RBNZ's new capital requirements would need Heartland to lift its 'Tier 1' capital by about $15m a year; company believes the new requirements will stir more takeover activity and says it will consider any 'value-accretive' acquisition

Banking and financial services group Heartland believes the Reserve Bank's new capital proposals will prompt increased merger and acquisition activity.

"Acquisitions remain a part of Heartland’s growth strategy, and Heartland will consider any acquisition which is value accretive," the company said in a statement to NZX on Wednesday.

The Heartland share price has slumped since the RBNZ proposals were released late last week. (See all articles on bank capital here.)

The price fell 7c on Monday and then another 10c on Tuesday, to be down over 11% across the two days. However, following the statement from the company on Wednesday the price gained ground, at time of writing up 6c at $1.41.

Heartland said its Tier 1 capital ratio is currently approximately 13.2%.

"If the [RBNZ] proposal was to be implemented in its current form, Heartland would be required to lift its Tier 1 capital ratio to 15% over a 5 year transitional period. This equates to an increase in Tier 1 capital of less than 0.4% (or approximately $15m) per year, based on Heartland’s current financial position," the company said.

It said following its recent corporate reorganisation, Heartland had "some flexibility to mitigate the impact of any future changes".

"Heartland’s Australian reverse mortgage business (with approximately A$640m of assets) is not part of Heartland’s banking group. Hence any new capital requirements will not apply directly to those assets.

"Heartland’s corporate structure provides for various capital raising options. For example, Heartland Group Holdings Limited could potentially raise debt, and use the proceeds to subscribe for new Tier 1 capital in Heartland Bank Limited.

"It is too soon to decide how any future capital requirement would be met but, given the quantum of the requirement and the length of the transition period, and based on Heartland’s forecasts, it would be possible for Heartland to satisfy the requirement using its dividend reinvestment plan."

Heartland said it will monitor its position as it becomes clearer.

"In the meantime, Heartland does not expect the proposal to result in any changes to Heartland’s underlying business model, but does believe that the proposal may give rise to increased M&A activity. Acquisitions remain a part of Heartland’s growth strategy, and Heartland will consider any acquisition which is value accretive."

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

We welcome your comments below. If you are not already registered, please register to comment or click on the "Register" link below a comment.

Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current Comment policy is here.

4 Comments

"Acquisitions remain a part of Heartland’s growth strategy, "

You don't say! And given that Heartland grew out of the merger of several building societies and the distressed property loan book of Marac Finance, what's the likelihood of them 'merging' with the credit unions that have set out down that path? 10/1 on, I'd say
( NB: That they are still going should rank them for the "WooHoo, we're still here!" interest.co.nz awards this year!)

More likely SBS. They may have a challenge with capital.

Waiting for the headline when Heartland acquire ANZ.

Only yesterday someone was celebrating the "levelling of playground" for smaller banks. Actually a financial journalist.