Commonwealth Bank snares BankWest at bargain basement price of $2.1bn

Today’s confirmation that the Commonwealth Bank is to purchase challenger brand BankWest represents a blow to competition in Australian banking. A combined CBA/BankWest would control a third of all household deposits, 22.7 per cent of home loans and 18.8 per cent of all business lending in Australia. Commonwealth Bank CEO Ralph Norris said in today’s media briefing the bank is committed to retaining all BankWest branches and staff in Western Australia, however he expects BankWest’s branch expansion on the eastern seaboard will cease.

At just over $2 billion the deal represents extremely good value for the Commonwealth Bank and Norris says it will be earnings positive from day one, with further synergies to be achieved by larger scale and a reduction in the cost base bought on as a result of systems integrations. In April the bank announced it will spend $580 million over the next four years replacing its core banking systems, and Norris says this system will eventually be applied to the BankWest business. Norris was unsure of the market share a combined BankWest and Commonwealth Bank would hold in Western Australia, however he says the bank’s understanding is it will meet all the regulatory tests posed by the ACCC.

The ACCC has already approved the proposed Westpac/St George merger which would result in market shares of 21.3 per cent in home lending, 22.3 per cent in household deposits and 26.2 per cent in credit cards. Norris argues competition will remain strong in the Australian banking market. He says the demise of some non-bank lenders has had little effect on the competitiveness of the home lending market, and what’s important is a strong banking sector that can offer “good” products and services to its customers.

Norris points out the bank has 24 products with a five star Cannex rating today, compared to just 3 products with a five star rating a few years ago The challenge for the Commonwealth Bank will be retaining its newly acquired customers. It’s decision to operate BankWest as a subsidiary will be one way to do this, but doubts remain over the ability of the bank to maintain the product leadership status of BankWest. In the current climate any move to shift popular interest rates is likely to result in customer dissatisfaction.

Whether it will result in a mass defection largely depends on the number of alternatives left for customers to look to in 6 months time, with Suncorp looking like the next competitor to fall.. Wed Oct 2008 01:10 (3 months ago)