Chief Leaves St George With Best-ever Profit

Sydney Morning Herald

Monday October 27, 2008

Danny John

PAUL Fegan will sign off as chief executive of St George Bank this week by delivering a $1.3 billion annual cash profit in what will be the group's last full year as an independent institution before its expected merger with Westpac next month.

The bank's record earnings result, due to be announced on Wednesday, will signal one of Mr Fegan's last formal acts before St George's shareholders vote on the $16 billion merger plan which, if passed, will trigger the formal handover of the country's fifth-largest bank to its Sydney-based competitor.

Mr Fegan will stand down as part of that process, having completed a tumultuous 12 months in charge of St George. However, an announcement outlining his immediate future will not be made until after the results presentation, given that investors still have to give their approval at the merger scheme of arrangement meeting on November 13.

With St George due to be subsumed as an operating subsidiary within Westpac, Mr Fegan is understood to have taken the view there will be no particular role for him in the new bank and has therefore chosen to go out as chief executive on his own terms.

The St George brand will continue and its retail banking operations will be run as a separate division after the merger but the resulting business will be much smaller than the diverse financial services group that Mr Fegan assumed control of as managing director in November last year. He replaced long-standing chief executive Gail Kelly when she was poached by Westpac 15 months ago.

Mr Fegan's ascension to the chief executive's job coincided with the first wave of the present financial maelstrom, the consequences of which culminated in Westpac's opportunistic move on St George in May, when the long-standing premium built into the smaller bank's share price disappeared.

The liquidity crunch has seen the cost of funding in debt markets soar, particularly for single "A" banks such as St George and lower-rated institutions, which has led investors and analysts to question the long-term future of such groups.

In comparison, St George's partner, Westpac is a double "A"-rated group, just like Australia's three other major banks, and it has been able to use its greater financial strength to weather a financial storm that has decimated the non-bank sector.

St George, though, is expected to underline that, despite the higher cost of funding, its balance sheet remains in very good shape and that its Tier 1 capital - the best measure of its financial strength - is not that far behind the majors.

The bank will also be in the enviable position of being able to unveil earnings growth of about 8 per cent, to $1.3 billion, although that figure will be at the lower end of the guidance range it gave earlier this year.

It cut its forecast from an expected 10 per cent as the financial crisis swept through the sector. Nonetheless, the outcome will be significantly better than the fall in earnings announced by both National Australia Bank and ANZ last week.

St George is also expected to announce a record final dividend of 97c a share, while shareholders will also benefit from a special one-off additional payment of 28c a share, which was agreed to by Westpac last month as a "sweetener".