Reduced To A Few Heavy Hitters

Sydney Morning Herald

Wednesday October 8, 2008

Eric Johnston

AT LEAST some of the big four banks will emerge from the credit shake-out with an iron grip on lending markets.

After an opportunistic move on BankWest, the Commonwealth Bank will turn its attention to Suncorp.

Such a play throws out the window the mantra about organic growth of the CBA boss Ralph Norris. But anything can happen in the current environment.

The Suncorp camp had been expecting a deal relating to CBA and BankWest as early as last Friday, so a move on BankWest has barely raised the pulse of those involved in the sales process.

Indeed, they view it as potentially increasing pricing tension in the auction for Suncorp's bank and wealth business, the rival bidders National Australia Bank and ANZ now fearing they could be left behind as the permanent second tier of the big four.

While NAB was the last to join the process, from the outside it appeared to be the hungriest.

The brokerage Citigroup has placed a combined trade purchase of Suncorp's bank and wealth business at about $8.2 billion. The most likely way to achieve it would be a demerger of Suncorp's insurance business, allowing CBA to fund the transaction using its (relatively) stable scrip as currency.

No matter what way you cut it, CBA - the biggest bank - will emerge from this process a very, very big bank.

A move on BankWest would deliver it 41 per cent of Western Australia's lending markets and 49 per cent of the state's deposits, according to estimates by Credit Suisse.

A combination of CBA and Suncorp would deliver it a 34 per cent share of Queensland's lending market and 38 per cent of deposits. A NAB and Suncorp mix would deliver the merged entity about a 36 per cent share of Queensland's loans and deposits.

By comparison, a merged Westpac and St George in the home market of NSW will command 32 per cent loans and 29 per cent of the state's deposits, Credit Suisse's estimates show.

The Australian Competition and Consumer Commission will shortly have its work cut out assessing potentially two banking acquisitions.

While the competition watchdog waved through Westpac's move on St George, it failed to take into account the potential for a rapid change in the banking landscape brought about by the credit crunch.

In approving the $17.5 billion Westpac-St George deal, the commission changed tack by assessing retail banking markets on a national basis rather than its previous stand of taking a state-by-state view.

It noted growth in internet and broker distribution and uniform pricing policies by lenders across states was underpinning competition. The argument was that a farmer in Gulgong would not be affected by the loss of Sydney-based St George, given that such a person could bank online with Suncorp or BankWest.

However, those providers now look like being folded into the arms of a major, one by one.

© 2008 Sydney Morning Herald

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