Amid the war of words over whether the big four banks should have higher levels of capital, a broker says ANZ should dust off its plan to float its finance company UDC, to at least partly resolve the issue.
The Reserve Bank is proposing to strengthen the New Zealand banking system by materially increasing the regulatory capital banks are required to hold.
If implemented, the proposals will level the playing field between the "big four" Australian banks and the smaller banks, creating greater competition, said broker Forsyth Barr.
The new rules, which the broker expects to proceed as laid out in the Reserve Bank's document released in December, would come at a cost, some of which will be worn by bank customers.
With a likely five-year transition period, New Zealand banks will be required to significantly increase their Common Equity Tier 1 capital by $30-$50 billion, should the current level of loan growth be maintained.
ANZ put UDC up for sale in 2017 and would have received $660m if the Overseas Investment Office (OIO) had not blocked the planned acquisition by Chinese company HNA.
The bank raised the possibility of floating UDC on the sharemarket, but that fell by the wayside last year.
The planned sale price equated to 1.35 times its book value, and UDC 's loan book is worth $3.2b.
Funding is provided by ANZ Bank via a committed credit facility, security interest, and $550m of equity.
Forsyth Barr said adjusting UDC's earnings to reflect higher independent funding costs, UDC 's return on equity would fall to 9.5-10.5 per cent.
"Based on the relationship between price to book ratios and return on equity, we believe the sale of UDC could raise $640–$700m," said Forsyth Barr.
"The sale could be achieved via a trade sale or sharemarket listing," it said.
The most visible New Zealand buyer would be NZX-listed Heartland Group, although Heartland itself already requires $75m of additional capital and would need to undertake a capital raising to fund any transaction.
"We believe a sale of UDC would reduce ANZ New Zealand's capital requirements by $1.20b–$1.25b but would still have ANZ New Zealand potentially breaching [Australia's] APRA's APS222 proposed standard if this was implemented.
"To avoid this we believe ANZ New Zealand would need to sell UDC and reduce risk weighed assets by another 20 per cent."
Forsyth Barr has submitted to the Reserve Bank that partially listed banks on the NZX receive a credit, or a reduction, in the required level of capital under the proposed new requirements.
"This is because in the event of stress or heightened risk of failure there is a greater ability and likelihood that a bank can raise capital locally, thereby mitigating the risk that the Reserve Bank needs to bail out a systemically important big four bank," it said.
"In addition to the local scrutiny, governance and continuous disclosure benefits of a partial local listing, the increased access to local capital would appear consistent with overall policy goals," Forsyth Barr said.
So far, the banks have vehemently opposed the Reserve Bank's proposed changes.
Put that in your pipe and smoke it
Medical cannabis research firm Cannasouth is answering some of its critics, announcing that its IPO has received applications in excess of the $5m minimum.
Chief executive Mark Lucas said there had been "very strong" interest in the offer from a range of investors and the board may close the general offer early.
Cannasouth registered its product disclosure statement in mid-May, revealing plans to raise up to $10m in new equity. The offer consist of a priority offer of $5m, which closes today, and a general offer of $5m, which closes on June 14.
Cannasouth plans to use the money for research and development, a new commercial processing facility, more staff and to increase its working capital, as well as paying for the NZX float.
The company has no revenue or forecast financials but is touting its ability to secure licences and strong relationships with regulators as selling points.
High profile fund manager Brian Gaynor wrote in his Herald column on Saturday that the Cannasouth IPO, the first domestic one in two years, had a poor capital structure reminiscent of the "bad old days".
Gaynor's opinion was the Cannasouth IPO structure benefited existing shareholders rather than those participating in the IPO.
Early on, the market appeared lukewarm on the offer, however the latest announcement suggests otherwise.
Cannasouth said the IPO was now unconditional.
FNZC to become Jarden on Monday
Investment company First NZ Capital (FNZC) will change its name to Jarden from Monday.
The company said the move to the Jarden brand would embrace the future direction of the firm.
FNZC said it had invested across the capital markets to build New Zealand's leading investment and advisory group.
The company has opened new offices in Waikato and Queenstown Lakes District, and is adding new wealth advisers to its teams in Christchurch, Nelson, Havelock North, Wellington and Auckland.
It said it would introduce new investment offerings, including opportunities to invest in private real estate through Pearlfisher, and in emerging private companies through Principal Investments.
After acquiring and investing in Direct Broking and OMF, FNZC said it can now offer online direct investment, and currency and commodity hedging.
FNZC has signed new partnerships with Shareclarity and Icehouse Ventures to provide better access to research and capital for early stage companies.
The Jarden name comes from its founder, former All Black and businessman the late Ron Jarden, who founded R.A. Jarden and Co in 1961.