Westpac pulls out of race to buy bank

THE race to buy Lloyds TSB's New Zealand banking arm is down to two horses after the surprise withdrawal of a major contender, Australia's Westpac Banking Corporation.

The Westpac decision leaves rival Australian and New Zealand Banking Group and a group of private New Zealand investors calling themselves Black Horse Holdings as the only two groups to have expressed interest in the National Bank of New Zealand, which is expected to bring Lloyds TSB about £2.5bn.

The Westpac withdrawal, however, decreases the pricing tension and puts in doubt Lloyds TSB's chances of maximising the sale price, proceeds-from which are expected to fuel a share buyback in London. Lloyds TSB shares added 6 1/4p to 435p on Thursday on hopes of a buyback.

'The decision was made not to proceed as Westpac considers it would be diverting from its core organic growth strategy at this time,' Westpac said.

The move has increased the possibility of Lloyds TSB choosing the route of a public float for NBNZ, even though a trade sale is likely to bring a better price. The sale is shaping up as the first major test facing new Lloyds TSB chief executive Eric Daniels, who succeeded Peter Ellwood in June. ANZ faces potential anti-trust problems with any NBNZ bid, while analysts remain sceptical of the ability of Black Horse Holdings to raise the necessary finance. The syndicate is led by New Zealand accountant and businessman Phil Verry, who made his fortune in the wool industry.

The Black Horse bid is motivated by a nationalistic desire to see NBNZ remain in Kiwi hands, and is a reaction against foreign dominance of the New Zealand banking industry, where four of the five top banks are Australian owned.

NBNZ is New Zealand's second largest bank and made a record profit of NZ$503m (£184m) last year.