Taking Stock 4 June 2026

Chris Lee writes:

Heartland Bank Merger

THE recent news that Heartland Bank is to merge with TSB Bank will inject confidence into financial markets.

It will surprise no serious financial market participant, having been mooted for at least a decade, often discussed in Taking Stock.

People like the late Lloyd Morrison, his brother Rob Morrison (former Kiwibank Chairman), and Bill English have all discussed the need for bank consolidations. Given Infratil founder, the much admired Lloyd Morrison, died 14 years ago, this first step towards NZ banking consolidation is hardly a surprise.

What may be a surprise is the timing, the merger coming at a time when NZ business confidence is low, and prospects look bleak, with no obvious plan to reduce national debt, and much childish talk in the media against projects that can quickly increase tax revenues, productivity and average wages.

The transaction values TSB at $620 million, which is 76% of its book value, implying book value is bolstered by intangibles.

It values Heartland's shares at $1.25, a price immediately achieved on the share market upon announcement of the news this week.

Heartland's nett cost, payable in cash, seems to be low tens of millions given the structure of the deal, with TSB effectively funding most of the cost.

TSB is owned by TOI, a community trust tasked with supporting groups in Taranaki.

As the sole shareholder, TOI would never be my idea of an ideal overseer of a bank, though it no doubt has some nice people on its community-elected board, as well as some caring people focussed on their charitable grants.

The new bank will be chaired by one of New Zealand's most successful and admirable business leaders, Greg Tomlinson, himself a foundation shareholder and board member of Heartland Bank, and now a 7% shareholder of the proposed bigger organisation.

Building a stronger governance and executive team will be a major task for Tomlinson.

The TSB began life in the 1980s when there were many regional savings banks, including the Auckland Savings Bank, the Wellington Savings Bank, Canterbury Savings Bank and several others.

Many of these merged to create Trustbank, which Westpac acquired under that brand name when it was building its NZ scale.

The Auckland Savings Bank and the Taranaki Savings Bank had declined to be part of Trustbank, the Auckland bank eventually selling to the Commonwealth Bank of Australia (as ASB Bank).

Taranaki held out and has operated as a mildly profitable, folksy provincial bank owned by the Taranaki Community Trust, which has a community-elected "foundation" board that elects the directors to govern the bank.

For 21 years TSB was managed in a kind, cautious manner by Kevin Rimmington, then successfully by Kevin Murphy till 2018.

Since then TSB has had two female CEOs, Donna Cooper and the current CEO, Kerry Boielle, who may take up a management role in the new bank.

All the way through these 38 years the bank has had a board that was a mix of community people. 

The directors appointed by the community foundation are a bunch of people with varying backgrounds, none of whom would fit my description of a natural director of a bank.

My definition is irrelevant.

TSB bank was a community bank and offered simple products with a low level of complexity, low margins, low risk, an emphasis on social matters, and no obvious ability to compete with Australian banks.

It certainly has not failed to connect with Iwi, both the foundation and the bank having directors with strong Treaty commitments.

While TSB has been operating as designed, New Zealand has been debating how a New Zealand-owned bank could compete effectively with the admirable Australian banks.

Scale – size – matters.

In the late 1990s the government had missed a chance to buy the National Bank of New Zealand from Lloyds Bank, which was keen to sell. ANZ bought it. Hmm.

So Kiwibank was formed, as a welfare bank, its promoter being the late Jim Anderton, a socialist with precious little connection with commerce.

After a tough few years, Kiwibank morphed under excellent management, though starved of capital and never free from the constraints of a bumbling Crown ownership structure.

By 2010, when Heartland was formed, TSB was making modest profits. The PSIS (now the Co-operative Bank) was fumbling but surviving, and the Southland Building Society (SBS Bank) was eking out a role in the South Island. Kiwibank was becoming a small but serious bank.

It was fairly obvious to me, and many others, that a grand merger of Kiwibank, Heartland, TSB, SBS and the PSIS bank would collectively provide NZ with a genuine home-grown banking option. Today, the ideal merger would be based on Kiwibank.

The topic was regularly discussed, and has continued to be discussed for 15 years, sometimes raucously, in Taking Stock.

Heartland has now succeeded with what may be the first step towards a New Zealand bank with a wider range of services and with scale.

The Heartland NZX listing, with access to capital and to capital market disciplines, will open new doors for the TSB.

Wellington mumbles about Kiwibank's muddling Crown constraints.

Opportunistic Kiwisaver salesmen salivate at the thought of getting privileged discounted access to a Kiwibank sharemarket listing. Ignore them.

Might Heartland's first step with TSB be given two or three years to merge effectively, demonstrate the benefits of scale, and then be the vehicle to re-ignite an adult discussion about a truly sizeable NZ bank, such as we have not had since the destruction and subsequent forced sale of BNZ?

Remember BNZ's collapse was principally caused by dreadful government inattention to mundane issues like banking supervision and capital controls.

Such goofiness is unlikely to recur, meaning a scaled new bank, listed and with access to capital, would not be likely to follow the BNZ's crazy fast route to hell.

Under the new name of TSB Heartland, the current merged banks might increase earnings per share, and build a more diverse, resilient organisation. There would then be hope that one day, NZ will own a competitive sizeable bank.

The next steps will be to allow Tomlinson the chance to build a board and an executive management that achieve those goals.

How he would love to have the now departed National Bank of New Zealand's outstanding banker, Sir John Anderson, helping him to achieve his vision!

Wellington Property Market

THE Wellington commercial property market tells the story of a capital city crippled by previously dreadful leadership and by fear of the future.

Commercial property sales are almost nil as, under pressure, vendors fear a vicious round of formal devaluations if sales focus at current offered prices.

Newly developed residential property, townhouses etc are recording almost no sales, as developers fight to hold out their lenders, in hope of recovering at least their cost prices.

Buyers, of which there are potentially many, are also holding out, expecting even greater discounts in a market that would be even further depressed were lending rates to increase, as forecast.

In a city dominated by left-wing politics, obvious solutions are ignored. For example, neither the council nor Kainga Ora have been buying the hundreds of townhouses now selling at or below cost, despite the pressure on government and local government to provide ever-larger numbers with shelter.

Wellington could not avoid the damage done by the Christchurch, Kaikoura and Seddon earthquakes.

Ancient water and sewerage pipes do not function better after being heavily shaken.

Wellington could have found better solutions had it not employed a council chief executive who was inept and detached from her “board of directors”.

More so, it needed a wise, experienced, commercial mayor, such as it now has, thankfully.

Instead it appointed a dysfunctional young woman with no meaningful commercial training, inadequate social skills, and no leadership qualities.

A functional council led by a competent mayor would have advanced the most obvious first step.

Inner-city living was that first step.

Many old buildings, once occupied by small business, had demonstrated good “bones” by surviving the big earthquakes.

Developers bought buildings, refurbished them with apartments, and looked to university students and others to buy market rents.

Student numbers fell, not surprisingly given the gap between university ideology and job market requirements, the concept created by Ardern’s government unsurprisingly failing.

Her government preached university education should be the goal for all. The job market begged to differ. I hate to label Victoria University as a hotbed of irrelevant socialists but that is how it presents itself, through the media.

Shorn of overseas and domestic renters, the inner-city rentals were in need of council and government support.

The simple answer was a council or government rental guarantee, leading to lower rentals (less risk for the developer) and a rise in inner-city numbers.

All over the western world there is evidence that bigger numbers in inner-city living refreshes economies, leads to a small security risk (and thus cost) and a more united city.

Councils which provide a rental guarantee lead to an increase in developments, lower rentals and, most importantly, do not involve the sort of public debt required to build.

Wellington, a city built around central government and thus public servants, elected a mayor with neither experience, knowledge, nor wisdom.

Sadly, some false statistics told a misleading story. These falsely based statistics told Wellington and New Zealand that Wellington was the most productive per-head city in New Zealand, its citizens having an exceptionally high average salary.

Here is the explanation.

Gross Domestic Product (GDP) divided by income-earners provides a figure of individual productivity. Wellington’s figure is high.

GDP is calculated by adding up all the sales and value created - in New Zealand’s case perhaps close to $300 billion. To that figure is added the cost of the public sector; not the value or sales of the public sector; the cost.

So if Wellington has more public servants and pays them higher salaries, GDP goes up! If the cost is $150 billion GDP rises to $450 billion.

The public sector is on average paid more than the private sector.

The false calculation method “proves” that Wellington is more “productive” than the Waikato, or Taranaki, or Canterbury, or Southland; or anywhere.

This methodology does not reflect “productivity” or “value” in any definition I understand.

I see cost, with virtually no value, in many government entities. (Thankfully, ACT looks on from the same angle).

Wellington now has a genuine leader, the former leader of the Labour Party, Andrew Little.

It needs right now to restore the inner city, attracting new residents by encouraging developers, and by enabling sales to recommence.

Infratil Bond Issue

Infratil has announced a subordinated capital bond issue. The offer is for a 31-year bond, first redeemable after six years. Like the other similar capital bonds on our exchange (such as CEN090), the bond will be priced assuming it will mature after six years on the initial optional redemption date.

The bonds will also be listed on the NZX, allowing investors to exit the investment whenever they would like.

Infratil is to raise $150 million, with the option to accept unlimited oversubscriptions. The bond will carry an investment grade credit rating of BBB-, two notches below Infratil’s own rating (BBB+). This discrepancy is to account for the subordinated nature of the capital bond.

The offer opened Tuesday (2 June), with FIRM offers closing at 10am this Friday, 5 June. 

These bonds will carry a minimum interest rate of 5.50%.

Investors wishing for a FIRM allocation should contact us as soon as possible with their CSN and amount they wish to invest.

Ryman Bond Offer

Ryman Healthcare is considering an offer of 6-year fixed-rate, senior, secured bonds.

The interest rate has not yet been set, although given current market conditions, we expect the rate to be around 5.70% per annum, fixed for the full 6-year term.

Ryman is also likely to pay the transaction costs, meaning clients are unlikely to pay brokerage. This will be confirmed when the full offer documents are released.

Ryman is New Zealand’s largest retirement living and aged care provider, with 47 retirement villages across New Zealand and Australia. It provides homes to more than 15,500 residents and employs around 7,800 staff.

Ryman has been through a major business reset over the past two years. Its latest result showed a meaningful improvement, including its first positive free cash flow result in more than a decade, with revenue increasing to $849 million.

The company has also reduced its debt level to 27.8% (which is the lowest in the sector), has no bank debt maturing until FY31, and is continuing to release cash from asset and land sales. Ryman has indicated that its focus is now on improving aged care earnings, reducing vacant stock, lowering capital expenditure, and strengthening cash flow from its existing villages.

In our view, Ryman is now in a much better position than it was two years ago. The company has moved away from its previous high-growth development model and is now focused on cash flow, debt reduction, and disciplined capital management.

Full details of the offer are expected next week.

If you would like to register your interest, pending further information, please contact us promptly with the amount you may wish to invest and the CSN you intend to use.

Please note that an indication of interest does not create any obligation or commitment to invest.

Paraparaumu Seminar

The first of our seminars this year will be held at Southwards, Paraparaumu on July 7. Please contact us via email if you would like to attend.

New Financial Advisor Position

We are currently looking to add an experienced Financial Adviser to the Chris Lee & Partners team.

This is a long-term role based in Paraparaumu, working closely with our long-standing clients throughout New Zealand.

If you are interested in learning more, please contact us confidentially at office@chrislee.co.nz

Travel

8 June – Nelson – Chris Lee (FULL)

9 June – Blenheim – Chris Lee (FULL)

30 June – Christchurch – Chris Lee (FULL)

1 July – Christchurch – Chris Lee (FULL)

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