Lloyds TSB confirms possible sale of National Bank

3.00pm

British banking group Lloyds TSB today confirmed it is reviewing its subsidiary National Bank of New Zealand to decide whether to sell the Wellington-based operation.

Analysts have said National Bank, which has total assets of $38.9 billion and posted an after-tax profit of $503 million last year, could fetch $6.96 billion if sold.

As Lloyds TSB announced the review after the close of London trading, National Bank management learning of the move about 3am.

Staff in New Zealand's biggest bank were told when they arrived at work this morning in a letter by its chief executive Sir John Anderson.

"The review will include consideration of potential offers to purchase the bank as well as retention of the business," Sir John said in the letter.

He expected the review to take some months to complete, and "some months again before a proposed sale could be realised, if that is the outcome".

Staff would be informed of progress, he said, urging them to focus on work.

"If the decision is that the National Bank will be sold, it should be viewed as an opportunity to take the bank forward and become part of a new enlarged organisation," Sir John said.

National Bank would retain its current ownership structure if Lloyds TSB decided not to sell it.

Lloyds TSB today said the strategic review came after it had been approached by a number of potential buyers.

An information memorandum on National Bank would be sent to interested bidders this week, sources told Reuters.

Possible buyers include ANZ Banking Group, Commonwealth Bank of Australia, Westpac Banking Corporation, and National Australia Bank, owner of the Bank of New Zealand.

Australia's biggest four banks are barred from buying each other and are looking overseas to expand. London-based global bank HSBC is also understood to be a possible buyer.

Lloyds TSB hired Deutsche Bank last month to advise it on the sale of National Bank, sources told Reuters at the time.

Standard & Poor's Ratings Services today lowered National's counterparty credit ratings to A+/A-1 from AA-/A-1+, and revised the outlook to developing from negative after Lloyd TSB's announcement.

"The ratings downgrade reflects a reduction in the level of implicit parental support that Standard & Poor's includes in its assessment of NBNZ," said S&P credit analyst Kate Thomson.

National's financial strength was supported by its good profitability, sound market position and business profile within the domestic New Zealand market, and very good asset quality.

Offsetting these factors are the bank's relatively high reliance on wholesale funding, and its exposure to higher risk corporate loans, Ms Thomson said in a statement.

Massey University senior banking lecturer David Tripe said the strategic review could mean anything, including profitibility, asset structure, and debt structure.

"It's a good waffle word that covers a multiplicity of events," he said today.

"I think a potential suitor is going to have to look at what existing business they've got in New Zealand, how the acquisition of the National Bank of New Zealand's business could enhance that, and how practical it would be to absorb that business."

Australian banks would struggle to take over National Bank for a variety of reasons, he said.

"It doesn't necessarily fit in well with other strategic objectives."

Lloyds TSB set up National in 1872. It accounts for 22 per cent of lending in New Zealand, and had 4777 employees and 159 branches at December.

Lloyds TSB chief executive Eric Daniels has said he wanted to focus on the bank's United Kingdom consumer-banking business after second-half net profit dropped 40 per cent last year and the company froze its second-half dividend.

Shares of Lloyds TSB rose 2 per cent to 456.5 pence in London, giving the lender a market value of £25.8 billion ($75.30 billion).

Meanwhile, Finsec, the bank workers' union, said it strongly opposed the possible sale.

"The downstream effects would be job losses, significant negative impacts on customers and the loss of a strong and responsible banking culture from the New Zealand market," said Finsec general secretary Andrew Casidy.

"The suggestion of a sale again brings the issues of a governmental inquiry into banking and the role of the Commerce Commission to the fore," he said today.

The Commerce Commission had not received an application from anyone wanting to buy the bank, a spokeswoman said today.

Last week Wellington Mayor Kerry Prendergast expressed concern about the possible sale of National Bank to an Australian owner.

"It would be an absolute negative -- basically, New Zealand's entire banking system would end up being run from Australia," she said.

- NZPA