Australian banks mull mega merger

Australia's fourth-largest bank, Westpac, said Monday it was discussing a merger with fifth-ranked St. George which could lead to the creation of the country's biggest bank.

Westpac Bank Corp Ltd. said it wants to make an all-scrip bid for St. George Bank Ltd to form Australia's leading financial services company, which would have a market capitalisation of 64 billion dollars (60 billion US dollars).

St. George said Westpac approached it after the close of business on Friday with the merger proposal, and the two banks have requested that trading in their shares be suspended while discussions continue.

Westpac chief executive Gail Kelly said the merger would create a combined group able to compete more effectively in the Australian market.

"It would create Australia's leading financial institution with regard to meeting customer needs, distribution, strong brands, scale, financial strength and the best products," Kelly said in a statement.

Kelly, the former chief executive of St. George, became chief executive at Westpac at the start of February.

The combined group would have about 10 million customers and would displace National Australia Bank Ltd. as Australia's largest banking group.

It would have a 25 percent share of Australia's home loan market and become the nation's largest wealth management group with 108 billion dollars (102 billion US dollars) of funds under administration.

"The proposal continues Westpac's focus on Australia and New Zealand and would help Westpac achieve its strategic priorities sooner -- building greater strength in distribution and transforming our operations through the integration process," Kelly said.

Westpac shares closed on Friday at 25.97 dollars, putting the bank's capital at 48.8 billion while St. George closed at 26.65 dollars, giving it a market capitalisation of 15 billion.

Both banks said they expected to make further announcements later Monday or before the start of trading on Tuesday.

Westpac said a combined group would have AA credit rating, a larger balance sheet and greater access to funding.

"This would lower risk and costs for St. George, and position the combined business to withstand challenging funding markets and take advantage of opportunities created by the dislocation in capital markets," Westpac said in a statement.

The merger would require the approval of a range of regulatory authorities and would also need to be approved by Australia's chief federal economics minister, Treasurer Wayne Swan.

On May 1, Westpac reported a 10 percent rise in first-half net cash profit to 1.84 billion dollars supported by growth in its loan business. The result was above market expectations with its balance sheet reflecting the low risk strategy pursued by Kelly's predecessor, David Morgan.

St. George last week disappointed the market with its first-half results, sending its shares nearly six percent lower. The bank reported its first-half net cash profit rose 6.2 percent to 603 million dollars, falling short of market expectations for a rise of more than 9.0 percent.

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