National Bank up for sale

By PAULA OLIVER

Banking's worst-kept secret was confirmed yesterday - the highly profitable National Bank is up for sale.

But it is far from certain that it will change hands.

The bank's British owner, Lloyds TSB, is understood to have a hefty price on its prized asset.

And it seems it will be happy to hold on to the bank if it cannot get that price.

Industry speculation is that the price is $6 billion to $7 billion, which would make it New Zealand's largest sale by a big margin.

Confirmation of the possible sale came in a five-line statement from Lloyds TSB early yesterday.

It followed weeks of speculation that the bank was for sale, and consistent refusals to comment from Lloyds and the National Bank.

Lloyds said it was considering options relating to its New Zealand subsidiary, and was doing a review so that potential offers - or the retention of the business - could be considered.

Bank representatives later said the review was in its early stages and could take months to complete.

The move followed approaches from parties interested in buying the National Bank.

The bank is considered a top-class investment. It produced a record profit of $503 million last year.

It accounts for 22 per cent of lending in the country, and has 4777 staff.

Among those being mooted as possible buyers are all the Australian banks with a presence in New Zealand - Westpac, ANZ, National Australia Bank (owner of BNZ), and Commonwealth Bank of Australia (owner of ASB).

Each has confirmed an interest in the National Bank, but none has the capital to immediately buy it.

The Australian banks would need to raise capital, but any of them could attempt the purchase.

However, the size of the purchase could make it difficult to swallow.

The Commerce Commission could be another hurdle for the Australians, but it is understood that legal advice suggests that any one of the four banks could get the deal through.

New Zealand has a competitive banking market, and taking it from five to four big companies might not be enough to stifle that competition.

Distaste at the prospect of an Australian bank taking control of the National Bank is evident and local investors want a share float to be considered.

Stock exchange chief executive Mark Weldon said yesterday that the National Bank would be a very attractive investment option, and he was keen to see it floated.

He said the NZX had not made a sales pitch to Deutsche Bank, which is advising Lloyds on the sale, but had written letters to people involved offering whatever information or contacts it could.

The possible complications of a trade sale, including the Commerce Commission and the loss of the strong black horse brand, made a float a good idea, he said.

"Generally a trade sale is seen as better because it's less complicated, but I don't believe in this case it is less complicated. A float could be a great outcome for Lloyds, the National Bank, its staff, investors, and New Zealand."

Another in favour of a float is Lloyd Morrison, of Morrison & Co, who saw no compelling evidence that a trade sale would produce a better result for Lloyds.

Other big investors have also urged a float, which could be done progressively.

But Lloyds might not favour that option because it could gain more from an outright sale.

Another possibility could be a purchase by the world's second most valuable bank, London-based HSBC.

It has increased its local presence by buying mortgage assets from AMP, and has the financial muscle to buy the National Bank.

A research note from J.P. Morgan suggests that the bank sale could become a big game of "chicken", as Australian banks feign interest to make sure the ultimate buyer pays too much.

It suggests that the Commerce Commission could have a big part to play and questions buyers' stomach for raising the necessary cash.

National Bank

Founded: 1872

Based: Wellington

Owner: London-based Lloyds TSB

Branches: 159

Chief executive: Sir John Anderson

Profit: $503 million (2002)

Market position: 22% of NZ lending

Size by total assets

1. Westpac $39.68b (Mar, 2003)

2. National Bank $38.88b (Dec, 2002)

3. BNZ $35.97b (Sept, 2002)

4. ANZ Bank $27.35b (Sept, 2002)

5. ASB Bank $24.25b (June, 2002)