South Island financiers unite
The first major consolidation in the New Zealand finance company sector is paving the way for a NZ-owned and listed bank. Pyne Gould Corp, one of the largest finance companies in New Zealand, announced yesterday it is planning a merger with Southern Cross Building Society and Canterbury Building Society. The merged entity will apply for a banking licence.
The three entities have signed a memorandum of understanding to merge their "banking related activities."
The group will initially have assets of NZ$2.2 billion, 360 staff and about 70 customer outlets around the country.
As of December 2009, PGC's total assets stood at NZ$1.6 billion; Canterbury's total assets stood at NZ$550 million as of March 2009; and Southern Cross Building Society had total assets of NZ$410 million as of June 2009.
The merged entity is, however, not expected to take on all the businesses. Specifically, the Torchlight Funds, which are part of Perpetual Asset Management, the asset management arm of PGC, are expected to be excluded.
The merged entity is expected to have enough capital and will meet the regulatory capital norms with tier one capital ratio likely to exceed 10 per cent.
There is a plan to double the asset base in five years time, and raising any capital that will be needed to fund such growth will not be a constraint because it will be a listed bank, the group believes.
PGC has been aiming to get a banking licence to convert its wholly owned subsidiary, Marac Finance, into a bank. At a recent shareholder meeting, PGC indicated its future plans include getting back the investment grade rating it lost in August 2009, and obtaining a bank licence.
The Reserve Bank of New Zealand has been calling for consolidation in the finance sector for some time now. It is unclear, however, whether the RBNZ expected a consolidation to result in the creation of a banking entity.
As a first step in the merger process, Southern Cross and Canterbury will be amalgamated, and then the applicable PGC businesses will be acquired. The new entity will be headquartered in the South Island.
The ownership proportions and board structure are still to be agreed but PGC is expected to be the largest shareholder. The group believes a banking licence is essential to get access to cheaper funds and hopes to give customers an alternative to Australian-owned banks.
A listed, NZ-owned bank will be the first such entity on the NZX since NAB bought BNZ 20 years ago.
The merged entity will commence trading by early next year if all the approvals are obtained, and a banking licence application will be made by mid-2011.
Marac Finance currently has a BB+ rating from Standard & Poor's with a negative outlook; Canterbury also has a BB+ rating, but with a stable outlook; and Southern Cross has a BB rating with a stable outlook. All three entities have obtained an extension under the government's retail deposit guarantee scheme.
Marac has 34,000 customers, Southern Cross has 20,000 and Canterbury has 20,000 customers. This compares with the more than 650,000 customer base of Kiwibank, the only state-owned bank.
An asset base of NZ$2.2 billion will make the entity the smallest locally incorporated bank, having only newcomer Bank of Baroda behind it with total assets of NZ$40 million. SBS Bank will be slightly ahead with assets of NZ$2.7 billion while TSB Bank has total assets of NZ$4.3 billion. The largest is ANZ National with total assets of NZ$115 billion as of December 2009.