zealand private investor pool looks too shallow to contemplate such a deal.
A share float: Undoubtedly, it would attract some would-be property investors, but it's a big and costly job to work out how much to sell (20 percent, 50 percent, the lot?), at what price, what assets to sell, what links to maintain with the former parent, preferential allocation for customers, existing shareholders in Westpac parent group, New Zealand residents, investment funds?
Of course the Reserve Bank will have to approve also.
Perhaps Westpac might just want to keep it. Perhaps the study being done by Macquarie will answer that.
