Big Banks Set To Get Bigger

The Age

Wednesday October 8, 2008

Eric Johnston

AT LEAST some of the Big Four banks will emerge from the credit shake-out with an unprecedented hold on the national and state-based banking markets.

After an opportunistic move on BankWest, Commonwealth Bank plans to push ahead with Suncorp-Metway. Such a play throws CBA chief executive Ralph Norris' long-standing mantra about organic growth out the window, but anything can happen in the current environment.

Most involved in the Suncorp process had expected a deal relating to CBA and BankWest as early as Friday, so this barely raised the pulse of many in the process.

Indeed, they view it as potentially increasing pricing tension for Suncorp's bank and wealth business with rival bidders National Australia Bank and ANZ in fear of being left behind on the perennial second tier of the Big Four. While NAB was the last in the process, it remains the hungriest.

Brokerage Citigroup has placed a combined trade purchase on Suncorp's bank and wealth business at about $8.2billion. The most likely way forward would be a demerger of Suncorp's insurance business, allowing CBA to fund the transaction using its (relatively) stable scrip as currency.

No matter which way you cut it, CBA - the biggest bank - will emerge as a very, very big bank.

A move on BankWest would deliver it 41% of Western Australia's lending markets and 49% of the state's deposits, according to Credit Suisse estimates.

A combination of CBA and Suncorp would deliver it a 34% share of Queensland's lending market and 38% of deposits.

A NAB and Suncorp mix would deliver the merged entity about a 36% share of Queensland's loans and deposits.

By comparison, a merged Westpac and St George in the home market of NSW will command 32% loans and 29% of the state's deposits, the Credit Suisse estimates show.

As an aside, it was no coincidence that Westpac yesterday was the first bank to rush through its politically palatable 80 basis points rate cut, with the bank keen to keep on the Treasurer's good side, given he represents the final regulatory hurdle to its planned merger.

CBA soon matched this, realising it will also have to sit down with regulators.

The Australian Competition and Consumer Commission will have its work cut out assessing potentially two banking acquisitions.

While the competition watchdog allowed Westpac's move on St George - creating a NSW-based giant - it failed to take into account the potential for a rapid change in the banking landscape brought about by the credit crunch.

In approving the $17.5 billion Westpac-St George deal, the ACCC changed tack by taking a national view, rather than its previous state-by-state view.

It noted that growth in internet and broker distribution and uniform pricing policies by lenders across states were underpinning competition.

On a national view, CBA-BankWest would have nearly 23% of the nation's lending market and 18.7% of deposits.

A global precedent has been set, with British regulators prepared to ignore competition tests to wave through the acquisition of BankWest owner HBOS by Lloyds TSB, as part of its efforts to stabilise the troubled mortgage giant.

© 2008 The Age

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