Heartland hopes to leave guarantee scheme early

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Heartland Building Society would like to remove itself from the government's retail deposits guarantee scheme before it officially expires on December 31 if it feels its depositors are ready, says group treasurer Craig Stephen.

Tuesday, June 21st 2011, 7:33AM 1 Comment

by Jenny Ruth

"We're also constantly trying to determine when we can maybe take ourselves off the guarantee in advance of the expiry date," Stephen says.

"The issue for us though is whether our customers are ready. You can lead a horse to water - our investors have to actually get there in their own time frame."

Chief executive Jeff Greenslade says the percentage of Heartland's deposit book which now falls outside the guarantee period is trending upwards.

"New money is going to periods which fall outside the guarantee," Greenslade says.

Stephen says May was a record for new funds flows from new customers and Heartland's reinvestment rate is currently sitting at just above 80%.

"It's too early to call a trend, but it's an endorsement of the work we've been doing. Investors are starting to become more comfortable with the fact the guarantee is going to expire," he says.

The two executives say they've been working on a strategy for some time to deal with the guarantee's expiry and gaining an investment grade credit rating of "BBB-" from Standard & Poor's was a crucial part of that strategy.

Greenslade says the company is putting intensive efforts into explaining to investors where Heartland sits on the risk specturm. "We're spending a lot of time on the road. As a general observation, we've had a very favourable reception from our investors."

The company is also planning advertising campaigns and other promotional activity.

But the executives reject the comments in independent expert Northington Partners' report on Heartland's acquisition of PGG Wrightson Finance that gaining a banking license will be crucial to it retaining depositors.

The report said: "In order to mitigate the risk of reduced access to sufficient funding at commercial levels, HBS will clearly be striving to achieve bank registration before or as close as possible to the expiration" guarantee scheme.

"We certainly haven't given the market that signal. It would be nice to have the license in advance (of the guarantee expiring) but I don't believe anyone's expecting that," Stephen says.

Greenslade says Heartland has always said it wouldn't be putting in its application for a banking license until the second-half of the year and the time frame is out of Heartland's control.

"Until we start the formal process, we won't get a full understanding of where the Reserve Bank sees it," he says.

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