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ANZ set to avoid hit to National Bank's NZ$3 billion plus of goodwill if it dumps the brand

ANZ set to avoid hit to National Bank's NZ$3 billion plus of goodwill if it dumps the brand

By Gareth Vaughan

ANZ says if it decides to drop the National Bank brand it won't have to write-down the NZ$3 billion plus worth of goodwill stemming from its 2003 purchase of the bank because the goodwill is backed by cash flow rather than being a brand or logo valuation.

David Hisco, ANZ New Zealand CEO, told last month that ANZ aimed to complete a review of its use of the National Bank brand in New Zealand by the middle of this year. And Hisco's boss, ANZ Group CEO Mike Smith, says he'd like to see both ANZ and National Bank customers able to use the two banks as one bank because operating two separate banks in New Zealand is inefficient.

ANZ announced its National Bank purchase, for A$4.915 billion from Britain's Lloyds TSB, in October 2003. That price excluded a dividend paid to Lloyds of NZ$575 million from National Bank's
retained earnings. ANZ said then it intended to retain both the ANZ and National Bank brands for retail and small business customers subject to a trademark agreement. The group's rural business would operate under the National Bank name.

Last year ANZ renewed its rights to use the Lloyds black horse on a green and white background as the National Bank logo until the end of 2014.

ANZ New Zealand had total goodwill and other intangible assets of NZ$3.5 billion at September 30 last year. The bank notes that a NZ$3.26 billion goodwill balance at the end of the bank's September year "largely comprises" the goodwill purchased through the National Bank acquisition.

Goodwill is seen as an intangible asset on the balance sheet because it's not a physical asset such as buildings and equipment. Goodwill typically reflects the value of intangible assets such as a strong brand name, good customer relations, good employee relations and any patents or proprietary technology.

'Not a brand or logo valuation' & Westpac's Trust Bank goodwill

However, ANZ says should it decide to dump the National Bank name it won't take a goodwill hit.

"As per international accounting standards, the goodwill balance is supported by the cash flow of the company. It is not a brand or logo valuation," an ANZ spokeswoman told

"ANZ New Zealand including the National Bank brand is New Zealand’s largest bank with more branches, more ATMs and more staff supporting customers than any other bank – that’s the way we want things to stay."

In terms of the ANZ group's New Zealand branding, it had been clear this would be on the table at some point given the licence from Lloyds covering the use of the horse and National bank green "won’t last forever."

"(But) that’s not an issue for today - we are thinking through the issues around how the brands work together - and we'll take as much time as necessary to do that. In the meantime though we are absolutely committed to maintaining ANZ New Zealand as the largest branch network in New Zealand with the largest number of people supporting our customers."

Mark Hucklesby, partner and national technical director of audit at accounting firm Grant Thornton, agrees ANZ probably won't be required to write-down its National Bank related goodwill should it drop the brand.

"All the accounting standards require you to do is to say 'will the cash flows arising from the entities and structure that you acquired still have the ability to generate future cash flows sufficient to support that carrying amount?' So in other words the network of National Bank branches. I would have thought, looking at the profitability of banks and banking in New Zealand, that even if they were to remove the National Bank brand the infrastructure and all the other components that came with that acquisition would still be generating future cash flows well in excess of that carrying amount."

Meanwhile Westpac New Zealand, which bought Trust Bank in 1996 and changed its name from WestpacTrust to Westpac in 2002, still had NZ$477 million worth of Trust Bank acquisition related goodwill on its balance sheet as of December 31, 2010.

Acquisition timing favourable

The timing of the deal was in ANZ's favour, Hucklesby added, because it was done in 2003 when New Zealand Generally Accepted Accounting Practices (GAAP) were still in use. Since then International Financial Reporting Standards (IFRS) have taken over.

"What happened as a result of this older standard, and it was a weakness, was there wasn't a definition around the identifiable assets and liabilities that were part of the business combination (through an acquisition)," Hucklesby said. " IFRS corrects this because it says you've essentially got to identify all the assets - the goodwill, the customer base, the distribution rights. That articulation wasn't present at the time the deal was done."

"Certainly now if you were to do a business combination, you would separately have to put the value to the brand that you acquired and if you dropped it, it would immediately have to be written on (down) because there's specific identification of value attributable to the brand. That's a benefit we have from adopting IFRS which we didn't have under the old Kiwi GAAP," Hucklesby added.

KPMG is ANZ's auditor.

Retail customers to follow National Bank brand out the door?

Meanwhile, Massey University senior lecturer in banking studies David Tripe argues it would be a very risky move by ANZ to dump the National Bank brand given the potential knock on loss of retail customers.

"I think there would be a real cost for them in terms of customer profile - if they drop the brand - in terms of  the mass of New Zealand retail customers," Tripe said. "The green (National) brand is much more attractive than the blue (ANZ) one. If you ditched the green brand there would be a very real danger that you would ditch a lot of customers in the process."

The latest Roy Morgan New Zealand Banking Customer Satisfaction Survey places the National Bank third, behind only TSB Bank and Kiwibank, and ANZ seventh and last.

If ANZ drops the National Bank brand and does lose a significant number of customers, Hucklesby said this potentially, could result in a goodwill write-down in the future. There would need to be some judgment applied as to whether the customers did leave because of  the name change.

If it's assumed the customers did leave because of the name change "then you would have to go through and do a discounted cashflow exercise to establish, based on the future cashflows that are being generated from that rebranded network, that it would exceed the carrying value going forward," Hucklesby said.

"I would be surprised if, in the next set of accounts after dropping the brand, there wasn't some commentary (saying) that we have specifically investigated the impact of dropping the brand on the carrying amount of goodwill that we have in our financial statements."

Seven years after buying the National Bank, ANZ announced last November it was going to shut down the ANZ information technology (IT) platform and adopt the National Bank's Systematics core banking system across both banking networks by late this year. This move, alongside a management restructure involving 45 staff layoffs and establishing a regional reporting structure, will cost ANZ a total of NZ$220 million.

The ANZ spokeswoman said these changes were designed to "maintain our momentum" in customer satisfaction, to grow the business and to support New Zealand’s economic growth.

"That’s the main game for us now and in the future."

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ANZ National will have to write down goodwill if it is calculated based on cashflow as I along with many other NBNZ customers move shop. ANZ National have over the past year or so obviously been trying to push the ANZ brand at the expense of National - and in my view they have failed miserably. The adverts smack of arrogance and are just downright annoying - "we live in your world" - yeah right - are they talking about Mars? ANZ has such a bad reputation no amount of spin will resurect the name. Frankly they would be better to rebrand from scratch. Expect a big writedown in goodwil in the months to come!


If they drop the National brand then I am out of there. I have never had much joy with ANZ, but these days it pays not to have all your eggs in the one basket anyway!