Significant Auckland presence for Christchurch-based 'Heartland Bank'

The man picked to run the planned Christchurch headquartered "Heartland Bank" says he'll be splitting his time between the Garden City and Auckland.

Pyne Gould Corporation (PGC), the Canterbury Building Society (CBS) and the Southern Cross Building Society (SCBS) announced yesterday that PGC chief executive Jeff Greenslade would be managing director of the proposed Building Society Holdings Limited, which they hope to create through merging PGC subsidiary Marac Finance and the two building societies by January 1.

The three existing entities' shareholders, members and investors are due to have their say in seven different votes on the plan in November. The new financial services provider, initially to be known as Building Society Holdings Ltd, would then aim to list on the stock exchange in February and seek a banking licence from the Reserve Bank next July.

Greenslade told interest.co.nz that it hadn't yet been decided where members of the PGC dominated proposed executive team would be based.

"The head office is in Christchurch and five of the nine directors will be in Christchurch," said Greenslade.

"I intend to have an office in both locations. But we will have a significant presence in Auckland and that’s just reflecting the realities of the business we’re in."

Strong PGC presence

Aside from Greenslade, the 10 member executive team will include six other PGC and Marac executives including PGC and Marac's chief financial officer Sean Kam as chief financial officer, and PGC and Marac chief risk officer Mark Mountcastle as chief risk officer.

The only executives from outside PGC and Marac are CBS chief executive Bryan Inch as head of retail, former ASB executive James Mitchell, who has been working as project manager of the Heartland Bank plans, as head of business, and SCBS's Mark Bellas as chief operating officer. Bellas' is currently SCBS's executive responsible for finance and strategy.

PGC will own 71% of the new entity, CBS 14.5% and SCBS 14.5%.

The executive team, and nine member board, was picked by the Heartland Bank Establishment Board, which included PGC chairman Bruce Irvine, Greenslade, CBS chairman Gary Leech and SCBS chairman Geoff Ricketts. Greenslade is also project director.

The Building Society Holdings board will also be chaired by Irvine and include Leech, Ricketts and Greenslade.

Dual roles?

PGC says its executives named to the new executive team will continue in their PGC roles. Asked if this would be indefinitely and if he was confident this would meet Reserve Bank approval, Greenslade noted what had been announced was a shadow executive team.

"We’re not established yet so there are no roles yet to be appointed to. But what we’ve done is assigned the right subject matter expert to each part of that responsibility," said Greenslade.

"The work to date has been largely around the legal structure, technical structure, and compliance. The next phase is going to be more about making sure we’re ready for business once we get shareholder approval and nothing happens until we get shareholder approval."

Greenslade said meetings where the three partners' shareholders, members, bond and debentureholders would vote on the proposed merger were planned for mid to late November. In terms of whether the Reserve Bank would approve of 'Heartland Bank" executives doubling up as PGC executives , the new entity would "cross that bridge when we come to it," Greenslade said.

Greenslade emphasized applying for a banking licence next July would be the start of the process, not the finish line, and it was unclear how long the process might take.

"You’re never quite sure what happens behind the scenes, when does an application start and finish, you just don’t know," said Greenslade.

"There is no prescription around applying for a bank licence and we’ll find out (how long it takes and exactly what it involves) along the way."

The Reserve Bank does have a 19 page booklet entitled Bank registration information available on its website. It notes applicants have to stump up NZ$36,000 just to apply for a licence. An applicant also has to prove that it can carry out its business in a prudent manner notably in relation to issues such as its capital, loan concentration and risk exposure, and separation of the business from other interests of the owner.

Will PGC ditch Torchlight?

Greenslade said the central bank hadn't expressed any views on PGC subsidiary Torchlight Investment Group. Although there are no plans to include Torchlight in any bank, PGC is reviewing whether the George Kerr chaired Torchlight fits into its strategy.

"Clearly it is something that we do need to provide some definition around," said Greenslade.

"It’s a private equity business and private equity, in our view, doesn’t sit naturally alongside a banking business so that’s something that we need to address. What the right solution is, we’re yet to identify but that is something that we need to focus on."

Other issues the Reserve Bank will consider include the standing of the applicant in the financial markets, ie its reputation and track record, and the suitability for their positions of the directors and senior managers. The Reserve Bank says it will process any application and make a decision "as soon as practicable."

"The length of time it takes to process applications will vary, and the time taken with any specific application will depend on the complexity of the application," it says.

Unsuccessful applicant can reapply

If the Reserve Bank decides to register an applicant, it will write to the applicant informing it that it will be registered. If it rejects an application, there is no appeal process available to the applicant. But the Reserve Bank says it would, unless there was sufficient reason not to, inform an unsuccessful applicant of the reasons for the unsuccessful outcome.

"The Reserve Bank would consider a further application from an unsuccessful applicant when the problems identified in the unsuccessful application had been remedied."

The central bank notes that the ownership of the applicant is an important issue.

"The Reserve Bank will assess the integrity, financial strength, and suitability of the owner. The ability and willingness of the owner to support the registered bank in times of stress will be important. The Reserve Bank has no particular preferences or restrictions in respect of the domicile of the owners. If the applicant is in widespread ownership, its ability to gain access to additional capital if required will be considered."

PGC announced early in June plans to merge Marac with the two building societies, enabling them to create greater scale and tap a bigger retail deposit funding base as they seek an investment grade credit rating and bank licence. The plans envisage a NZX-listed "Heartland Bank" that would aim to double its NZ$2.3 billion asset base within five years through growing family, small business and agricultural lending.

Investment grade credit rating needed

The proposal calls for CBS and SCBS to be amalgamated and then acquire Marac. The group would have about 360 staff and 70 customer outlets. An NZX listed non-operating holding company, Building Society Holdings Ltd, will oversee the operating company, initially known as Combined Building Society.

The partners are also seeking an investment grade credit rating from Standard & Poor's. Standard & Poor's says the so-called "Heartland Bank" has the potential to obtain an investment grade credit rating, which it needs before applying for a banking licence. Currently Marac and CBS have BB+ ratings, one notch below the lowest investment grade rating of BBB-, and SCBS has a BB rating.

Heartland Bank is a concept rather than a name. Greenslade said work was underway on an "umbrella" brand. Underneath that, the three partners intend to keep their existing brands for the "foreseeable future."

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