Westpac (ASX:WBC) board to further consider New Zealand demerger

The bank’s board is said to be meeting this month to further discuss spinning-off its New Zealand business segment.

| More on:
man walking down a white line about to split into two

Image source: Getty Images

Westpac Banking Corp (ASX: WBC) is said to be pressing ahead with determining whether to demerge its $10.3 billion New Zealand-based banking business.

According to reporting by today’s The Australian, the Westpac board will hear advice from Macquarie Capital on whether the bank should keep a hold of its New Zealand unit later this month.

Westpac first announced it was considering demerging its New Zealand business on 24 March this year. On the day of that announcement, the Westpac share price slumped by nearly 1%. But today, investors appear unfazed by the news the banking giant is further considering the spin-off, sending the company’s shares higher.

Currently, Westpac shares are swapping hands for $26.75 – 0.94% higher than yesterday’s closing price.

Let’s take a closer look at the potential demerger.

Westpac New Zealand demerger still on the table

According to The Australian, Westpac will decide whether to put the spin-off of its New Zealand business to shareholders within the coming months.

Westpac’s talks of demerging its New Zealand business began earlier this year when the Reserve Bank of New Zealand (RBNZ) put pressure on the bank’s Kiwi segment.

In March, the RBNZ found Westpac had potentially committed 2 breaches. The first was a breach of the RBNZ’s liquidity policy. The RBNZ’s liquidity policy dictates how much cash a bank should be able to access at short notice. The second breach was Westpac New Zealand’s potential non-compliance through the central bank’s liquidity thematic review – an ongoing review of the RBNZ’s liquidity policy.

As a result of the potential breaches, the RBNZ instructed Westpac New Zealand to undertake independent reports into both its risk governance and liquidity risk management.

Additionally, the RBNZ told Westpac its New Zealand business segment must hold more liquid assets until the RBNZ determines the remediation work to have been effective.

The same day the RBNZ issued its directions, Westpac announced it was considering if demerging its New Zealand business would be in its shareholders’ best interests.

Westpac’s New Zealand business brings in around 15% of the bank’s cash flow. It’s operated in the country for more than 160 years.

According to The Australian, Macquarie Capital is analysing the consequences and potential valuation of the proposed demerger.

The demerger will require shareholder approval to proceed.

The potential demerger of its New Zealand business isn’t the only shakeup Westpac has seen lately.

Earlier this year, the bank stated it was simplifying its business by combining its consumer and business divisions. Westpac’s consumer and business divisions became its new consumer & business banking division in late March.

Westpac share price snapshot

Despite numerous challenges reported by Westpac this year, the bank’s share price is performing well on the ASX.

Currently, the Westpac share price is around 38% higher than it was at the start of 2021. It’s also gained 47% since this time last year.

The bank has a price-to-earnings (P/E) ratio of around 21.4 and a market capitalisation of approximately $978 billion. It has 3.6 billion shares outstanding.

Wondering where you should invest $1,000 right now?

When investing expert Scott Phillips has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for more than eight years has provided thousands of paying members with stock picks that have doubled, tripled or even more.*

Scott just revealed what he believes could be the five best ASX stocks for investors to buy right now. These stocks are trading at near dirt-cheap prices and Scott thinks they could be great buys right now.

*Returns as of May 24th 2021

The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Macquarie Group Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

More on Bank Shares