Heartland Bank wins indicative approvals to buy Challenger Bank

Heartland Bank is set to become the first New Zealand registered bank to acquire an Australian bank, receiving indicative approvals from both the Reserve Bank of New Zealand and the Australian Prudential Regulation Authority to buy Challenger Bank.

New Zealand company Heartland Group Holdings Limited (Heartland) (NZX/ASX: HGH)  announced on Monday to both the Australian and NZ stock exchanges that it had been granted indicative approvals for Heartland Bank to acquire Challenger Bank Limited (Challenger Bank) from Challenger Limited (ASX: CGF).

Subject to final regulatory approvals, Heartland Bank expects to complete the acquisition of Challenger Bank on April 30, 2024.

In a statement to both the ASX and NZX, Heartland also announced a NZ$210 million (A$192m) equity raise. The successful completion of the deal is conditional on APRA and RBNZ’s final regulatory approvals.

Heartland said the equity raise comprises a NZ$105m underwritten placement and a NZ$105m underwritten 1 for 6.85 accelerated non-renounceable entitlement offer.

It said proceeds from the equity raise would be used to finance the balance of the consideration payable for the Challenger Bank acquisition, support the expected regulatory capital requirements of Challenger Bank and Heartland Bank, and cater for near-term projected asset growth post-completion.

Shortly after completion, Heartland will transfer Heartland Australia Holdings Pty Limited and its subsidiaries,  which includes Heartland’s existing Australian reverse mortgage business Heartland Finance, and livestock finance business StockCo Australia (collectively known as Heartland Australia) to Challenger Bank. This is expected to occur on May 2.

Becoming a bank in Australia

Heartland said its acquisition of Challenger Bank was a critical step in the group’s strategy for expansion into the Australian market and achieving its long-term growth ambitions. Heartland first announced it wanted to buy the online Melbourne-based bank in 2022.

“Heartland is already well-established in Australia through Heartland Australia,” Heartland said.

“At 31 December 2023, together, Heartland’s Australian reverse mortgage and livestock finance businesses had approximately NZ$2 billion of gross finance receivables.”

Completing the Challenger Bank acquisition would make Heartland Bank the first New Zealand registered bank to acquire an Australian authorised deposit-taking institution.

Subject to completion, under Heartland Bank’s ownership, Challenger Bank will be rebranded to Heartland Bank (Heartland Bank Australia), providing a platform to extend Heartland’s “best or only” strategy in Australia.

“Once Heartland Australia becomes part of Heartland Bank Australia, it will be the only specialist bank provider of both reverse mortgages and livestock finance in Australia,” Heartland said in its statement.

To accelerate growth in Australia, Heartland planned to leverage Challenger Bank’s foundation and funding platform, Heartland’s successful track record in Australia, and its New Zealand product and distribution expertise.

“This will enable Heartland Bank Australia to expand into new product segments in which Heartland Bank has specialist expertise in New Zealand, such as motor finance and asset finance.”

Heartland said expansion would be enabled through access to retail deposits, allowing Heartland to optimise the advantage of a lower cost of funds.

“Challenger Bank continues to actively raise deposits ahead of being acquired by Heartland Bank and will continue to do so following completion.

“Challenger Bank’s retail deposit growth to date has exceeded Heartland’s expectations. In the period between 30 December 2023 to 29 March 2024, Challenger Bank achieved retail deposit growth of A$702 million at a rate that is 1.74% lower than Heartland Australia’s current cost of funds.”

Heartland CEO Jeff Greenslade to retire

After 15 years at Heartland, CEO Jeff Greenslade (pictured above left) has indicated to the Heartland board his intention to step down from his role at the end of the calendar year.

Greenslade’s tenure at Heartland included seeing through its formation in 2011, and receipt of Heartland Bank’s RBNZ banking registration in 2012.

Heartland said post-completion, Greenslade’s focus as CEO will be on the strategic transition of Heartland in its role as a listed parent company of banks in two jurisdictions, the integration of Challenger Bank into the group, and the continued development of Heartland’s business in Australia.

“The board is confident in the continuation of senior expertise within the Heartland group, and will work closely with Jeff on succession planning through the calendar year to ensure a successful transition.”

Dividends

Heartland said taking into account the equity raise, acquisition of Challenger Bank and associated growth opportunities, the board expected to target a total dividend payout ratio in the financial year ending June 30, 2024, of 50% of underlying net profit after tax.

“The board will, as it has historically, actively manage dividend settings and carefully consider the declaration of any dividend based on Heartland’s capital needs, ROE accretive growth opportunities, balance sheet flexibility and Heartland’s financial performance.”

Other changes at Heartland

Heartland said following the formal acquisition of Challenger Bank on April 30, it expected the following board and management changes to  occur.

• Geoff Summerhayes will resign from the Heartland Board and be appointed chair of the new Heartland Bank Australia Board.
   
• Michelle Winzer (pictured above right) has been appointed CEO of Heartland Bank Australia with a start date yet to be confirmed. Winzer will join Heartland Bank Australia from her role as CEO of RACQ Bank in Queensland, bring 30 years’ experience in banking and financial services, including as CEO of Bank of Melbourne, and senior roles at Bankwest, the Commonwealth Bank of Australia and Westpac.
   
• John Harvey will be appointed to the Heartland board as independent non-executive director, and will remain on the Heartland Bank Board as non-independent non-executive director.
   
• Ellie Comerford, who has served on Heartland Boards for more than seven years, has indicated her intention to resign from the Heartland Board on or around June 30, 2024. Chris Flood, currently deputy CEO of Heartland, will be appointed acting CEO of Heartland Bank Australia. He is expected to return to his role as deputy CEO of Heartland later in the 2024 calendar year, allowing time for a comprehensive handover with Winzer.
   
• Kerry Conway recently joined Heartland Bank as chief financial officer and will become a senior manager of Heartland Bank from April 8.
   
• Andrew Dixson continues in his role as group chief financial officer of Heartland with responsibility for managing liquidity, funding and capital, corporate finance, including mergers and acquisitions, group tax, and investor relations within the Heartland group.

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