Decision on Westpac NZ review likely to made within months, exiting chief executive says

Westpac is likely to make a decision on the review of its New Zealand business within months, outgoing New Zealand boss David McLean believes.

McLean, who has been with Westpac for 22 years, will retire on June 25, with Simon Power to step into an acting CEO role while the bank undertakes a search for a successor.

McLean said the review of the New Zealand business, which was announced in March, was part of his retirement decision making.

“Sitting down for me personally and thinking about the potential change if Westpac was to go ahead with a demerger, which is not decided yet. But I was thinking if that did happen I would have to be willing to sign up for another two or three years almost like a new phase.”

McLean said a recent charity scooter ride around New Zealand had also given him time to think about it.

“[It] was a great time for reflection and I decided it was probably a better time to hand on to somebody new who can take it into, what really would be under that scenario, quite a different phase.”

Whether Power, a former national party politician and commerce minister who joined the bank in 2012, is the right person to head up the bank permanently will be a decision for the board, McLean says.

“The board will make the decision and they go through a proper process and they always like to have two or three potentials. It’s obviously a vote of confidence that he was asked to step in as acting.”

McLean said Westpac NZ’s parent Westpac Banking Corporation would be under pressure from the market to make a decision one way or another soon.

“I imagine we will probably know a decision within a couple of months. But that is speculation on my part.”

In an ASX statement Westpac Banking Corporation CEO Peter King said it was “continuing to assess what is in the best interests of shareholders regarding the ownership of our New Zealand business.”

In an investor pack the bank noted the rationale for the review was that banking was increasingly a local business and that BS11 – a policy which limits outsourcing at the major banks – meant there were limited synergies.

It is weighing up the potential value uplift from two locally focused businesses, the cost of separation and independence and the impact of the Reserve Bank of New Zealand’s reviews.

Westpac New Zealand makes up 15 per cent of the banks cash profits and 12 per cent of its lending.

The New Zealand arms’ cash earnings rose 98 per cent for the six months to March 31 while its core earnings were up 14 per cent to $709m.

McLean said the strong half year result had been driven by better than expected economic conditions.

“A year ago the outlook was very uncertain, with health, social and economic outcomes hanging in the balance.

“Thankfully, New Zealand has so far avoided the worst effects of the global pandemic, largely thanks to decisive leadership from the Government, and we are now cautiously optimistic.

“Westpac NZ’s balance sheet is sound and we’re well-positioned to support the economic recovery and the needs of households and businesses.”

McLean said while it still expected a softening of economic conditions during the rest of 2021 based on its current outlook it was writing back $99m in credit provisions taken last year as they were no longer needed.

The bank’s loan book increased by 4 per cent to $90.6 billion with its home loans up 10 per cent year on year to $58.4b and deposits up 7 per cent to $74.1b. Its margin stayed flat at 2.06 per cent.

“It’s pleasing that we’ve been able to help first home buyers to purchase 3,512 homes during the reporting period – a lift of 35 per cent on the prior comparable period.”

McLean said Westpac NZ was continuing to help customers coming off Covid-19 repayment assistance, and other households and customers that had experienced difficulties from Covid-19.

“We’re working closely with our business customers to check they’re faring okay through these uncertain times.

“Lending to large corporate and institutional organisations has eased off with some customers diversifying funding sources by issuing bonds, while others no longer need the same level of bank facilities that were made available in the early stages of the pandemic.”

“We remain active in the agri sector, where we grew our market share.”

Westpac NZ’s parent Westpac Banking Corporation saw its cash earnings rise 256 per cent to A$3.5b. It will pay an interim dividend of A56c per share.

NZ Business for sale?

McLean said Westpac New Zealand was working closely with its parents on the review of the New Zealand businesses.

“It’s wise for all companies to regularly review the way business operations are structured and that’s what Westpac Group is doing.

“The key thing for our customers to know is that Westpac NZ remains very much open for business and that will be the case as we move forward, regardless of the ownership model.”

He said Westpac New Zealand was prioritising independent reviews of its liquidity risk management and risk governance, as required by the Reserve Bank of New Zealand.

“A team has been established to work solely on these reviews. We’ve been focussing on these areas for some time and are now adding even more resources.”

McLean's retirement

McLean said one of the things he found most satisfying during his career was the successful achievements of the bank’s customers.

“I am also proud, in my time as CEO, of the work we have done championing diversity and inclusion; publishing our gender pay gap; embedding a new focus on culture and conduct; becoming the first New Zealand bank to be Living Wage accredited; and for rallying together to help the economy through the darkest days of the COVID-19 pandemic.Most of all, I will miss working with the wonderful team at Westpac.”

Westpac New Zealand chair Jan Dawson wished McLean all the best for his retirement.

“David has made a significant contribution to the organisation, not only in driving business performance, but also in reinforcing the company’s social purpose and taking a leadership position on important issues in the banking industry.

“Today’s strong half-year result showed that the bank is well-positioned financially and has a strong leadership team in place.”

Simon Power, general manager institutional and business banking will act as CEO after McLean departs while a global search is undertaken.

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