Westpac weighs up New Zealand spin-off

Westpac plans to make a decision on whether to spin-off or retain its New Zealand operations within months.

Westpac is weighing up a demerger for its NZ business. Picture: NCA NewsWire / James Gourley

Westpac plans to make a decision before September 30 on whether to spin off or retain its New Zealand operations, as it cited a challenging regulatory climate and increasingly local focus for banks.

Westpac’s New Zealand business accounts for about 15 per cent of the group’s total cash earnings, excluding lumpy and notable items. It houses about $NZ90.6bn ($84bn) in loans and $NZ74.1bn in deposits, and may be worth between $NZ8bn and $NZ11bn as a stand-alone entity.

But 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 NZ, and that and other factors combined to trigger a review of the bank’s Kiwi footprint.

Westpac chief executive Peter King said he hoped the board would make a decision on the ­future of the NZ division by the end of bank’s financial year.

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

He made the comments while delivering the bank’s interim results.

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

Mr King said the bank was ­assessing whether a demerger of the New Zealand unit would create value for shareholders, and any decision to move forward was not linked to its performance.

“This is not about New Zealand’s performance, it’s been a solid contributor again this half. The catalyst for the review is the changing nature of banking both in New Zealand and globally,” he said.

“Increasingly banking is a local game, and with the BS11 (outsourcing) requirements in New Zealand, there is limited opportunity for Australia and New Zealand to share capability and scale.”

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

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

Mr King said any formal engagement with the Australian banking regulator and New Zealand’s central bank over a demerger proposal would require the bank to submit a detailed plan.

“You have to put a proposal to them to say ‘yes or no’ and we haven’t worked out what that proposal is,” he said.

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

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