Westpac yanked from parent after 143 years of shelter

Westpac last night revealed it would locally incorporate its key operations in New Zealand, claiming the cost would not be "material".

Westpac was the only one of the four big banks not to have set up an independent local structure, instead operating as a branch of its Australian parent, Westpac Banking Corp.

The bank said the move followed the Reserve Bank's rejection of its so-called "buttressed branch" proposal.

The Reserve Bank wants "systemically important" banks to be incorporated in New Zealand to wall off the country's financial system from problems with overseas parent banks.

Reserve Bank Governor Alan Bollard has highlighted local incorporation as giving the bank more ability to supervise and to respond to a financial crisis in New Zealand's interests.

A statement from Westpac said the bank was "not yet in a position to fully quantify costs, but it is anticipated that the cost of local incorporation will not be material".

It also said the move should not disrupt customer service.

Westpac said the decision came after 12 months of intensive effort by it and the Reserve Bank to find a suitable alternative to local incorporation after 143 years of Westpac operating as a branch here.

It added: "Westpac is disappointed that the RBNZ found that its buttressed branch proposal is not acceptable."

Local incorporation will see the New Zealand part of the bank required to perform its duties "solely in the best interests of the locally incorporated bank" - even where this may be in conflict with the parent.

Directors and the chief executive appointments will be subject to Reserve Bank veto.

Legislation would probably be required for the change, so the process of incorporating was likely to take some time.

The bank said recent Australian tax law changes relating to the treatment of goodwill meant there should not be any capital gains tax liability from the transfer of assets to the locally incorporated subsidiary.

The company's annual meeting is in Auckland today - the first time it has been held outside of Australia.