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90 seconds at 9am: NAB talked merger with ANZ in early 2008; Pacific Blue reviews NZ routes

90 seconds at 9am: NAB talked merger with ANZ in early 2008; Pacific Blue reviews NZ routes

Bernard Hickey details the key news overnight in 90 seconds at 9am in association with the BNZ, including news that Pacific Blue has announced a review of its operations after downgrading its profit outlook.

Pacific Blue is reported by the NZHerald to be losing NZ$20 million to NZ$30 million on its New Zealand routes because of intense competition with Qantas' Jetstar and Air New Zealand. There are suggestions of either cutbacks or a full withdrawal of Pacific Blue, although Virgin Blue, which owns Pacific Blue, has said it has made no decisions.

Also, Allied Farmers is due to pay Mark Hotchin and Eric Watson NZ$5 million in cash by the end of this month as part of their settlement from the sale of Hanover's loans to Allied last year, the NZ Herald reports.  This will be galling for Allied's Rob Alloway, who is now dealing with the fallout from Hanover's loans being horribly over-valued at the time.

In Australia, mining company Xstrata has suspended A$600 million of spending on developing a Queensland copper mine, blaming Australian Prime Minister Kevin Rudd's plan to impose a 40% super-tax on Australian mining profits, the Sydney Morning Herald reports. 

Also across the Tasman, The Australian newspaper is reporting unnamed sources as saying National Australia Bank (which owns BNZ) had merger discussions with ANZ (which owns both ANZ and National Bank here) in early 2008 before the financial crisis hit. NAB's CEO was leaving at the time and the ANZ chairman Charles Goode was stepping down, opening up the possibility that NAB chairman Michael Chaney would chair the combined group and ANZ CEO Mike Smith would be the CEO of the new group.

But the two groups' efforts to convince Rudd to drop the Australian government's Four Pillars Policy in place since the early 1990s failed. The policy is designed to stop any of the big four banks (ANZ, NAB, CBA and Westpac) buying each other or being taken over by a foreign bank. The merger talks dried up after that and were called off completely when NAB appointed Cameron Clyne as its new chief executive in July 2008. Clyne had been the CEO of BNZ.

So what?

The intense competition between the 3 airlines on the main trunk route (Auckland-Wellington-Christchurch) is great for consumers but ugly for shareholders. It's a matter of time before one of them blinks. It won't be Air New Zealand, so either Pacific Blue or Jetstar will go. My guess is that Jetstar (Qantas) has deeper pockets than Virgin Blue and will stick around. That's a pity because Pacific Blue is doing a much better job than Jetstar in keeping Air New Zealand honest.

The Allied Farmers-Hanover deal just goes from bad to worse. There have to be serious questions now about Allied's long term future, given it does not have the extended deposit guarantee and its credit rating is below the BB threshold necessary to be in it. Time is running short.

The Australian mining tax debate is worth watching closely on this side of the Tasman given the New Zealand economy is now so dependent on not just Australian growth but Australian minerals exports to China. Remember, New Zealand is a suburb of Australia and Australia is a province of China. Anything that kills the golden goose would be bad for us. Rudd appears uninterested in backing down at this stage, but the pressure is bearing down on him.

The Australian's story on merger talks between ANZ and NAB is unconfirmed and this apparently happened two years ago so it's more of historical interest now than anything else. But it is interesting that the Four Pillars Policy was tested and did not budge. New Zealand should be enternally grateful for that policy put in place by then Australian Prime Minister Paul Keating. It saved the big four Australian banks, which of course own our big four banks, from either merging or being taken over by a foreign bank such as Citigroup, Royal Bank of Scotland or HSBC, all of which were hit hard during the financial crisis. Our big four banks have emerged as among the strongest in the world, partly because they weren't infected by all the bad stuff the Northern Hemisphere banks did. 

Competition authorities on both sides of the Tasman would also have had a lot to say about any merger too. We need as much competition as possible between our banks.

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