Morgan Bellwill a Westpac - St George merger form the strongest pillar?
May 25th 2008 16:23
With the two week examination period nearly over Westpac and St George will soon be announcing if their merger will go ahead and the finer details of the deal.
Since Tuesday 13 May the forth and fifth largest banks in Australia have been examining each others books after agreeing to the key terms of their proposed $18.6 billion merger.
The merger would create Australia's largest banking group, worth approximately AU $66 billion on the sharemarket. The banks said that the combined entity would have 10 million customers, control 25 per cent of Australian home lending, and have $108 billion of investment funds under its administration.
The merger deal skirts the so-called 'Four Pillars' policy banning Australia's four biggest banks from merging and would become the largest corporate merger in Australian history.
St George bank is worth $15 billion at the moment and Westpac is worth $49 billion.
The companies have also reiterated that their "intention is that there will be no net reduction in branch or ATM numbers."
Mergers are generally an opportunity to cut costs and the Financial Sector Union (FSU) is concerned that jobs will go. There are concerns about market competition as St George is a "distinctive" bank who has been becoming a big player. There are also concerns that the merger offer may be an opportunistic move on Westpacs part. The overlap of branch locations may cause some closures.
Westpac says the merger would allow the banks greater access to funding in the current tight credit markets and a stronger platform for growth in Australia and New Zealand. The increased scale and integration of operations may drive further investment into their back-office processes, ensuring more reliable and improved customer service
The deal needs regulatory and Treasurer Wayne Swan's approval before it can go ahead, but consumer advocates and unions have warned it could mean job losses and reduced choice. The merger is unlikely to be blocked because it does not breach the Four Pillars policy preventing mergers of the top four banks.
Four Pillars was created by Paul Keating in 1990, as a six-pillar ban on intermarriage covering Commonwealth Bank, Westpac, NAB, ANZ and two insurers, AMP and National Mutual. It was an essentially intuitive policy overlay to a single decision, to block a merger of ANZ and National Mutual
Four Pillars does arguably create competitive space for competitors to emerge. But because it is definitionally limited to the Big Four banks, it also does nothing to prevent the Big Four from eliminating competition as it arises. Four pillars was irrelevant, for example, in 2000, when CBA eliminated the Colonial group. Nor were the pillars a factor in Westpac's previous two expansions - the 1997 takeover of Bank of Melbourne, and the 1995 takeover of Challenge Bank.
Australian Financial Sector Corporations
Company Rank according to Market Value (US $) reported by Forbes in 2007
1 Commonwealth Bank $69 billion
2 National Australia Bank $59 billion
3 Australia and New Zealand Banking Group $52 billion
4 Westpac $48 billion
5 St.George Bank $17 billion
References
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Since Tuesday 13 May the forth and fifth largest banks in Australia have been examining each others books after agreeing to the key terms of their proposed $18.6 billion merger.
The merger would create Australia's largest banking group, worth approximately AU $66 billion on the sharemarket. The banks said that the combined entity would have 10 million customers, control 25 per cent of Australian home lending, and have $108 billion of investment funds under its administration.
The merger deal skirts the so-called 'Four Pillars' policy banning Australia's four biggest banks from merging and would become the largest corporate merger in Australian history.
St George bank is worth $15 billion at the moment and Westpac is worth $49 billion.
The companies have also reiterated that their "intention is that there will be no net reduction in branch or ATM numbers."
Mergers are generally an opportunity to cut costs and the Financial Sector Union (FSU) is concerned that jobs will go. There are concerns about market competition as St George is a "distinctive" bank who has been becoming a big player. There are also concerns that the merger offer may be an opportunistic move on Westpacs part. The overlap of branch locations may cause some closures.
Westpac says the merger would allow the banks greater access to funding in the current tight credit markets and a stronger platform for growth in Australia and New Zealand. The increased scale and integration of operations may drive further investment into their back-office processes, ensuring more reliable and improved customer service
The deal needs regulatory and Treasurer Wayne Swan's approval before it can go ahead, but consumer advocates and unions have warned it could mean job losses and reduced choice. The merger is unlikely to be blocked because it does not breach the Four Pillars policy preventing mergers of the top four banks.
Four Pillars was created by Paul Keating in 1990, as a six-pillar ban on intermarriage covering Commonwealth Bank, Westpac, NAB, ANZ and two insurers, AMP and National Mutual. It was an essentially intuitive policy overlay to a single decision, to block a merger of ANZ and National Mutual
Four Pillars does arguably create competitive space for competitors to emerge. But because it is definitionally limited to the Big Four banks, it also does nothing to prevent the Big Four from eliminating competition as it arises. Four pillars was irrelevant, for example, in 2000, when CBA eliminated the Colonial group. Nor were the pillars a factor in Westpac's previous two expansions - the 1997 takeover of Bank of Melbourne, and the 1995 takeover of Challenge Bank.
Australian Financial Sector Corporations
Company Rank according to Market Value (US $) reported by Forbes in 2007
1 Commonwealth Bank $69 billion
2 National Australia Bank $59 billion
3 Australia and New Zealand Banking Group $52 billion
4 Westpac $48 billion
5 St.George Bank $17 billion
References
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Comment by Market Newbie
Stock Market Punk
There maybe some opportunities for small investors in that merger though since SGB.AX last traded at AU$32.32 while WBC.AX last traded at AU$22.51... still, opportunities are never cast in stone...
Sorry Morgan, couldn't help it
Comment by Morgan Bell
Deep Pencil
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true it could lead to more branch openings, that is always a possibility, but out on the street in seems like most towns that have a Westpac also have a St George so some duplicates may close, however it is possible that if the company was stronger they might venture into the smaller towns where neither bank currently has a presence
the Four Pillar policy kind of limits the growth of the pillars and mops up any smaller emerging banks, although the alternate may be one bank having the monopoly which may cause even worse customer service
thanks for all the nitty gritty info for the shareholders, i imagine alot of people involved in the sharemarket are keeping a close eye on this merger