The talk was sparked by the announcement from Australia’s fourth-largest bank, Westpac Banking Corp. Ltd., of its plan to take over fifth-ranked St. George Bank Ltd., via an all-share offer.
Trading in both stocks was suspended while Westpac discusses its proposal with St. George.
TODAYS TRADING HALT PRICES FOR TH BANKS
Westpac (WBC) $25.97
St George Bank (SGB) $26.65
‘Consolidation may be in the air while National Australia Bank‘s good results on Friday may also be feeding through,’ said Andrew Sekely, head of Australian equities at stockbroking firm Intersuisse.
‘It is quite surprising how a fairly gloomy mentality in the financial sector has turned around with these stocks now back in favor.’
All sorts of theories abounded yesterday, including a Big Four stab at Suncorp Metway or Bank of Queensland, an alternative Big Four tilt at St George and even a test of the so-called Four Pillars ban on an intra Big Four merger.
But let’s not get carried away: Westpac’s rivals won’t be rapt at an enlarged Westpac emerging as the biggest bank, but they’re unlikely to do anything rash either.
If the merger proceeds, ANZ, National Australia Bank and Commonwealth have limited local options. Bendigo Bank and Adelaide Bank have already entered a marriage of convenience, while Suncorp Metway (SUN, $16.25) would be a messy target because it’s still digesting the Promina general insurance acquisition.
Bank of Queensland (BoQ, $16.17) makes for a bite-sized target, but it’s not actually that big and trades on a PE premium.
Conceivably NAB or ANZ, which both once had strategic interests in St George, could get out their little black book and call their old flame again. But both have moved on and it would be hard to overcome Westpac’s first-mover advantage and the Gail Kelly familiarity factor.
Apart from the support of St. George’s board, Westpac will also need the approval from the Australian government to proceed. Its proposal could test the government’s resolve to ensure a competitive banking sector.
‘It is the first major banking acquisition we’ve had for a while so it is going to be interesting. I don’t see any fundamental reason why it shouldn’t go ahead but it’s new territory really,’ Sekely said.
Since the 1980s a ‘four pillars’ policy has been in place designed to ensure that Australia’s four major banks — Commonwealth Bank of Australia (CBA), National Australia Bank (NAB), Australia and New Zealand Banking Group (ANZ) and Westpac — don’t consolidate. Under the policy,
fifth-ranked St. George was considered a ‘no go area’.
IN OTHER NEWS
Maximus on Friday announced an “exploration target” of between 1.7 and 3 billion tonnes of magnetite iron ore, at its wholly owned Canegrass project near Windimurra in Western Australia.
The next Fortescue? Not quite: the assertion is based mainly on “state of the art” computer modelling of geophysical data and is thus “partly conceptual”.
On management’s estimate, the largest of five targets hosts up to 3 billion tonnes with a 20-35 per cent magnetite content. Maximus now plans to drill some proper holes to test the headline claim.
Until last week, Maximus was better known for a gold prospect in the Adelaide Hills and a uranium tenement in Western Australia, but that’s now been superseded by iron ore’s unlikely sex appeal. Its shares yesterday succumbed to an inevitable bout of profit taking and fell by 7.5c, or 25 per cent. Likely sellers were the shareholders who got in at 20c through the company’s $89.5 million rights raising last year.
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