Could Bank of Queensland be eyeing Westpac’s NZ mortgage business?

Bank of Queensland chief executive George Frazis. Picture: Lyndon Mechielsen

Bank of Queensland may have only just agreed to buy ME Bank for $1.325bn, but some in the market believe that another major acquisition should not be discounted — namely the purchase of Westpac’s mortgages business in New Zealand.

Westpac has hired Macquarie Group to consider a sale or demerger of its New Zealand arm after the Reserve Bank of New Zealand announced two years ago that its common equity tier-one requirement would be lifted to 13.5 per cent for large banks from 7 per cent.

In Australia, it is 10.5 per cent.

The requirement in NZ for total capital — which includes tier one and tier two — rises to 18 per cent from 10.5 per cent.

The view in the Australian industry is that those thresholds are too high to be viable for Australia’s top four banks, and all are said to be weighing their options with respect to New Zealand subsidiaries.

There has been speculation in the market that Bank of Queensland’s chief executive, George Frazis, has expressed some interest in buying the $6bn-odd retail banking arm of Westpac in New Zealand, comprising mortgages and small business loans.

This may seem like a tough ask for the regional banking boss, but it is worth remembering that he previously ran the New Zealand operations while at Westpac and would know the business better than most.

He started at Bank of Queensland in 2019 and it has been no secret that the ambitious executive has aspirations to grow, with a track record of major expansion of all the banking operations under his watch. These include the Westpac-owned St George Bank, of which he was chief executive, and Westpac’s consumer banking operations, which he ran between 2015 and 2019.

While the tough rules surrounding equity would hit Bank of Queensland equally as hard, Mr Frazis may take the position that the rules would once again be relaxed in the future with a change of government.

Challenges would be embarking on a deal so soon after buying ME Bank, his track record is not yet proven, and that Bank of Queensland’s digital strategy is not yet rolled out, making such a deal a tough sell to investors.

Some question whether Westpac will follow through on its demerger threats, with the move potentially one to send a strong message to the reserve bank.

Jefferies banking analyst Brian Johnson said in a research report that selling a New Zealand bank would be difficult, given that acquirers faced the same issues as Australian bank owners.

“And they may be too big to IPO, which sees demergers the likely exit mechanism,” he said in his report.