St George To Unveil A Record

The Age
27 October 2008
DANNY JOHN

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

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

Mr Fegan will stand down as part of that process, having completed a tumultuous year in charge of St George.

However, an announcement outlining his immediate future will not be made until after the results presentation, as investors still have to give their approval at a merger scheme of arrangement meeting on November13.

Mr Fegan is believed to have taken the view there will be no particular role for him in the new bank and has therefore chosen to leave as chief executive on his own terms.

While the St George brand will continue and its retail banking operations will be run as a separate division after the merger, the resulting business will be much smaller than the diverse financial services group of which Mr Fegan assumed control last November. He replaced long-standing chief executive Gail Kelly when Westpac poached her 15months ago.

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

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

St George 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 unveiling earnings growth of about 8% to $1.3billion, although this is at the lower end of the guidance range it gave earlier thisyear.

That profit outcome will be significantly better than the fall in earnings announced by National Australia Bank and ANZ last week.

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

KEY POINTS

- The future of the bank's chief is unclear, but he is unlikely to stay on.

- Investors will meet to discuss the Westpac merger on November 13.

Back to News Index | Back to Home