Challenger Bank acquired by Heartland Bank

First time NZ bank acquires Aussie ADI

Challenger Bank acquired by Heartland Bank

Heartland Group has announced that Heartland Bank Limited has completed its acquisition of Challenger Bank, making it the first New Zealand-registered bank to acquire an Australian authorised deposit-taking institution (ADI).

The acquisition is a critical step in Heartland’s strategy for achieving its long-term growth ambitions and expansion in the Australian market, where it is already well-established.

Introducing Heartland Bank (Australia)

With the launch of the Heartland Bank brand underway, Geoff Summerhayes (pictured above left), chair of Heartland Bank in Australia, believed the bank has a unique opportunity to deliver specialist banking products to areas of the Australian market under-serviced by larger banks.

“Purchasing Challenger Bank provided Heartland with an opportunity to bring its existing Australian businesses together with an authorised deposit-taking institution to create Heartland Bank in Australia, a digital specialist bank,” Summerhayes said.

Heartland’s Australian reverse mortgage business, Heartland Finance, is already Australia’s leading provider of reverse mortgages with a 42% market share among ADIs. 

In addition, Heartland’s Livestock Finance division, StockCo Australia, specialises in providing financing solutions for livestock.

StockCo Australia has supported Australian food producers with livestock financing since 2014, building on its New Zealand origins that go back to 1995.

As of Dec. 31, 2023, the combined gross finance receivables for Heartland Finance and StockCo Australia were approximately NZ$2 billion.

Leveraging retail deposit funding and Heartland’s New Zealand product and distribution expertise, Heartland Bank (Australia) said it may pursue future opportunities to expand into new product segments, such as motor finance and asset finance.

“We will continue to offer competitive term deposit rates, and in time may look to expand into new specialist lending segments where the Heartland group has expertise in New Zealand,” Summerhayes said. “Our aim is to provide Australians with specialist banking products that are the best or only of their kind, through digital channels. And we’re well-positioned to do so.”

How the acquisition worked

On May 2, Heartland will transfer Heartland Australia Holdings and its subsidiaries – Heartland Finance and StockCo Australia, together known as Heartland Australia – to Challenger Bank.

It comes after only three weeks since the Reserve Bank of New Zealand and the Australian Prudential Authority gave their indicative approvals.

The total consideration paid for the acquisition of Challenger Bank was AU$115.7 million and comprised:

  • the total purchase price of $46.4 million, reflecting the initial purchase price of $36.7 million plus $9.7 million of additional consideration due to the deposit raising programme undertaken by Challenger Bank prior to completion
  • an additional payment of $69.3 million, reflecting the increased capital being held by Challenger Bank following its pre-completion purchase of $574.3 million of reverse mortgages from Heartland Australia

Challenger Bank’s deposit raising program, undertaken prior to completion, positions Heartland for accelerated growth in Australia.

Between Dec. 30 and April 26, Challenger Bank achieved retail deposit growth of $891.2 million at a rate that is 172 basis points lower than Heartland Australia’s current cost of funds.

“Completing the acquisition of Challenger Bank is a critical step in Heartland’s strategy for achieving its long-term growth ambitions and expansion in the Australian market, where we are already well-established,” said Jeff Greenslade (pictured above right), CEO of Heartland Group Holdings Limited.

Board and management updates

With the announcement, Heartland also detailed its new Heartland Bank (Australia) board and management as well as changes to the group board.  These include:

Firstly, Summerhayes has resigned from the Heartland board and has been appointed chair and independent, non-executive director of Heartland Bank (Australia).

Shane Buggle, Lyn McGrath (who sat on the Challenger Bank board prior to Heartland's acquisition), Vivienne Yu, and Bruce Irvine (currently chair and independent non-executive director of Heartland Bank) have also been appointed independent, non-executive directors of Heartland Bank (Australia).

Leanne Lazarus (currently chief executive officer of Heartland Bank in New Zealand) and Greenslade (currently chief executive officer and executive director of Heartland, and non-independent, non-executive director of Heartland Bank) have been appointed non-independent, non-executive directors of Heartland Bank (Australia).

Heartland Bank (Australia) management

Heartland also confirmed that Michelle Winzer’s appointment as chief executive officer of Heartland Bank (Australia) will be effective from July 22.

Chris Flood has been appointed acting chief executive officer of Heartland Bank (Australia), effective May 1, and has ceased being a senior manager of Heartland. Flood is expected to return to his role as deputy chief executive officer of Heartland later in the 2024 calendar year, allowing for a comprehensive handover with Winzer.

The bank said Winzer and Flood will be supported by a management team with extensive experience in banking and financial services.

Heartland board

Heartland also confirmed that John Harvey has been appointed to the Heartland board as an independent, non-executive director. Harvey will remain on the Heartland Bank board as a non-independent, non-executive director.

Following the announcement on April 8 of her intention to resign, Heartland confirmed that the resignation of independent, non-executive director, Ellie Comerford, will be effective from June 26. Comerford has served on Heartland boards for more than seven years.

Heartland board chair Greg Tomlinson thanked Comerford on behalf of the Heartland board for her “significant contribution, dedication, and commitment to Heartland throughout that period”, particularly in relation to her experience and associated advice on the Australian market.

Heartland said it was “well underway” with the recruitment of new Australian candidates for the Heartland board, with a further market update to be provided in due course.