S&P affirms rating for Heartland bank

Ratings agency Standard & Poor's today confirmed its ratings on Canterbury Building Society and Southern Cross Building Society, which plan on Friday to merge into a new financial institution that has been touted as a proposed "heartland bank."

S&P also withdrew its "BB+/Stable/B" rating for Canterbury Building Society and "BB/Stable/B" for Southern Cross, at the societies' request, in preparation for them to be folded into a $2.2 billion entity, which will hold all the shares in Pyne Gould Corp's Marac Finance.

The new business, nominally Building Society Holdings, is expected to launch on Friday and has proposed to list on the NZX by February and to apply for a banking license in the middle of the year.

S&P credit analyst Peter Sikora, of Melbourne, said the creditors of the two building societies would benefit from the stronger credit profile of the combined building society as both had good franchises, stable funding bases and good liquidity levels.

"Moderating rating factors include their small capital bases and large commercial exposures relative to the capital levels," Mr Sikora said.

In December, he said the proposed new entity had the potential to be rated BBB- by S&P -- the lowest investment grade -- provided the financial impact of the Christchurch earthquake did not hurt the group's credit position, among other factors.

Yesterday, the Treasury accepted Combined Building Society, the issuer for the merger of Marac, and the two building societies into the extended retail deposit guarantee for so-called "non-banks."

Established at the height of the global financial crisis, the extended guarantee will cover $1.67 billion of retail funding -- retail deposits at CBS and SCBS and stock and bonds at Marac -- until the end of this year. It insures deposits and debt securities issued by up to $250,000 per retail depositor.

Marac will hold the majority of the new entity with 72.2%, followed by CBS with 14.8% and SCBS with the remaining 13%.

Pyne Gould's funds management unit Perpetual Group -- including cornerstone shareholder George Kerr's distressed asset vehicle Torchlight Management Ltd -- has not been included in the merger.