Westpac seeks law to join the locals

Westpac New Zealand will sever some of the apron strings binding it to its Australian parent in November, when it incorporates as a local company.

However, it said yesterday that customers and staff would not notice the change.

The Reserve Bank has ordered Westpac NZ, which for 143 years has operated as a branch of its Australian parent, to become locally incorporated. The order resulted from the Reserve Bank's policy to reduce potential damage to the local financial system from a bank failure elsewhere.

Yesterday, Westpac presented a private bill to Parliament's finance and expenditure select committee that would bring about local incorporation on November 1.

Westpac NZ chief financial officer Peter Rogers-Jenkins said the bill resulted from detailed analysis intended to find the "least disruptive" way to implement local incorporation.

The process had been complicated by the need to separate out the retail, business banking and payments divisions into one locally incorporated entity and the bank's institutional business into another, which would operate as part of Westpac's global operations.

The Reserve Bank had agreed to the dual registration, which Rogers-Jenkins said was a technical issue which would not affect services.

He said the first reason for Westpac's private bill was that it allowed a "seamless transition" from the existing structure.

"Considering the complexity of local incorporation, only an act of Parliament enables Westpac's retail banking operations to be vested within Westpac New Zealand without affecting the conduct and continuity of the bank's operations."

Second, legislation was required to give certainty to the tax effects.

Rogers-Jenkins said the bill, for which Westpac was seeking endorsement from the select committee, drew on existing legislation and was "sound and uncontentious".

Westpac NZ general counsel Simon Jensen, who was responsible for the bill's detail, said the bank had worked closely with Inland Revenue to ensure the overall effect was tax-neutral.

Westpac has 1.3 million customers in New Zealand, including the Government.

"Success for us in relation to those customers is that on the first of November they don't particularly notice anything that's happened."

The process would not require customers to do anything, and the employment rights, contracts and superannuation entitlements of Westpac's 6000 staff would remain unchanged.

Westpac is the only one of the big four banks not locally incorporated.

Reserve Bank policy is that "systemically important" banks should be locally incorporated, to wall off the country's financial system from problems with overseas parent banks.

Local incorporation requires the establishment of an entity with its own board. Under the Reserve Bank's conditions, the New Zealand board must operate solely in the best interests of the locally incorporated bank, even if this is in conflict with the parent bank.

The Reserve Bank can veto the appointment of directors and the chief executive for the locally incorporated company.

Responding to questions from select committee members, Rogers-Jenkins said the $10 million to $20 million cost of incorporation would have little or no impact on fees or costs to customers.

If the bank was not able to incorporate locally on November 1, it was likely to set another date next April.