NZX keen to get new bank on board

Pyne Gould Corporation, Canterbury Building Society and Southern Cross Building Society are hoping to soon see their new bank listed on the NZX. Photo / Kenny Rodger

A proposal to launch a new listed New Zealand bank has been welcomed by the market and the stock exchange operator but some say it is too soon to know if it would be a good investment.

Pyne Gould Corporation, Canterbury Building Society and Southern Cross Building Society yesterday said they had signed a memorandum of understanding to merge the banking assets of the three entities into a new company.

The new local bank would be listed on the main board of the stock exchange and initially have assets of $2.2 billion, with plans to double that in five years through both acquisitions and organic growth.

The bank has yet to be named but the consortium is promoting it as a "heartland" bank - aimed at families, small businesses and the agriculture sector.

The three entities said it was hoped the combined assets would allow the new company to gain an investment-grade credit rating and banking licence.

"A banking licence brings advantages such as credibility and a lower cost of funds - levelling the playing field with other banks here, which are mainly Australian owned and driven," the entities said in a joint statement.

NZX head of markets Fiona Mackenzie said the proposed bank would be good for the New Zealand market.

"To have a New Zealand listed bank would be a really big positive. One of the things that has really helped the Australian market through the global financial crisis is they have a strong listed finance sector and mining sector. The fact they have four global banks who were readily able to access the market during the difficult credit market made a big difference."

Market commentator Arthur Lim described it as a "leap forward" for PGC, which had been talking about converting Marac Finance into a bank for some time.

"To me it is a good combination - it brings together three entities which are established names in the market."

The announcement of the new bank comes a week after Finance Minister Bill English talked up the idea of a partial float of Kiwibank after the 2011 elections.

Lim said Kiwibank might need a lot more work before it was ready for listing.

"There are perceptions that the business is at the lower end of the market and without New Zealand Post the cost base would be higher. It's one thing to talk about floating but another thing to get it ready for a float."

Rickey Ward of Tyndall Investment Management said he did not know enough details to comment on the new bank's investment prospects. But the move was good news for PGC.

"It indicates it is trying to become a real player in a field that is dominated by the Australian banks."

Forsyth Barr analyst John Cairns said the merger made a lot of sense in a sector that was already under intense pressure.

"Obviously what with the fallout in the [finance company] sector there has been a lot of pressure on the sector and this [consolidation] has been speculated for some time. Capital in the banking sector has become increasingly scarce so it does make a lot of sense."

Combining the three businesses would remove overhead costs and allow the entity to be structured in a way that would move it closer towards complying with the requirements needed to gain a banking licence. But getting the licence would not happen overnight, he said.

PGC chief executive Jeff Greenslade said the three entities would be carrying out due diligence on one another over the next few months to test asset quality and systems. When the boards were comfortable the proposal it would be put to shareholders.

"We will then set a merger date."

The first step would be to merge the Southern Cross Building Society into the Canterbury Building Society, which is already listed on the NZAX.

PGC would transfer Marac into the new entity in return for a stake in the company which was expected to make it the largest shareholder.

But there are some hurdles to be overcome first. To enable individual shareholders to get a vote for every share they own, the company must petition to change the Building Society Act.

Without changing that, Greenslade said the new bank would have "serious problems" with raising new capital. It was putting together a private member's bill to try to change the act.

The new company is expected to be trading by the start of 2011 with the hope it will be a bank by mid-year.

PGC yesterday closed up 1c on 45c and CBS was up 35c to $3.15.