Westpac is believed to be giving a considerable amount of attention in its strategic review of its New Zealand business to the $NZ6bn ($5.5bn) retail component of its operations when it comes to a sale or a demerger of the business, say sources.
It comes after the bank on Wednesday told the market it was weighing a spin-off or sale of its operations in NZ as it faces tougher capital requirements imposed by the country’s reserve bank. It has drafted in Macquarie Capital to assess options.
Sources have told DataRoom that the most likely scenario is one where only the retail operations are demerged or sold, comprising about $NZ35bn of the overall $NZ90bn-odd deposits it holds across the Tasman, with the rest to be retained.
The equity cheque required to buy the retail arm is estimated to be $NZ6bn to $NZ7bn.
Australia’s top four banks have been weighing options for their NZ divisions since 2019, as well flagged by this column two years ago, although Westpac’s play comes as it also ramps up plans for other non-core Australian assets.
As reported earlier, a sales process through Morgan Stanley for its $11bn portfolio of Australian auto loans and dealer finance is well underway, with more than 30 parties signing non-disclosure documents to enter the data room.
It is now understood that private equity firm Cerberus is partnering with the former auto loans team at non-bank lender Pepper as part of its efforts to buy the portfolio, while Bain Capital also has a local joint venture partner in its corner, which some believe could be Taurus Motor Finance, while US-based TPG Capital is working with the Australian-listed Liberty Financial.
Other divisions that Westpac is selling are its wealth management platform, expected to be on the market through Goldman Sachs or Barrenjoey Capital, and life insurance business s up for sale through JPMorgan.
Back to New Zealand, and sources say that it is not just Westpac that has moves afoot for its business across the Tasman, with most Australian banks unhappy with the latest liquidity requirements that have been imposed on them by the Reserve Bank of NZ in recent years.
ANZ is understood to have been selling off agricultural loan portfolios related to NZ assets and certain non-core real estate loan books.
NAB has been weighing options for its Bank of New Zealand business (there were said to be some low level talks about merging the division with Kiwi Bank a few years ago), and CBA has also been considering a potential divestment of its highly successful Z subsidiary ASB.
Yet selling or demerging New Zealand operations is not thought to be an easy feat for the top four.
Westpac’s retail operations have a large portion of wholesale deposits as well as retail, which consists of mortgages and small business loans.
One deterrent for the move for all the big four is that the banking divisions can achieve lower funding costs by being attached to the Australian operations due to their credit ratings.
The RBNZ on Wednesday issued Westpac’s New Zealand arm with formal compliance notices for “material failures” in reporting its liquidity over eight years, forcing the bank to undertake independent reviews and hold more liquid assets.
ANZ also came under fire regarding its Kiwi capital requirements, and was told in 2019 to provide the RBNZ with two independent reports. Deloitte was engaged by ANZ to prepare the reports, the first of which was published in 2019 and resulted in further scrutiny.
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