Light shed on bank merger conditions

By PAULA OLIVER

Reserve Bank Governor Alan Bollard has shed some light on the conditions imposed on ANZ's purchase of the National Bank - and issued a reminder that Australian ownership of our banks has advantages.

In a speech to the Australasian Institute of Banking and Finance in Auckland, Bollard said that the conditions imposed on ANZ's purchase did not necessarily mean that the National Bank's core functions had to stay within New Zealand.

Instead, the conditions were designed to make sure that legal and practical access to all management, operational capacity and systems necessary to run on a standalone basis were unimpeded.

There has been speculation since ANZ revealed its deal to buy the National Bank for $5.68 billion that it may face problems bringing the two banks together.

The concerns arose when it was learned that the Reserve Bank had given its consent to the purchase subject to several conditions and that ANZ needed to gain the central bank's permission for any moves to integrate the two entities.

Currently permission for the acquisition is granted on the basis of there being two separate banks.

ANZ has stated it expects synergy gains from the deal of A$110 million ($126.6 million) per year within three years, and many observers expect that it will have to significantly integrate the two banks to make the purchase worthwhile economically.

In his speech, Bollard said that the conditions imposed on ANZ did not signal any radical new approach to banking regulation.

But they did represent ongoing enhancements that "we are very serious about" and had been working on for some time, he said.

The Reserve Bank wanted to make sure that local boards had effective operational reach over core assets and people, and that the lines of responsibility and accountability were clear.

One of the conditions requires that the National Bank chief executive's employment contract be between the person and that bank's board - not ANZ's.

Any amendments to the National Bank's constitution also needed Reserve Bank approval, as did the appointment of directors or senior executives to either bank.

Finally, the central bank required that both ANZ and the National Bank separately maintained enough capital to meet current capital adequacy policy.

Bollard said he did not expect the conditions to make a great difference to the day-to-day running of the National Bank's operations in normal circumstances. "However, we do see them as important in bolstering our ability to deal with a crisis situation involving the bank or the ANZ group."

Bollard said the Reserve Bank had also recognised that because all the country's major banks were owned by Australians, New Zealand's exposure to stress in the economy and financial system across the Tasman could increase.

"We will be considering this further and have let it be known that we will take further measures to manage this risk if necessary."

And he took the opportunity to remind people that Australian ownership had its good points.

"Despite our country's small size, our banking system benefits from the presence of strong, innovative, internationally connected players that are from a highly respected country and understand our preferred ways of banking," Bollard said.