Australian govt watching bank merger deal

Australian leader Kevin Rudd Wednesday said he was committed to maintaining competition in the banking sector, after two banks agreed to merge to create the nation's biggest financial services group.

Prime Minister Rudd, whose centre-left Labour government has been critical of the fees charged by banks, refused to comment on the proposed merger between the country's third and fifth-largest banks.

But he said the government was committed to maintaining competition in the sector and would watch closely the mega merger which would create a bank worth around 66 billion dollars (62 billion US).

"Let's see how all that unfolds," Rudd said after St George Bank on Tuesday agreed to larger bank Westpac Banking Corp's 18.6 billion dollar merger offer.

"These things are a complex business when it comes to the market place and I don't wish to make any statements which would seem to be inappropriate," he told the Seven Network television.

"The key thing for us is to make sure we've got enough competition in the Australian banking industry.

"We'll watch this one carefully, but I don't want to issue any edict about what the market should do," Rudd said.

The proposed merger will require clearance from Australia's competition regulators and Treasurer Wayne Swan and is expected to test the government's "Four Pillars" banking policy.

Although the policy was aimed at preventing mergers between the four biggest banks -- CBA (Commonwealth Bank), NAB (National Australia Bank), Westpac and ANZ -- St George was until now largely considered off limits.

Westpac and St George have signed an agreement providing for a two week exclusivity period, during which they would undertake reciprocal due diligence and negotiate the detailed terms of a merger implementation agreement.

But St George's board's decision to accept the offer is conditional on an independent expert's report that the deal would be in the best interest of shareholders and that a superior offer did not emerge.

The head of the NAB, the country's second-largest bank by market capitalisation worth about 55.9 billion dollars, has refused to rule out making a counter offer for St George.

Asked whether NAB would consider making a counter-bid, John Stewart told the Australian Broadcasting Corporation: "Of course we are not ruling anything out."

"There's nothing we can do during the two weeks apart from speculate," he said. "We'll watch closely. It's an interesting time."

St George stocks added to Tuesday's 25.2 percent gain, climbing a further 2.6 percent to a record close of 34.22 dollars on Wednesday while Westpac dropped 0.6 percent to 24.95 dollars and NAB fell 2.0 percent to 33.70 dollars on a rising market.

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