Here to stay: Westpac won't sell its New Zealand business

Thursday, 24 June 2021

Australian bank Westpac has decided not to sell off its New Zealand business.

Westpac has decided not to sell its New Zealand business.

The Australian bank had been considering whether to sell off its New Zealand operations, but Westpac group chief executive Peter King, said: “After a detailed review, we believe a demerger of the Westpac New Zealand (WNZL) business would not be in the best interests of shareholders.”

“Our review identified opportunities to improve service for customers and value across the WNZL business, and we will progress these with the WNZL board and management team,' he said.

Westpac, which is listed on the Australian ASX sharemarket, said in March that it was considering splitting the Australian and New Zealand businesses after the Reserve Bank moved to require banks to hold more capital in New Zealand to increase their financial strength.

The Reserve Bank has honed in on the housing market and 'increased risk taking' as key threats to the stability of the financial system.

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The announcement was made the same day the Reserve Bank ordered Westpac to pay for two independent reports into its risk governance processes.

Fund managers speculated the bank could either do an initial public offering (IPO) to list the New Zealand banking business on the NZX sharemarket, or sell the business entirely to an overseas bank.

Now the decision to keep the New Zealand business within the Westpac fold has been made, King said the priority was to find a new chief executive to replace David McLean, who retires on Friday.

Former National government minister Simon Power, who is Westpac’s New Zealand general manager of institutional and business banking, would act as chief executive until McLean’s replacement was named, King said.

Power said: “Westpac New Zealand continues to have strong support for what it is delivering for customers and its role in the Westpac Group.”

Simplicity's Sam Stubbs says he believes Westpac was trying to put pressure on the Reserve Bank by seeming to threaten to leave.

Kerry McDonald, former chairman of Bank of New Zealand, said: “I’m not surprised that they (Westpac) considered the issue, and I’m not surprised that they made it public.”

“I think there were two issues. One was a genuine one looking at the pros and cons of having a New Zealand retail business, and the second one was that if that made the Reserve Bank think more carefully about its regulatory policy, that was all to the good,” he said.

McDonald was not surprised Westpac decided to keep its New Zealand operations.

“They get a good return on capital in the New Zealand business, but it is still a small part of their overall business,” he said.

Sam Stubbs, chief executive of the Simplicity KiwiSaver scheme, and vocal bank critic, said: “I’m sure that somewhere internally Westpac has decided to do a review, but I didn’t believe they would be selling with a net interest margin of two per cent, and a return on equity of 10 per cent.”

Stubbs believed Westpac’s announcement had been designed to put pressure on Reserve Bank governor Adrian Orr to water down its decision to require banks to hold more capital.

“The banks have been cashing in good will for some decades, but in this governor they have got someone who is willing to call their bluff,” he said.

The business would have been expensive for a buyer, Stubbs said, though he had not discounted the possibility of a buyer like a Chinese bank being willing to make a good offer.

But “why would you sell the goose that lays the golden eggs?” Stubbs said.