Talk about action. It was all go on the banking front yesterday. The Australian market warmed things up with the announcement that Bank of Queensland (ASX: BOQ) had made an offer to buy Bendigo Bank (ASX: BEN) for $2 billion in cash and shares. Could this be the beginning of market activity for consolidation in the Australian banking sector? Could this even be the first sign of a bigger incursion by foreign banks into the domestic banking market?
Banking takeovers have happened in fits and starts. The two most significant instances that spring to mind are Westpac's (ASX: WBC) acquisition of the Bank of Melbourne eight or so years ago and more recently Halifax/Bank of Scotland's (HBOS) incursion into the West Australian banking scene with its stealth-like acquisition of BankWest.
On the issue of domestic consolidation, there are still a few regional banks in existence that could come into play during mergers activity. Adelaide Bank (ASX: ADB) could be the next obvious target as it is still largely confined within the borders of South Australia, although it has worked hard to increase its loan book outside of the Festival State.
Could a merged Bank of Queensland/Bendigo Bank look to grow further and become a national bank overnight (almost) by acquiring Adelaide Bank? Adelaide Bank's ownership of the margin lending firm Leveraged Equities would also be attractive for any banking organisation looking to gain increased exposure to the wealth management sector. It would also provide instant access to a stock broking distribution network if the new entity desired to further explore the realm of funds management.
Taking this a step further, could we see a snowball effect of acquisitions and mergers? It could make more sense for a larger bank to wait for some of the minnows to consolidate, integrate, and dare we say it, slash and burn costs including staff and branches, before the larger bank moves in to swallow it up and make, in comparison, fewer cuts.
The most likely suitor would probably be St George Bank (ASX: SGB), the fifth largest Australian bank. The ACCC may look less kindly on ANZ, NAB, Commonwealth or Westpac munching into a newly consolidated smaller bank, a stigma St George Bank could avoid.
The other alternative is similar, except that it would involve foreign banks making a further push into the market. Now that HBOS has bedded down its BankWest stake with some success, a move across the Nullabor to the east coast, where it could devour Adelaide Bank, Bendigo Bank/Bank of Queensland, and maybe even St George Bank along the way cannot be completely discounted. Of course, with any of these scenarios, the latecomer looking for the 'easier' takeover position can expect to pay a premium for the privilege of having less reorganisation to do.
Daiwa Securities analyst Johan Vanderlugt told Reuters, "It's almost a knockout bid. It is a smart but defensive move by Bank of Queensland." He said, "Adelaide Bank really is up for grabs at some point in time."
After the warm up act yesterday, the big boys got into action. This time it was a UK bank making the headlines, with news that Barclays Plc was in "exclusive talks" to buy Dutch based bank and financial services company ABN Amro. The deal, if it went through, would value ABN at an equivalent value of AUD$100 billion. This would give Barclays access to ABN Amro's global institutional and retail investment services divisions and would help to increase Barclay's influence and ability to get bigger deals.
he only other question is whether Australian banks will look as attractive to foreign banking and financial services firms due to their concentration on the domestic market. However, with the burgeoning superannuation industry and the billions of dollars flowing into it every week, there may still be plenty of interest from outsiders.
Kris Sayce
for The Daily Reckoning Australia
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About the Author
Kris Sayce began his financial career in the City of London as a broker specializing in small cap stocks listed on London's Alternative Investment Market (AIM). At one of Australia's leading wealth management firms, Kris was a fully accredited adviser in Shares, Options and Warrants, and Foreign Exchange. Kris was instrumental in helping to establish the Australian version of the Daily Reckoning e-newsletter in 2005. In late 2006, he joined the Melbourne team of the leading CFD provider in Australia.
