Heartland Bank might face licence wait

There's a

There's a "meaningful risk" that obtaining a banking licence could take longer than expected for merger partners Marac Finance, Canterbury Building Society (CBS) and the Southern Cross Building Society (SCBS), according to Cameron Partners and Northington Partners, the authors of the independent report on the proposed three way merger.

However, the report's authors say that if what will initially be known as Combined Building Society meets its business plan objectives, "it is likely" that a banking licence will be granted by the Reserve Bank over time.

The Reserve Bank only says the length of time it takes to process bank licence applications will vary, and the time taken with any specific application will depend on the complexity of the application. It also notes that unsuccessful applicants can reapply.

All three merger partners have been accepted into the extended Crown retail deposit guarantee scheme, which began this month and runs until December 31 next year. They believe that should they gain a banking licence, they'll no longer need the guarantee.

Cameron Partners and Northington Partners conclude that the merits of the merger proposal are "compelling" for each of the three entities relative to each one's standalone outlook.

"We also conclude that the future prospects for each of the merging entities as a standalone entity are limited," the report, contained in a 228 page information memorandum released by the merger partners, says.

"In our view these challenges (of continuing as standalone entities) will be particularly acute for CBS and SCBS."

The wall of information on the proposed deal has been released ahead of votes next month from seven different stakeholder groups from across the three merger partners and Marac's parent Pyne Gould Corporation (PGC). These include debentureholders, Marac bondholders, CBS and SCBS depositors, PGC shareholders and CBS and SCBS members.

Assuming support from the seven groups is secured, the merger partners then hope to have Building Society Holdings in place by January 1 next year and listed on the stock exchange during February.

From there they hope to secure an investment grade credit rating from Standard & Poor's and aim to apply for a banking licence from the Reserve Bank in July. The merger plans were announced in June with the idea being to create greater scale and tap a bigger retail deposit funding base.

PGC will own 71 per cent of the merged entity, CBS 14.5 per cent and SCBS 14.5 per cent. The plans ultimately envisage a Christchurch headquartered "Heartland Bank" that would aim to double its asset base within five years through growing family, small business and agricultural lending.

Meanwhile, the independent report also notes that in the event of a liquidation of the Combined Building Society, the deposits and bonds will rank equally with any other unsecured debt and behind any secured debt. That means Marac's secured deposit, secured debenture and bond holders will become unsecured deposit or bond holders of the new entity.

"By moving from a secured to an unsecured position, these stakeholders could be worse off," the independent report says.

"However, at June 30, 2010, Marac did not have any unsecured creditors other than trade creditors."

The immediate practical effect of the change in security position after the merger would be limited because the depositors and bond holders will largely be the same group of claimants in the event of liquidation, the report adds.

Pro-forma financial information shows the combined group would have recorded a $11.37 million net profit for the June year, down on Marac's $14.29 million profit. The group would've had total assets of $2.2 billion at June 30 and total liabilities of $1.93 billion.


INTEREST.CO.NZ