The Bank Job: SBS Born Amid Financial Mayhem

Published: Thu 9 Oct 2008 11:29 AM
The Bank Job: SBS Born Amid Financial Mayhem
LawFuel - The Law Jobs and News Wire
A Legal First For Kiwi Banking Transformation - The gaining of a banking registration by Southland-based SBS Bank was a process started 15 years ago, but the new bank has a proud, 139-year history behind it. But for the lawyers, the heat went on in the past six months as the world-first deal took shape and the former building society became a fully-fledged, multi-billion dollar kiwi-owned bank.
Among the key requirements that the Reserve Bank needed to satisfy itself upon was the ownership structure of the new entity. If the SBS was to achieve its new status it needed both investment-grade status from a reputable credit rating agency and also appropriately robust governance rules under the Companies Act.
The current financial turmoil may make the launch of the bank somewhat unusual, but for Chief Executive Ross Smith the time is right.
"We believe now is the right time. Our decision had little to do with the current world financial crisis but was more due to the proposed changes to the non-bank regulatory regime and issues around a number of financial company failures,” he said.
But the heavy lifting, legally –speaking, came from Buddle Findlay commercial lawyer Mark Russell, who handled the process of not only moving the bank into its new role but also helping to persuade the Reserve Bank that it did not need to demutualise in order to achieve its banking status.
Russell’s role in achieving the end result was highly praised by SBS General Manager of Corporate Performance, Lana Winders.
“They did a fantastic job for us,” she told LawFuel. “We got our investment grade status last year and we got the documentation for the modification to our rules under the Companies Act at our AGM in July when the members voted on the rule changes.
The bank has a BBB investment rating from Fitch Ratings.
“There’s not been a building society that has got a banking licence anywhere in the world without demutualising or without substantially changing its structure,” Ms Winders said.
Two former New Zealand building societies that did alter their structure to achieve banking status, Countrywide and United, were both subsequently swallowed by banking groups.
Although it’s politically desirable to have another New Zealand-owned bank, the strength of the SBS’s balance sheet, with assets of $2.4 billion and possibly the highest level of retail funding of any bank in New Zealand, and its strong governance, were obviously sufficient to impress the Reserve Bank to grant the banking registration.
The Reserve Bank’s responsibilities for non-bank deposit takers, including building societies and finance companies, was extended last month with the need for them to obtain credit ratings under tougher prudential requirements.
“We didn’t want to lose the customer ownership structure that we had,” Ms Winders said. The legal structure, with the bank owned by its account holders, makes the dominance of any third-party shareholder less likely and more difficult to achieve. The SBS has about 50 per cent of its shareholders in Southland presently and three out of 15 branches there, with a long range goal of growing to a nationwide presence..

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