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

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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.”

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