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Chapter 1: What is the $620 million bank merger about?
Hello and welcome along to the Property Academy podcast by Opus Partners. I'm your host, Steve McKnight. And I'm Andrew Nicholl. And this is the show that helps Kiwis go from zero to five investment properties so you can be financially free and stick around for the next 15 minutes because you're going to learn about the $620 million bank merger that's shaking up New Zealand's banking industry.
Will more competition mean lower mortgage interest rates and what it means for you if you're a TSB or Heartland Bank customer? Now, Andrew set it up for us because we do have two of New Zealand's smaller banks wanting to join forces, planning to take on the big four banks. What's actually happening?
So Harlem Bank has agreed to buy TSB Bank for $620 million. Was that a surprising number to you?
I actually thought that it would have been higher because Harlem Bank is looking to buy TSB Bank for something like three quarters of its book value. So it seems to me like they're getting a little bit of a deal. Why do you think that would be? Well, I think there's some weird stuff going on in the background, which I haven't really got my head around.
So for instance, TSB is advancing a loan to Heartland in order to buy them. And I see you screwing up your face at me. And that's because you're like, how's that working? But I think it's because TSB Bank is owned by the Toy Foundation, which is like a community foundation in New Zealand. And so I was going to get into this way later in the episode, but
The Toy Foundation is trying to find ways that it can get more money out of TSP. And so my understanding is, and look, if you work for TSP, you're going to be like, you'd fully butchered this part. But my understanding is they're advancing the loan. They're going to be able to get interest off that loan. That's going to mean that Toy Foundation's got more cash flow coming through to them.
What's interesting is that the Toy Foundation got about $10 million of dividends last year out of TSP Bank. And I thought that was piss all for a bank, right? Do you agree?
I think the shareholders would not be that happy with that.
I was like, that's bloody terrible.
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Chapter 2: Will this merger increase competition in the banking sector?
And so they're looking at ways of saying, well, how can we get more money out of this bank so we can give it away to the wonderful Taranaki community?
But anyway, back to what's happening, Andrew. So they went to a branding agency, paid a lot of money, and they've come up with a name, TSB Heartland Bank. Yeah.
That probably cost them 100 grand too.
Oh God, probably more than that. And the market obviously thinks it's a good idea because Heartland's share price jumped 13% on the day of this announcement.
Now, of course, the deal isn't done yet. It does need some approvals, but they want it done by the end of the year. I mean, Heartland's still going to get shareholder approval. They're going to need to get sign off from the Reserve Bank, the FMA. Toy Foundation's going to have to do a community consultation with Taranaki residents and a few other things. But if it goes ahead, it'll make...
TSB Heartland Bank, New Zealand's seventh largest bank. Now, pop quiz for you, Andrew. So we all know who the top five are. It's ANZ, BNZ, ASB, Westpac and Kiwi Bank.
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Chapter 3: What impact will the merger have on mortgage interest rates?
But I was like, oh, I thought TSB was number six. And with them combining with Heartland, it's going to only put them at number seven. So pop quiz. Who is the sixth largest bank in New Zealand? SBS? That's a good guess. It's Rabobank. Rabobank. Yeah, I was surprised by that. They do a lot of agricultural lending. Here we go. A little bank quiz for the start of the day.
Well, if you're going to your pub quiz and somebody ever asks, what is the sixth largest bank in New Zealand? Now you're going to be, guys, guys, I know this one. But Heartland reckons that combining with TSB is going to make them a pretty big challenger bank to take on the four big boys. and girls. So do you reckon it'll actually threaten those big banks and get us some cheaper interest rates?
Well, when you think about Heartland at the moment, they're kind of pretty small in the mortgage market and they kind of do niche lending like reverse mortgages, whereas TSB, they're pretty big on the mortgage market. But again, they are still quite a small player.
So by buying TSB, it means that Heartland gets to expand their market share for the mortgage market and gives them some more product offerings, I guess.
And if we think about what those specialty loans are, most of us know about reverse mortgages, whereas where if you're over 60 and you're asset rich but cash poor, they can give you a loan against your house, which you can go spend and you don't have to make any repayments. But of course, the interest ticks up until you die and then you sell your house and you pay the loan back.
But they also have stuff like livestock finance. So I know we've done podcasts in the past about farmers borrowing money against their cows and sheep. Heartland's one of the main banks who will lend against your cows. They do a lot of car and asset finance. When it comes to TSB, you're right, they just do standard bank stuff, transaction accounts, home loans, KiwiSaver.
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Chapter 4: How does the merger affect TSB and Heartland Bank customers?
So this is a way that Heartland can basically start offering all of those other services just by buying it off the shelf and saying, okay, well, you guys have got all of these services already. Rather than trying to start it up from scratch, we'll just buy it at a 25% discount and borrow the money off you to do it in order to just have those services.
Of course, Toy Foundation is going to be a shareholder of the new entity. But funnily enough, only 16%. They're only going to own 16% of the new entity. How do they work out the value when they do a transfer like that? Oh, mate, if I was smart enough to answer that question, I wouldn't be here recording a podcast with you I'd be off at some tower in Sydney scheming mergers.
Yelling at people.
No, I'd just yell at you on this podcast. Now, I can see the benefit of what you're saying of, okay, more competition, maybe that'll drive down interest rates. But if I look at it quite sceptically, they're still going to be puny. Even after the deal, they're going to make up about 2% of New Zealand's banking system assets. The big four currently hold around 85% of lending, 90% of mortgages.
And the combined customer base, I mean, it's 320,000 people, nothing to sniff at. But KiwiBank's at a million and the big four have like millions each. And I suppose the main thing I'm thinking is like, if KiwiBank hasn't really driven down interest rates, like have you noticed your mortgage getting cheaper because KiwiBank entered the market, Andrew? No, absolutely not.
And so I'm just kind of like, well, if we get another bank that's a quarter of the size of Kiwi Bank, is that going to further drive down interest rates? Of course, it's all good stuff, right? Like I prefer a good challenger bank than not, but I'm not sure whether it's going to dramatically reduce margins.
And I did see that Heartland CEO is targeting a similar return on equity as what the big four banks chase. So like he's not coming in being like, we're going to undercut them, right? He's like, yeah, give me some of this, like, give me some of this cozy oligopoly stuff where we all make loads and loads of money. That's what I'm into. That's right, though, isn't it?
It is.
That's not a lie.
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Chapter 5: What are the implications of the Toy Foundation's role in the merger?
One thing that's interesting, though, I did see recently there was talk about the government purchasing BNZ and merging that with KiwiBank. Now, something like that might have more of a meaningful impact on a bit more competition.
I mean, that's an interesting policy, isn't it? I mean, the last time the government owned BNZ, BNZ basically fell over and they flogged it off to the market, right? But having said that, Andrew, I mean, when New Zealand first announced this policy of buying the BNZ, I was like, this is the most
bonkers thing I have ever heard but just yesterday I was at a breakfast where Shane Jones was speaking the deputy leader of New Zealand First and he got up and he was talking about it and he was like you might not agree with the policy but in a democracy our job is to put out options for people like different policies and different options to vote for and that's what we're trying to do
And I kind of thought, oh, yeah, well, that's kind of fair enough, isn't it? You know, you put out your policy, see how many people will vote for you. I still think it's bonkers, though.
Do you think that they actually genuinely want to push forward with it? Or is that just one of those pre-election promises?
Oh, I mean, like, I don't know. Like, I wasn't rubbing up next to him. Shoulders, I mean.
That'll get you a cheaper interest rate.
You know, I was like, now tell me the truth, Shane. What's going on here? Is this just like a cynical policy, right? But, I mean, you take people at their word. I mean, I can't read too much into it. Oh, do you just? Now...
Now, one thing, though, that I was really interested in was the Commerce Commission recently did a report and they reckoned what would actually move the needle in terms of lower interest rates was a stronger Kiwi bank, which I probably agree with.
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Chapter 6: Is the merger a good move for the Taranaki community?
Open banking is the other big one. We actually do a whole podcast about open banking because this is about making it easier to switch banks, making it so that you effectively own your banking data and can push and pull it into different other apps. That'll be a whole other podcast. But I don't think this specific merger of TSB and Heartland necessarily addresses that.
But again, I think it's a good thing, net. One thing I was very, very interested in is the fact that the Toy Foundation, the owner, has to go and consult with the Taranaki community.
And initially... Is that because they're a building society?
No, they're not a building society. It's because us people from Taranaki, we love TSB Bank, right? Because when the banking deregulation happened in the 80s, lots of regions had their own bank, but they all got sold off. So for instance, ASB was Auckland Savings Bank. That got sold off. There was an ASB Community Trust for a while that gave out shed loads of money, just like the Toy Foundation.
They recently rebranded. When I say recently, I'm talking 10 years ago. rebranded as Foundation North. And so rather than owning a bank and having one asset, they decided to diversify, invest in lots of other things and then give away the money. And so that's effectively what the Toy Foundation's trying to do here,
And one thing that stuck out to me is it wasn't that long ago that the Toy Foundation was actually called the TSB Community Trust. They only rebranded probably half a decade ago. So I wonder whether this has been in the works for a little while without thinking maybe we should finally sell our bank, take the money.
diversify, find a way to get more than $10 million of dividends out of what is effectively, you know, a $640 million asset, right? So, I mean, it's a terrible return, really, like really quite poor because they're wanting to go out and give away more money to the Taranaki community.
Now, initially, as I'm scanning through the Taranaki Daily News website, I'm like, why aren't people, I thought people would be really up in arms about it, saying that we're selling off the family silver. But then some people have come out and say we're flogging off the family silver. So we'll see where that ends up.
Now, one big question, though, is that at Opus Mortgages, we've helped a lot of investors get loans from TSB. And actually, I'm one of them too. So what do TSB and Heartland customers have to think about?
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Chapter 7: What are the potential challenges facing the new bank entity?
Is that basically it? I'm pretty sure even you kept the same account number.
Like it was no big deal.
I think you still have the same account number because can't you be an 01 or an 06?
Yeah. Is that right? Something like that. You know your banking suffixes.
Is it a suffix or is it a prefix? It's a prefix. All right. All right. I mean, this podcast is all about specific banking details and the intricacies of the Toy Foundation. But look, we see it as very positive. As somebody from the region, I do look at it and think, gosh, Last year's payout from TSB to the Community Foundation is really very low.
So I can see the argument for saying, do you know what? We want to be part of a bigger banking group. We want to diversify our assets.
Ultimately, the Toy Foundation is trying to get as much money as possible and as big a return as possible so they can give the money away and buy computers for the school computer lab, which is what they did when I was there, and spend more money on WOMAD and the local art galleries and all of that good stuff.
And over the last 15 minutes, you've learned about the $620 million merger shaking up New Zealand banking, whether more competition will mean lower mortgage interest rates, and what it means for you if you're a TSB or Heartland Bank customer. Right, let's wrap it up there. But please don't forget to rate, review, and subscribe to the podcast.
It really does help us get the message out to more people. Thanks for listening to the Property Academy podcast. I'm your host, Tim Knight. And I'm Andrew Neckham. We're going to be back here tomorrow with even more daily strategies, tactics and insights to help you get the most out of the New Zealand property market. Until next time.
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