Westpac is reportedly looking at quitting New Zealand and retreating to its Australian core.
Westpac told the ASX yesterday afternoon that it had appointed Macquarie to explore the sale of the NZ business (but not the Australian bank’s branch office in NZ which is a separate entity).
The news had no impact on the Westpac share price, even though it was released at 2.46pm. The shares closed down nearly 1% at $24.19.
In the statement to the sharemarket, the bank said that as part of its “fix, simplify and perform” strategy, it was actively considering the businesses it operated in.
That had involved consolidating Asian businesses.
“Westpac is also assessing the appropriate structure for its New Zealand business and whether a demerger would be in the best interests of shareholders. Westpac is in the very early stage of this assessment and no decisions have been made.
“Westpac NZ is a valuable part of the Westpac Group and has been for over 160 years. The business continues to perform well with a strong position in retail and commercial banking.
“However, given the changing capital requirements in New Zealand and the RBNZ requirement to structurally separate Westpac’s NZ business operations from its operations in Australia, it is now appropriate to assess the best structure for these businesses going forward,” Westpac said.
The bank said the review “will also consider the impact of the Reserve Bank of New Zealand’s (RBNZ) reviews which were announced today.”
Given that all four Australian banks operate (indeed, dominate the Kiwi financial services sector) across the Tasman, the reasons given for the review (the separation of the NZ braches from the Australian parents) would apply to the Commonwealth, NAB and ANZ.
The statement was released seven hours after Westpac was disciplined by the Reserve Bank of NZ over problems with its risk and liquidity management in that country.
APRA, the Australian regulator, first brought the problems of breaches in the RBNZ liquidity rules to light late last year.
That saw the RBNZ investigate and yesterday it (and then Westpac) issued statements revealing the ‘punishment’.
These statements revealed that the RBNZ had ordered Westpac’s New Zealand arm to conduct independent reviews and hold additional liquid assets, due to problems with its risk governance and liquidity risk management.
One of the reviews will look into risk governance processes used by the board and senior management, while a separate review will look into management of liquidity risk and the associated risk culture.
The RBNZ will require the bank to hold extra liquid assets until the central bank is satisfied that remediation work has been effective. The amount involved in the RBNZ action was not revealed in yesterday’s statement from the RBNZ or Westpac.
“We have experienced ongoing compliance issues with Westpac NZ over recent years, most recently involving material failures to report liquidity correctly, in line with the Reserve Bank’s liquidity requirements. Furthermore, the bank has continued to operate outside of its own risk settings for technology for a number of years,” the RBNZ’s Deputy Governor and General Manager of Financial Stability Geoff Bascand said in the statement on Wednesday.
“Westpac NZ needs to take a close look at its risk governance practices. To ensure this happens we are requiring them to provide an independent report that assesses Westpac NZ’s risk governance processes and practices applied by the Westpac NZ Board and executive management.”
“Westpac New Zealand acknowledges the importance of liquidity and risk governance obligations and will support the independent reviewers to provide the necessary reports to the Reserve Bank,” the bank’s Australian parent said in a statement on Wednesday.
In the RBNZ statement, it said that Westpac New Zealand “acknowledges the importance of liquidity and risk governance obligations and will support the independent reviewers to provide the necessary reports to the Reserve Bank. WNZL will also act promptly on any recommendations from the reviews.”
“WNZL has taken a number of steps to improve risk governance but recognises more work is required, and supports the additional oversight that the independent reports will provide,” the RBNZ statement read.
The reviews apply only to Westpac NZ and not the governance processes of Westpac Banking Corporation in Australia or its New Zealand branch.
“It is important to note that the Reserve Bank is confident that Westpac NZ’s current liquidity and funding positions are sound, and that the bank is well capitalised. The reviews outlined today are to ensure this remains the situation on an ongoing basis,” the RBNZ said in its statement.
Westpac rules off its March 31 half year next week (for Australia and NZ).
Westpac NZ reported a 38% drop in profit in the year to September 30, to $NZ649 million.
