Costs of proposed 'Heartland Bank' merger push CBS Canterbury to NZ$1.69 mln half-year loss

Costs of proposed 'Heartland Bank' merger push CBS Canterbury to NZ$1.69 mln half-year loss

CBS Canterbury is urging shareholders and depositholders to support its plans to merge with Marac Finance and Southern Cross Building Society (SCBS) as it slips to an unaudited half-year loss largely due to costs incurred in putting the merger proposal together.

CBS says it lost NZ$1.69 million after tax in the six months to September compared with a NZ$1 million profit in the same period of last year. It absorbed NZ$1.53 million of restructuring costs including NZ$1.3 million of costs, such as bills from lawyers and consultants, related to the planned merger. CBS also spent NZ$263,802 on establishing a loan warehouse funding facility with Westpac as it sourced funding through residential mortgage backed securities.

CBS's profit before restructuring costs and tax was NZ$206,957. Revenue rose 4.4% to NZ$17 million. Due to the impact of the merger costs, CBS said it wouldn't pay an interim dividend.

Chairman Gary Leech said the merger proposal, designed to ultimately create a sharemarket listed "Heartland Bank" if the partners can obtain a banking licence from the Reserve Bank, was potentially the most significant chapter in CBS' history. The merger plans envisage a Christchurch headquartered bank that would aim to double its NZ$2.2 billion asset base within five years through growing family, small business and agricultural lending.

Leech said the difficult economic climate continued to pressure margins, which combined with increasing compliance costs, produced the "modest' pre-tax profit of NZ$206,957.

"The result clearly outlines the operational scale required in today’s banking environment and further reinforces the directors reasoning in recommending to shareholders that by far the best option for the future is to proceed with the current merger plan and its objective to obtain a banking licence, ” said Leech.

Leech said depositor reinvestment rates continued to range between 80% and 90%. Total deposits stood at NZ$483.3 million at September 30, down from NZ$486.3 million at March 31.

Total provisions for impairment losses were NZ$275,210 for the six months to September, down from NZ$351,423 in the same period of last year. Loans overdue by at least three months stood at NZ$2.9 million at September 30 up from NZ$2.5 million at March 31.

Equity stood at NZ$49.88 million at September 30 compared with NZ$51.55 million at March 31. Total assets were NZ$537.48 million, and total liabilities NZ$487.60 million.

 Lending fell by NZ$4.06 million from March 31 which Leech said was an "understandable and satisfactory" outcome given the "flat" property market nationally, the competitive behaviour of the banks, and turmoil caused by the September 4 Canterbury earthquake.

“The second half of this financial year will remain challenging and be clearly dependant on the result of the merger vote by shareholders and depositors," Leech added.

Shareholders are due to vote in Ashburton next Wednesday (November 24) and depositors next Friday (November 26). Other stakeholder groups from Marac, Marac's parent Pyne Gould Corporation (PGC) and SCBS are also due to vote next week. Taking into account an 11.56% stake in CBS held by SCBS, CBS shareholders will own 13.04% of the merged entity, SCBS shareholders 14.75% and PGC shareholders 72.21%.

"The CBS Canterbury directors, the independent reports, and our merger partners agree that a successful merger will have significant benefits for all parties," said Leech.

"For CBS Canterbury to be a part of a new financial services entity serving heartland New Zealand is an exciting opportunity that awaits the Building Society and endorses the long-term vision the board has strived to achieve over the past decade. CBS Canterbury directors strongly encourage all shareholders to vote 'yes' in support of the merger."

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Haven't read the shareholder info in detail, but its hard to see why you wouldn't vote for this deal...  Conceptually it makes a lot of sense and creates a large listed company rather than a small NZAX (ugh...) listed company...

The CBS directors and in particular, Gary Leech are a joke.

CBS is a strong merger partner due to the quality fo theri book, their depositor base and also that the merged entity has no show of getting a banking license without CBS. And yet CBS is recommending shareholders agree to a 13% stake in the merged entity. Meanwhile PGC/Marac obtain a 72% shareholding despite it's chequered history and recent huge losses. PGC are also selling out fo their holding soon after the proposed listing. In other words PGC pump up the value of the float and then sell out before the market realises that the value proposition is not as strong as as they have promoted.

The CBS directors are selling their shareholders short and should be at the very minimum rtrying to achive a larger shareholding in the merged entity. But preferably they should be merging with SCBS and then obtaining a banking license in theri own right. At that stage they could decide whether to merge with Marac or start up a new financial services company

Ashburton is a wealthy District and most of teh shareholders are from Ashburton. They should not be selling out of a 120 year heritage a few dimes and to appease a couple of directors personal ego's

Southern Dude, what share of the merged entity to do you think would be fair for CBS shareholders to get?

Gareth

 

As of right they should have 15% but their intrinsic value ( based on their very strong depositor base, quality assets and value to a banking license ) they should have 20%.

Both Southern Cross and PGC/Marac need CBS more than the other way around to achieve a soundly based Heartland Bank.. CBS are selling themselves short.

PGC/Marac lost $150M last year and needed a huge capital raising to rectify their balance sheet. This severely diluted the existing shareholders and also decimated a large number of old "family money " investors in Canterbury.

Their track record is suspect and whilst CBS operate on low margins and recent eyars have resulted in minimal profit they have performed reasonably well considering. they are definatley a better bet than PGC/Marac.. The only difference is that PGC/marac have a huge PR machine that keeps spinning their story.

The CBS directors shuld be personally liable for the $1.53M of restucturing costs if the shareholders vote not to accept the merger proposition.

It's gross negligence to incurr a cost of $1.53M when your business is in difficult times with minimal profit and you don't have a mandate to proceed with a merger.

Is CEO Jeff Greenslade going to based in Christchurch - I very much doubt it

And what proportion of staff will be based in Christchurch rather than Auckland where most of their staff currently live.

This is a classic case of using a stable conservative Christchurch base to secure funding and all the lending being undertaken in the North Island ( predominantly Auckland and further north ) . Can the directors guarantee a geographical spread of deposits and lending.

Another great PR spin. 

Well we voted against. I think there is some merit in what SD has said.

Marac are absolutely desperate it goes through - not content with mailing us the initial documentation that have now send a reminder to vote and phoned to remind. We placed some money with Marac AFTER they recapitalised (would not have drempt of doing it before) - also considering they were in both the original and extended GG.

We would only stay invested in any merged entity up to the point that it remained in the extended GG.

How can Cameron and Co and Northington parters value CBS as a 13% partner and SCBS a 14% partner in the merged group when CBS has $500M of earning assets which returned NPBT of $200k in 2010 and $1.9M in 2009 as opposed to SCBS which has $400M of assets and lost $5M in 2010 and $11M in 2009.

This merger is very very good for PGC/Marac and SCBS and very very bad for CBS - in fact basically a rort and the CBS directors have let down their side severlely. This is a Hanover style deal from the CBS shareholders side of the deal - a total rort which the Ashburton based CBS directors have not clicked on to.

CBS shareholders - DON"T VOTE FOR THE MERGER

 

PS Northington Partners have let down the CBS shareholders very very badly