There are many hoops to jump through yet but Westpac's review of its New Zealand banking business could provide a vital shot in the arm for the local sharemarket should it decide to take that path.
The bank announced late this afternoon it may look at demerging its New Zealand business from its Australian parent and had already placed a number of its businesses into a specialist division, "for ultimate exit".
Aussie banks have been reaping huge profits from their New Zealand customers for years, igniting debate as to whether they should be required to have at least part of their core New Zealand banking businesses primarily listed on the NZX.
It's also long been on the wish list of locally based institutional investors, including KiwiSaver managers, who say they'd put more money into the New Zealand market if only they could get more exposure to the financial services sector.
So far the Aussie banks have resisted the move, not only because of said profits, but also because they claim that a standalone New Zealand subsidiary would not have the same access to international capital under that sort of structure.
So we've lived with this bizarre situation where four of this country's five most profitable companies are effectively regulated in Australia except for local prudential oversight.
But lately the Reserve Bank of New Zealand has upped the ante, first increasing the capital requirements for local banks and now clamping down on risk governance processes. It's no coincidence that Westpac announced its review just hours after the RBNZ told the bank it had to commission two independent reports to address ongoing compliance issues in recent years.
"Westpac NZ needs to take a close look at its risk governance practices," deputy RBNZ governor Geoff Bascand said while noting material failures by Westpac to report liquidity correctly while continuing to operate outside of its own risk settings for technology for a number of years.
So here we are now with a real prospect of some sort of decoupling.
And the sharemarket would love to get in on the action, having been starved of sizeable new listings since the Government's mixed ownership model for electricity companies.
Westpac NZ has a strong history of profitability although earnings have faltered recently.
The bank's latest annual report put its shareholders equity at $7.7 billion.
While it would be a large business for the market to absorb, it could be offloaded through an in-specie share distribution, given the large number of Kiwis who hold shares in the ASX listed parent company.
With the right governance, structure and price, any bank would attract significant investor appetite, especially from funds tied up in Kiwisaver, currently sitting on the sidelines looking for a home.
There would also be certain tax advantages for New Zealand investors who currently can't use Australian franking credits, even though they are dual listed.
And, due to transfer pricing, Australian banks are currently able to minimise tax paid in New Zealand so the Government could also benefit from an increased tax take as well.
A primary listing on the NZX certainly ticks a number of boxes but we'll just have to wait and see what Westpac comes up with. Then there's the question of whether its rivals follow suit.