Westpac put on 'rating watch negative' by Fitch because of possible sale

Monday, 29 March 2021

Global credit rating agency Fitch Ratings has put Westpac New Zealand on “rating watch negative” after the bank’s Australian parent said it might sell it.

Last week Westpac told investors on the ASX sharemarket that it was considering a “demerger” of its New Zealand business and was assessing its “appropriate structure”.

No decisions have yet been made, the bank said.

The Fitch announcement was prompted by the possibility of Westpac New Zealand no longer having its parent bank’s financial muscle behind it.

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Fitch described its credit ratings as “an opinion” on bank’s relative ability to meet their financial commitments, such as paying interest to its depositors.

“The rating watch negative indicates that a decision to divest Westpac New Zealand would mean the business is no longer considered a core part of the group, potentially reducing the reputational risk of a Westpac New Zealand default for the parent,' Fitch said.

“It may also weaken the strong system and management integration between Westpac and Westpac New Zealand,” it said.

Whether the negative rating watch would result in a downgrading of Westpac New Zealand’s credit rating would be resolved once a decision on the demerger was made, Fitch said.

“Any subsequent potential sale may not be completed before end-2021.”

Westpac New Zealand’s rating from Fitch is A+, the same as the ratings for competitors ASB, BNZ and ANZ.

Westpac New Zealand was approached for comment.

Its Australian parent bank is reported to have hired investment banking firm Macquarie to conduct an assessment of whether Westpac New Zealand should be spun off.

The possible sale of Westpac’s New Zealand arm came as a shock for bank staff, First Union said last week.

Westpac said the decision on its future structure would take into account the Reserve Bank’s requirement, announced on Wednesday, that Westpac pay for two independent reports into its risk governance processes.

The Reserve Bank also planned to require banks to increase their capital to strengthen them.

Possible options for a demerger include a sale to another bank, possibly an overseas bank, or through listing Westpac New Zealand’s shares on the NZX sharemarket.

Banking expert Claire Matthews, of Massey University, said she did not think another Australian bank was likely to buy the Westpac business, and state-owned Kiwibank – rumoured to be interested in acquiring other bank business in order to grow – was not likely to have the capital needed.