Latest / Best of Business / Ben Crozier: Forsyth Barr Associate Analyst on Kiwibank looking to merge with TSB

Transcript

Ben Crozier: Forsyth Barr Associate Analyst on Kiwibank looking to merge with TSB · Best of Business

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  Speaker 2: This was an interesting thing that happened. Kweibank's parent company
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  Speaker 2: has put his hand up and said it would be
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  Speaker 2: interested in merging with TSB Bank. It's a little bit
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  Speaker 2: of an eleventh hour appeal because TSB, you will recall,
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  Speaker 2: is already going to merge with Heartland Bank.
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  Speaker 1: Now.
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  Speaker 2: To be fair, that merger has had a possible legal
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  Speaker 2: hurdle Taartamaki locals are looking for an interim injunction to
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  Speaker 2: stop the transaction in the High Court. Ben Crozier is
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  Speaker 2: a New Zealand equities analyst at full sythe Bar and
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  Speaker 2: with US High Ben.
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  Speaker 3: Hi, how's it going.
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  Speaker 2: I'm very good, Thank you very much. Why did Keewe
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  Speaker 2: Bank all of a sudden pipe up? Do you think?
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  Speaker 3: Yeah, it's an interesting comment that I made. You know,
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  Speaker 3: certainly Toy Foundation is the owner of TSB, would have
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  Speaker 3: certainly shopped around, you know TSB before you deciding to
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  Speaker 3: go with Heartland. So presumably you know, Qbank and all
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  Speaker 3: other New Zealand banks would have had a chance to
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  Speaker 3: put in a bid back then, and Qbank certainly hasn't
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  Speaker 3: ruled out putting in a bid. So either put in
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  Speaker 3: a bid and it was turned down, or you know,
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  Speaker 3: Hartland put in a more attractive bid, or well Heartland
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  Speaker 3: decided or q banks a very decided back then it
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  Speaker 3: wasn't interested and maybe now change them in.
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  Speaker 2: The reportage has suggested that the price that they were
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  Speaker 2: looking for for TSB was too high and subsequently when
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  Speaker 2: when Kiwibank has looked at what Heartland's managed to squeeze
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  Speaker 2: them down to, it's much more attractive and so obviously
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  Speaker 2: the price is more attractive. But what is it that
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  Speaker 2: they actually want from from TSB.
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  Speaker 3: Yeah, it's hard to know. It's it's from from Heartland's side.
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  Speaker 3: It's definitely you know, access into a different business line
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  Speaker 3: and some some lower cost of funding. So you know,
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  Speaker 3: for Heartland doesn't exactly have traditional residential mortgage, so it
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  Speaker 3: doesn't like it. It doesn't mean it. You know, the
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  Speaker 3: new TSB Heartland will have greater scale to take on
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  Speaker 3: the bigger banks, whereas you know Kiwibank it does have
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  Speaker 3: obviously these residential mortgages which which is what TSB is
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  Speaker 3: has also got quite a lot of access to so
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  Speaker 3: it would help give its more scale. But I think, yeah,
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  Speaker 3: Heartland is very much you know, it's specialized in these
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  Speaker 3: very niche markets and products around verse mortgages and motor
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  Speaker 3: and business, whereas TSB is very much a residential mortgage portfolio.
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  Speaker 2: Now, I mean it sounds like a whole bunch of
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  Speaker 2: banks we're watching this, but but didn't actually take up
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  Speaker 2: the offer to participate. Now that the price is more attractive,
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  Speaker 2: do you think other banks will be doing the same
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  Speaker 2: thing as kew We Bank and reconsidering it maybe being interested.
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  Speaker 3: Yeah, potentially, I think we look at the price that
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  Speaker 3: was paid about you know, seventy five percent of book
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  Speaker 3: value for TSB, we think is broadly fair. And you know,
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  Speaker 3: the synergies that you can get out of a business
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  Speaker 3: like this is there is some, but it's not exactly
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  Speaker 3: lots and lots of them. You know, TSB has it's
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  Speaker 3: been an okay bank in terms of its financial performance.
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  Speaker 3: It's generated a return in equity below its cost of capital,
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  Speaker 3: so you know, in our view it does justify a discount,
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  Speaker 3: and it certainly hasn't grown as fast as in other
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  Speaker 3: banks out there, so you know, look, I think the
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  Speaker 3: price is more faired rather than attractive as au.
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  Speaker 2: Ben, do you think that that legal challenge is going
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  Speaker 2: to stop the merger?
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  Speaker 3: Look, you know, I'm not a legal expert, so it's
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  Speaker 3: hard to call exactly. But if we look at you know,
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  Speaker 3: when Heartland announced the merger, you know back in June
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  Speaker 3: that the Shaar price had a nice, nice jump and
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  Speaker 3: it sort of stayed around that level since. So I
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  Speaker 3: think the market's certainly taking a view that it's it's
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  Speaker 3: unlikely to hold it up, and it's sort of just locals,
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  Speaker 3: as you always do, get a bit of opposition to
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  Speaker 3: asset sales rather than anything that's going to properly hold
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  Speaker 3: up up the deal.
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  Speaker 2: A couple of these banks that we've talked about at
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  Speaker 2: reporting this week, aren't they What are you looking for there?
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  Speaker 3: Yeah? No, Hertlan will report out on Thursday, the same
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  Speaker 3: day as the court hearing. Actually, I think, you know,
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  Speaker 3: the reverse mortgage part is definitely attractive part of the
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  Speaker 3: business from a financial sign of view, So they're getting
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  Speaker 3: sort of twenty percent growth in that part of the business.
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  Speaker 3: And then they also sort of you know, the sense
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  Speaker 3: check on the economy in terms of the business areas
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  Speaker 3: as well. That will be key. It's you know, it's
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  Speaker 3: had a check in history on sort of areas that business.
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  Speaker 3: So if there has been a spike that would be
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  Speaker 3: will be a warring sign, but it's sort of an
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  Speaker 3: area will look.
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  Speaker 2: For brilliant stuff. Ha been Thank you for talking to us,
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  Speaker 2: appreciate it being Crozier for soyth Bar New Zealand Equities Analyst.
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