Westpac demerger could bring benefits for NZ business: law firm

Thursday, 1 April 2021

Westpac NZ closed its Winton branch this week, as the bank’s Australian parent considered splitting the New Zealand entity off..

Westpac NZ's demerger from its parent company could bring a number of benefits to the New Zealand business sector, a lawyer says.

Kate Lane, banking sector lead with MinterEllisonRuddWatts, says for one, it could be a very big boost for capital markets in New Zealand and give Kiwi investors a clear route to owning a major New Zealand bank - “arguably a proxy for investment in the country’s economy”.

It would also mean one of New Zealand’s four large banks would operate only under the regulation of the Reserve Bank, rather than the “two-regulator” model which the Australian-owned banks operate under.

“It would also be a signal of independence to the global economy, demonstrating that it is a viable and prudent option for a major New Zealand bank to be locally owned and operated.”

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Westpac itself has said the New Zealand business had been a strong performer and it was still assessing whether a demerger would be in the best interests of shareholders.

However, given changing capital requirements in New Zealand it was “now appropriate to assess the best structure for these businesses going forward”.

On the surface, Lane said, not much would change. Westpac New Zealand was already a separate entity legally, regulated by the Reserve Bank and Financial Markets Authority, and was required to maintain appropriate separation from its shareholder under New Zealand banking standards.

If it followed the model used when National Australia Bank separated off its British bank Clydesdale in 2016, existing Westpac shareholders would receive shares in Westpac New Zealand or a new holding company, which would then be listed on relevant stock exchanges.

In the NAB/Clydesdale demerger, she said, existing NAB shareholders received 75 per cent of the shares in the new entity and the rest were floated in an initial public offering, but this was not a necessary feature of a demerger.

Smaller shareholders in the NAB demerger were also given the chance to sell back their shares without brokerage.

''This model is similar to demergers we have seen in New Zealand, including the demergers of NZME from APN and Tilt Renewables from Trustpower,'' Lane said.

Implications for most Kiwi bank customers, employees and suppliers would be minimal, she said.

''It seems likely, but not inevitable, that a demerger might result in renaming and rebranding of Westpac New Zealand Ltd.''