Westpac board set to weigh NZ spin-off recommendation this month

Westpac’s board will this month assess a recommendation on whether to spin off its $10.3bn New Zealand arm to shareholders.

A decision is looming in coming months on Westpac’s plans to demerge its NZ operations. Picture: Luis Ascui

Westpac’s board will this month assess a recommendation on whether to spin off its $10.3 billion New Zealand division to shareholders, as it pushes ahead with a broader divestment spree.

Sources said the bank’s board will hear and review key advice from Macquarie Capital at a meeting in mid-to-late June before within months deciding whether to pull the trigger on a demerger of the NZ unit. Macquarie has been undertaking complex analysis of funding and business implications, and valuations for a potential NZ spin-off.

Separately, Westpac is also expected to make a decision on the sale of its auto loan business this month.

Westpac’s NZ business accounts for about 15 per cent of the group’s total cash earnings, excluding lumpy and notable items. It houses about $NZ90.6 billion ($84.6 billion) in loans and $NZ74.1 billion in deposits, and may be worth between $NZ8 billion and $NZ11 billion ($10.3 billion) as a stand-alone entity.

A bank spokesman declined to comment on the demerger deliberations.

The decision to demerge the NZ unit would require a Westpac shareholder vote of approval, once a large program of internal work is conducted and a structure is bedded down by the bank and its advisers.

Also at Westpac, new consumer and business banking boss Chris de Bruin is starting to put his stamp on the now combined division.

Sources said Mr de Bruin had reduced the number of his direct reports in a restructure announced last week.

In March, Westpac said it was considering the “appropriate structure” for its NZ ­operations, including a demerger, with Macquarie assisting with a review.

Westpac chief executive Peter King has accelerated a divestment drive at the bank as he seeks to simplify operations and bolster risk and compliance functions after it agreed to pay a record $1.3 billion financial crimes noncompliance penalty last year.

Westpac’s operations across the Tasman have been subject to regulatory enforcement action for “material failures” in reporting its liquidity over eight years, with New Zealand’s central bank forcing Westpac to undertake independent reviews and hold more liquid assets. Westpac is also bracing for more stringent capital requirements in New Zealand, and that and other factors combined to trigger a review of the bank’s Kiwi footprint.

The bank in May said NZ boss David McLean would retire from Westpac on June 25 after more than two decades. Simon Power, general manager institutional and business banking, will act as head of NZ, subject to regulatory approval, while a global search is completed.

Mr King in May said he hoped the board would make a decision on the future of the NZ division by the end of the bank’s financial year on September 30.

“At the moment the decision is between demerge and retain,” he added at the time. Mr King did not rule a trade sale or initial public offering of the division but said the main focus was on either demerging or keeping the NZ division.

Westpac’s NZ division posted a 98 per cent jump in cash earnings to $NZ583m for six months ended March 31, helped by strong mortgage growth and an impairment benefit. Deposits also saw strong growth, largely in the household sector.

Mr King said in May any decision to move forward on a spin-off of the NZ operations was not linked to the unit’s performance.

Westpac CEO Peter King has said he hopes for a decision on the NZ move by September 30. Picture: Jonathan Ng

A potential spin-off of Westpac’s NZ operations would see the bank’s divestment spree continue. It has sold its financial advice, general insurance and Pacific operations, and is seeking to sell other businesses including its life insurance arm and investment platforms.

Westpac has the smallest exposure to NZ among the major Australian banks, which dominate the Kiwi banking market.

Other major banks have also carefully assessed their presence in NZ.

But ANZ – the largest player in NZ among the major Australian banks – has said it is committed to its business across the Tasman.

“We’ve done the math and said actually there’s more downside than upside for us (in exiting NZ),” ANZ chief executive Shayne Elliott said in May.

“We are not blind to reality, it’s gotten harder to operate a business in New Zealand. What we’ve done there is just reposition the business.”

Due to the regulatory changes, Mr Elliott noted ANZ had to rethink pricing, costs and the NZ markets it operates in.

Westpac’s interim results presentation said demerger deliberations for New Zealand would take into account separation and other costs.

The changes made by Mr de Bruin are understood to have been driven by factors including simplifying the bank’s business and consumer divisions, removing duplication and ensuring a single point of management accountability. The reshuffle is linked to the departures from Westpac of Jane Watts, a chief customer engagement officer, and Joanna White, managing director of cash management.

Ms Watts joined Westpac in late 2010 from Macquarie and held a number of senior roles, including general manager Westpac and premium consumer division and head of BT advice and the private bank. Ms White was a more recent addition to Westpac in March 2020, after stints as Axsesstoday CEO and managing director of Commonwealth Bank business lending.

Westpac’s Mandy Rutherford has emerged from the changes with an expanded role spanning cash and transactional banking, and Ross Miller takes over consumer and small business customers that are not assigned a specific banker. Mr Miller’s LinkedIn profile cited his prior role as chief customer engagement officer for consumer bank and general manager St George.

Mr de Bruin joined Westpac in February as head of the consumer bank and was handed responsibility for the business division as well in March.

Mr King’s decision to combine the consumer and business banking division led to the departure of business boss Guilherme Lima.

Mr de Bruin joined Westpac from Deem Finance in Dubai and also had a 13-year stint at Standard Chartered Bank, across roles including as global head of retail products and digital banking.