New bank won't rescue SC Finance: CBS

The proposed merger of Pyne Gould Corporation's Marac, Canterbury Building Society and the Southern Cross Building Society to create a "heartland" bank based in Canterbury won't be the white knight for struggling South Canterbury Finance, CBS CEO Bryan Inch says.

Inch told interest.co.nz talks between the three parties had been ongoing since he became CBS's CEO in October 2008 and had got more serious this year.

Discussions incorporated "pretty well all" the main players in the non-bank financial sector.

However, many of the other market players were still mutuals and would need to consider demutalisation if they were to join the trio, Inch said.

Asked if there had been any suggestion of including South Canterbury Finance in the tie-up Inch said "not at all".

"No, they have to sort themselves out," Inch said.

"The three entities involved have basically weathered the recession best probably out of all the non-banks in the market and have dealt with the issues they've got on their books. We've certainly come through the recession well and we're looking to join parties that have taken positive steps to deal with any issues they've got so we can focus on the future rather than focus on any legacy issues."

The strong Canterbury links with PGC and desire to build a broader home market in the province was very attractive for CBS.

"We also share the desire for an investment grade (credit) rating and a banking licence as do the other two parties and this is the best way forward to achieve that."

The combined entity would look to provide full banking services for middle, or heartland, New Zealand.

At this stage the three have signed a memorandum of understanding with the vast bulk of the detail yet to be worked through.

Inch acknowledged there was a lot of water to go under the bridge but said all three parties were committed to seeing the merger through.

It was envisaged that PGC would hold a cornerstone, but not controlling, stake in the combined entity.

"We believe that we can create a point of difference, certainly in the Canterbury market, but also in the wider use of the Marac brand etc to get a nationwide reach," Inch added.

He said an amendment to the Building Society Act would be required to give larger shareholders voting power in line with their stakes.

The Act includes a clause whereby one member has one vote on special resolutions as opposed to the Companies Act which operates on a one vote per share basis.

"So when you have major shareholders under the Building Society Act, they would only have one vote.

"In a discussion like this we are going to end up with a number of significant shareholders. They will be wanting more than one vote in terms of the ongoing entity," Inch said.

interest.co.nz