Cba In Feeding Frenzy As Banking Landscape Gyrates

The Age

Wednesday October 8, 2008

Eric Johnston, with Mathew Murphy

COMMONWEALTH Bank will push ahead with talks to acquire Suncorp-Metway's banking operations, even as the banking giant is poised to announce a $2billion-plus acquisition of BankWest as early as today.

The acquisition represents the first significant deal for CBA chief executive Ralph Norris, delivering the bank a dominant share of the nation's mortgage and corporate lending markets as well as becoming the biggest player in credit cards.

The bank will hold just over 21% of Australia's deposits, just behind a combined Westpac and St George.

The move underscores how rapidly the banking landscape is being reshaped by the global financial crisis, with major banks tightening their grip on lending markets.

Priced at just over $2 billion, the deal is close to BankWest's net tangible assets and includes its St Andrew's insurance and wealth management arm. The cash transaction is expected to be partly funded through an accelerated rights issue.

BankWest's owner, the troubled British mortgage giant HBOS, has substantially softened its position on a sale, allowing CBA to cherry pick the best parts of its Australian operations - the core retail banking and wealth management operations.

CBA had previously threatened to walk away, based on HBOS' previous insistence for an all-or-nothing transaction that also involved the $15.6 billion BOS International corporate book and $12 billion asset finance book.

These two businesses are largely unfunded and are most vulnerable to lending losses during an economic slowdown.

The fast-paced consolidation of regional banking comes just days after Brisbane-based Suncorp moved ahead with a formal sales process of its banking business.

Over the past week, Suncorp has received separate approaches from CBA, ANZ and National Australia Bank for its banking operations and has decided to test the market through a formal sales process.

Brokerage Citigroup placed a combined value of Suncorp's banking and funds operations at just over $8.2 billion, although this could be reduced to $6.8billion by a full acquisition of Suncorp and a sell-down of its AAMI and GIO insurance business.

Despite a move on BankWest, it is believed CBA remains committed to acquiring the Suncorp assets, with an eye to boosting its underweight presence in the high-growth Queensland market.

However, the banking giant is likely to run into competition hurdles if it pushes ahead.

Meanwhile NAB and ANZ, while not as cashed up, remain hopeful of pursuing a deal with Suncorp.

It is believed both are concerned at being relegated to perennial second-tier players behind an enlarged CBA or combined Westpac and St George.

If Suncorp moves ahead with a sale, it is expected to be engineered by way of a demerger. This allows a potential buyer to fund a transaction partially using their own shares.

For CBA, BankWest offers a dominant share of the fast-growing Western Australia market. The one-time government-owned bank commands more than 26% of lending and controls a third of the state's deposits.

On a national level, BankWest remains a relative minnow, ranking slightly behind Suncorp with a 3.5% share of retail lending and 3.4% in deposits.

By folding BankWest into CBA, analysts say CBA could generate about $200 million in annual synergies.

A sale would mark an end to the long-held British links to BankWest. HBOS' predecessor, Bank of Scotland, brought a majority stake in BankWest before it listed in 1995, and took full control in August 2003 for about $2.4billion, which valued the lender at 14.2 times its forward price-earnings ratio.

At just over $2billion for the bank and wealth arm, this is believed to represent about eight-times historic earnings.

The acquisition will deliver an additional $55.4 billion in mortgages and corporate loans to CBA's $380 billion lending book.

After months of on and off talks, the Credit Suisse-advised CBA yesterday said it had moved into exclusive negotiation on BankWest with owner HBOS.

"With discussions continuing, the parties have not reached agreement," CBA said yesterday.

It is believed legal manoeuvres have represented a stumbling point, as the troubled HBOS is in the process of being acquired by British banking giant Lloyds TSB. -- With MATHEW MURPHY