Alarm bells sound as Australians eye 5-0 takeover of NZ banking

By PAULA OLIVER

It would not be a disaster if the National Bank fell into the hands of an Australian competitor, critics say - but we should all care about what that could mean.

The decision by Lloyds TSB to put its New Zealand asset up for sale triggered a debate that has at times appeared to border on anti-Australian.

Two Australian banks, ANZ and Westpac, have declared their interest in buying National - but their overtures have met criticism from many local groups.

The sale has captured political interest, and a local consortium led by a Waikato accountant has issued patriotic press releases giving reasons the bank should be New Zealand-owned.

But how different will the banking landscape be if an Australian buys the National Bank - especially when four of our major five banks are already Australian-owned?

The Herald canvassed the opinions of banking experts and people in the industry, and discovered that many say yes, we should care.

Their arguments are not anti-Australian, but instead are based on:

* The risk in having all our major banks owned in a single foreign country.

* What that means for our vulnerability to another single economy.

* The likelihood of considerable job losses.

* The appropriateness of laws that govern what happens if a bank's Australian parent gets into financial trouble.

* Whether competition will remain as strong as it is now.

Former Reserve Bank Governor and now National Party finance spokesman Dr Don Brash pondered the idea of having bank ownership concentrated in any single country during his lengthy tenure at the central bank.

It wasn't a question of whether that country was Australia or not. It was whether it made New Zealand vulnerable to a particular economy.

"Let's say the Australian rural sector turns down because of a drought or some other factors peculiar to Australia," he said.

"There is some risk that an Australian head office might say 'let's cut back on rural lending'.

"It might not make much of a distinction between that economy and the New Zealand one."

Brash said that for that reason, he had always been happy that the National Bank was owned by the British bank Lloyds TSB.

"Not because the UK is better than Australia, but because it's different from Australia."

Massey University senior banking lecturer David Tripe said he wasn't sure how much of a risk the dependency on the health of another economy would be.

While the other economy was going along well, it didn't matter.

But if it halted, operations in New Zealand could be cut back to help the parent.

"Things could get closed down or shut off here rather than in Australia," he said.

"Some people have that argument, and I'm not sure it's necessarily hugely compelling.

"But it is the ostensible argument as to why Lloyds TSB has been reconsidering its ownership of the National Bank."

The bank workers' union, Finsec, cites AMP, the Australian company which has been plunged into huge losses by problems with its UK arm, as an example.

"The New Zealand operation, which has remained in credit, has faced all sorts of restructuring requirements," general secretary Andrew Cassidy said.

KPMG banking group chairman Andrew Dinsdale also cites the risk of concentration.

"The point is that it's all one country. Not that it's Australian."

The Reserve Bank is looking closely at what would happen if an Australian parent bank's fortunes changed.

Governor Alan Bollard believes a New Zealand bank should be able to continue to operate as a standalone business under local statutory management if its parent hits trouble.

The Reserve Bank has indicated it does not want back office operations totally centred overseas, and that it wants a bank's business to be locally incorporated - partly to protect local depositors, but also to give the bank the legal status needed to appoint local statutory managers.

The laws governing the protection of depositors are hazy.

The Australian Banking Act puts Australian depositors at the front of the queue in the event of a collapse.

Act MP Stephen Franks wants the Government to ban a sale to Australia until it changes its law and gives New Zealand depositors equal protection.

Brash said Franks' argument had merit.

He described the Australian law as inappropriate because of Australia's desire for its banks to operate internationally, and said the law surrounding the right to assets in the event of a liquidation was murky.

Westpac had a unique position because it had its own act of Parliament, designed to offset the Australian law and give local depositors first shot at local assets.

Unlike other banks, Westpac is not locally incorporated and instead operates as a branch of its parent.

But there was some legal uncertainty about what assets in New Zealand meant, Brash said.

"Suppose Westpac in New Zealand writes a home mortgage loan here. Then it securitises that loan to an institution or to its parent company in the Australia. Now is that an asset in New Zealand or Australia? It's not clear."

The Reserve Bank indicated last Friday in a letter to the chief executive of each registered bank that it was firmly focused on the issues.

It has new powers to impose conditions on a buyer of 10 per cent or more of any registered bank, and has requested that any prospective buyer provide a significant amount of information about its intentions.

Tripe said some of the arguments about what happened if something went wrong were not important.

"What will happen, in my view, is that all of a sudden it will be found that 'oh dear, there's no money left in the kitty'."

Banks themselves have suggested that it would take a hugely unlikely chain of events to bring the laws into action.

Brash agreed and said all the Australian banks were financially sound. But while a collapse wasn't likely, it wasn't impossible either.

"Look at the situation in Australia now. Many people think that their property market is in a bubble. That means it might see property prices fall very sharply. Banks tend to get knocked around by that."

Tripe said a collapse was unlikely, but it would be a brave bet to say that the present stability would continue forever.

He suspected that apparent public opposition to an Australian buying the National Bank was based on a dislike of the way existing operators ran their banks, rather than an analysis of the outcome.

Job losses were a highly likely negative, and one which is worrying Finsec.

The loss of a competitor has also drawn some negative comment, and parties are eagerly awaiting the Commerce Commission's view of applications from ANZ and Westpac for clearance to buy the bank.

This is due on September 25.

Victoria University economics and finance professor Roger Bowden suggested that an Australian bank might consider partially floating the bank to local investors or customers to gain loyalty, and as a public relations exercise.

John Jenner, of the Australia/New Zealand business council said: "An Australian buyer should have as much right to buy the bank as anyone else, and it should face the same regulatory hurdles, whatever they may be.

"Our banking system is pretty well tied into the Australian one already."

The outcome could be known in little more than a month if the Commerce Commission delivers its decisions on time.