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Westpac takes landmark move to merge with St. -

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Westpac takes landmark move to merge with St.George

The World Today - Monday, 12 May , 2008 13:18:00

Reporter: Peter Ryan

ELEANOR HALL: To what could be the biggest banking deal in this country in decades.

Westpac has announced a proposal to merge with its smaller competitor, St.George Bank.

The offer comes barely three months after Gail Kelly jumped ship from St.George to become the chief
executive at Australia's fourth biggest bank.

And while the deal is in its early stages, it skirts closely to Australia's Four Pillars policy
which bans the big four banks from merging.

Business editor Peter Ryan has the story.

PETER RYAN: If the merger deal goes through, Westpac would become Australia's leading bank, with a
25 per cent share of home lending and $108 billion under wealth management.

In an audacious bid to become the biggest and most powerful bank, Westpac is exploiting the
realities exposed by the credit crisis.

It's been the best sharemarket performer of the big four banks over the past 12 months, down just
4.7 per cent, while St.George has taken the biggest and most painful slide.

MARCUS PADLEY: It's an opportunistic time, I think, for Westpac. If you look at the relative share
price performances over the last five years, they've basically been running together for the last
four years. And then in the last year, St.George has underperformed Westpac by almost 30 per cent.

PETER RYAN: Stockbroker Marcus Padley, who edits the "Marcus Today" newsletter, says while this is
far from a victor and vanquished story, there are a few twists working in Westpac's favour.

MARCUS PADLEY: There's perhaps some sort of credit market pressure which would be bigger on the
smaller banks i.e. St.George. Those would perhaps be timing issues. The other one of course which
is of immense interest, if not amusement, is of course that Gail Kelly is in, I think, her first
month of being managing director of Westpac, having moved from St.George. So she hasn't hung around
at all.

PETER RYAN: The Gail Kelly factor is the talk of what's become the biggest market story around.

But the Westpac chief executive, and first woman to head a big four bank, wasn't talking today,
apart from a carefully crafted statement in today's announcement.

GAIL KELLY (voiceover): It would create Australia's leading financial institution, with regard to
meeting customer needs, distribution, strong brands, scale, financial strength and the best
products.

PETER RYAN: A merged Westpac and St.George Bank would provide a customer base of 10 million, that's
around one in every two Australians.

And while today's statement said the merged branches and ATMs would be retained, customers remain
edgy.

VOX POPS 1: I will get out at Westpac. Yes.

VOX POPS 2: I'm old enough to remember the run on St.George.

VOX POPS 3: One less bank is one less choice. Not that there is very much difference between the
two facilities as it stands, but it means there will be less on the street facilities and
presumably, less and fewer facilities in country towns.

VOX POPS 4: Too many of these large corporations combine and therefore it makes it very unfair on
the consumer because they start then hiking up rates on things, just like Coles did with the fuel,
and it's just less competition basically, is what they're trying to do. Drag people into having to
consume with them and pay whatever you have to pay in fees.

PETER RYAN: Those concerns are shared by consumer advocates including Choice spokesman Christopher
Zinn.

CHRISTOPHER ZINN: We have concerns about competition. We don't believe that there's enough
competition in the banking sector it is, and any contraction in the number of banks, especially in
terms of the big five banks, is not necessarily going to lead to anymore competitions. So we were
hoping very much that before regulators give a green light to this deal, that their competition
would really be the issue that was top of mind.

PETER RYAN: So you're concerned that consolidation doesn't necessarily mean more competition?

CHRISTOPHER ZINN: Definitely. Look, the best way to ensure competition in any market, but
particularly with banks, is that you have more players, not less. And in fact, seeing in the
biggest five banks, the move to four banks, that's not going to necessarily bring competition
unless there are definite safeguards built into any merger that goes ahead.

PETER RYAN: Stockbroker Marcus Padley doesn't see any regulatory hurdles even given the Four
Pillars policy which bans mergers between the big four banks.

But he does see an opportunity for Westpac to cut costs.

MARCUS PADLEY: One of the main issues is clearly whether there'll be any regulatory
catches(phonetic), and the general feeling is that they won't. As far as the fate of the two
companies that are concerned, then they do have a big overlap in New South Wales, both have deep
penetration in NSW. There will clearly be a lot of synergies in closing branches and selling off
possibly some assets.

PETER RYAN: The Shadow Treasurer, and former investment banker Malcolm Turnbull, doubts the Federal
Government would change the Four Pillars policy.

But he told Macquarie Radio, there could be some action ahead as second tier banks test the market.

MALCOLM TURNBULL: I think you will see all of the smaller banks, and there are number of lot banks,
a number of banks, much smaller than St.George of course, coming under increasing pressure because
they are, they are basically, look they're in a business, they're lending money to people, and they
are having to pay more to borrow the money they on-lend than the big guys do. And so they are at a
competitive disadvantage.

PETER RYAN: The merger deal is still in its early days with both Westpac and St.George remaining in
a trading halt.

But regulatory concerns aside the proposal is ultimately subject to shareholder approval.

ELEANOR HALL: Business editor Peter Ryan.