Westpac goes east to seek fortune

By Richard Braddell

Between the lines

Despite the scandals, National Australia Bank's buy-out of the remaining Bank of New Zealand shareholders after it took control in 1992 was regretted by many, if only because they would miss out on the extraordinary profit recovery thereafter.

Disappointment may have been compounded by NAB's non-desire to attract New Zealand investors, even while it became one of the world's most profitable banks.

Furthermore, since Westpac swallowed Trust Bank in 1996, there have been no local banks to invest in, and only ANZ offered on the New Zealand sharemarket.

Westpac intends to change that ... sort of. Its group treasurer, Martin Touw, explains in benevolent terms the possibility of a New Zealand float:

"It seems to us to be a great way to give New Zealanders the opportunity to participate in a bank shareholding, especially since we have a very successful bank in New Zealand," he said.

Indeed, as the merger beds down, WestpacTrust has nudged the Bank of New Zealand out of the top slot as New Zealand's most profitable bank. But it would not be WestpacTrust that would hit the NZSE board but a "localised" version of the parent company stock.

Mr Touw is chary about how, when or why for fear of broaching a "disclosable event" under stock exchange regulations. Nevertheless, enough was revealed to Australian analysts last week for them to work out that the proposal should offer significant benefits to both Australian and New Zealand investors.

A key ingredient of the float is that an amount would be raised (perhaps as much as $900 million) that would "align" New Zealand equity with New Zealand assets, plus raising perhaps another $600 million in interest bearing securities. Through the genius of financial engineering, the "localised" shares would carry imputation credits that take advantage of the $110 million a year the bank pays in New Zealand tax.

Among other points: the listing should help Australian shareholders since imputation credits on Australian earnings will be concentrated in their hands instead of some of them being wasted on New Zealanders who cannot use them; and local institutions could also be keen bidders since the float might put Westpac in the NZSE top 10.

But whether investing in the parent group is as attractive as WestpacTrust itself is a moot point. While the latter has a demonstrated profit record, the parent has still to show that it can reap the returns from a range of assets acquired in recent years, although there is reason to be optimistic.

But a local float of Westpac has wider attractions. Through a series of life company demutualisations, local investors are now significant investors in Australian financial institutions. If those holdings can be localised, the depressing drift of investment and withering of the New Zealand sharemarket might at least be slowed.