New Kiwi owned bank proposed

Tuesday 1st June 2010

A new bank for New Zealanders is being proposed by merging Marac, Southern Cross Building Society and the Canterbury Building Society.

Three long established financial services businesses are evaluating a merger that would create a New Zealand owned banking group with scale and resources to work with customers in Heartland New Zealand.

A memorandum of understanding was signed today by Canterbury Building Society (CBS), Southern Cross Building Society (SCBS) and Pyne Gould Corporation (PGC), involving a proposal to merge their banking related activities.

The proposal envisages that the merged entity would be listed on the NZX. The group would initially have assets of $2.2 billion, 360 staff and about 70 customer outlets around the country, providing a national platform for growth.

While transaction details are yet to be finalised and are subject to further agreement, it is envisaged that the merger would be facilitated by amalgamating CBS and SCBS and then by the acquisition of applicable PGC businesses, primarily its wholly owned subsidiary MARAC. The resulting merged entity would be headquartered in the South Island, have a national operational network with a mandate to significantly grow the size of the business and have the capability of driving greater shareholder returns than would be available separately. The aim is to more than double the $2.2 billion asset base in five years.

The project is in its early stages, with due diligence still to be completed before a formal proposal can be put to the respective owners of the merging entities - expected to be in the latter part of this year. The branding strategy for the merged entity is currently under development and will incorporate the "Heartland" vision of the three parties - a New Zealand owned bank specialising in and understanding the core needs of Individual New Zealanders and their families, Small Businesses and Agriculture.

The respective ownership proportions and board structure of the merged business are still to be agreed, but PGC would likely be the largest shareholder. The merged entity would be sufficiently capitalised to take advantage of further growth opportunities.

The three entities said in a joint statement:

"The proposed new bank would draw on a proud heritage of servicing New Zealanders' financial needs. CBS and SCBS have provided residential, commercial and rural customers with financial services and first mortgage facilities for a combined period of more than 200 years. PGC's history stretches back to the 1850s when it started servicing stock and station businesses in Canterbury. Its subsidiary MARAC has serviced the Personal and Small and Medium Business market for almost 60 years.

"We believe that consolidating the three well established businesses will achieve the critical mass and quality of assets to support an investment grade credit rating and a banking licence. An asset base of more than $2 billion provides the scale and diversity required to support an application for a bank licence.

"A banking licence brings advantages such as credibility and a lower cost of funds - leveling the playing field with other banks here, which are mainly Australian owned and driven. We see a significant opportunity in entering the banking market as it is clear to us that New Zealanders and New Zealand businesses are seeking an alternative to the incumbent banks in the markets we intend targeting.

"Our strong New Zealand roots, historical experience particularly at the local level and customer focus give us a distinct advantage in servicing the heartland market in New Zealand. We aim to establish and leverage a nationwide presence, broad depositor base and distribution networks to market a broadened range of products and services across the customer base. The strong community focus of each of the entities will be an ongoing strength of the merged entity and enhanced through respective charitable trusts.

"The proposed merger, and the associated business benefits, would also create a platform for building valuable market share. It would bring together these three very strong and recognisable brands and our goal would be to more than double the combined asset base.

"Most importantly, the scale and growth opportunities resulting from the consolidation will drive greater shareholder value than would likely be achievable with three separate entities. Customers will be able to share in these benefits by becoming shareholders."

The three entities hope to have an Implementation Agreement in place within the next few months, and then to make more detail available on the proposal, including shareholdings and board and management structures. Under the current proposal, approvals will be required from a number of stakeholders, including shareholders, depositors, debenture holders and regulators.

The merger will also require an amendment to the Building Society Act so as to allow shareholders in listed building societies to have one vote per share (and not one vote per shareholder) on special resolutions. Representations are currently being made to the appropriate authorities.

If all approvals are granted it is expected that the merged entity will commence trading by early next year. It is anticipated that should the merger proceed as expected, a banking application will be made by the middle of 2011.

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