08/10/2008 - 08:07

CBA buys BankWest for $2.1bn

08/10/2008 - 08:07

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Australia's biggest bank is set to grow, with Commonwealth Bank of Australia to take over BankWest and St Andrew's Australia from their troubled UK-based parent, HBOS plc, for $2.1 billion.

CBA buys BankWest for $2.1bn

Australia's biggest bank is set to grow with Commonwealth Bank of Australia to take over BankWest and St Andrew's Australia from their troubled UK-based parent, HBOS plc, for $2.1 billion.

The nation's biggest mortgage lender said the purchase was conditional on all necessary competition, regulatory and government approvals.

The Commonwealth Bank said it would maintain and grow the BankWest brand after the takeover, and customers could make transactions at either's ATMs without penalty.

Commonwealth Bank chief executive Ralph Norris said the purchase from HBOS offered rare value.

"The Commonwealth Bank regularly reviews acquisition opportunities but rarely have we seen a quality asset such as BankWest become available on such attractive terms to us.

"The strength of our current capital and funding position combined with the strategic value of this transaction makes this an attractive opportunity for the group and its shareholders."

In its presentation, CBA outlined that its takeover of BankWest was at 11.2 price-to-earnings multiples, lower than the average 16.6 calculated from other bank acquisitions.

Mr Norris said the acquisition of BankWest provided a significant opportunity to further develop the group's business in the WA market.

"It complements our existing operations and will deliver additional growth opportunities in key market segments, as well as enhanced product and service delivery opportunities for customers."

He said bank branches would not close as a consequence of the acquisition but did not say whether jobs would be on the line. Mr Norris also said BankWest's expansion plans on the east coast would cease.

Staff at BankWest have been told through an internal email that it is business as usual in relation to the takeover news.

Meanwhile, Western Australian Premier Colin Barnett said welcomed assurances from CBA that staffing levels would not be affected and BankWest's headquarters would remain in the state.

Mr Barnett said he had this morning spoken with Mr Norris who said that BankWest would continue to operate independently of the CBA.

"If the sale is approved, it will be a good thing to see BankWest continue in this way. With these commitments it will be a good outcome for staff and a good outcome for WA," Mr Barnett said.

"It will give BankWest as a financial institution greater strength and return the bank to Australian ownership."

Meantime, St Andrew's is HBOS Australia's wealth management business, providing life insurance and wealth management products.

"Its range of products is complementary to the group's existing wealth management business," Mr Norris said.

Commonwealth Bank said the purchase did not extend to HBOS's other Australian businesses, Capital Finance Australia, BOS International (Australia) and HBOS's Australian Treasury operations.

Commonwealth also confirmed that it had conducted "high level, exploratory discussions" with Queensland-based banker-insurer Suncorp-Metway.

If the acquisition is successful, it will create a bigger bank than a combined Westpac-St George and would give the Commonwealth Bank the biggest market share in WA, which is experiencing one of Australia's highest growth rates because of the mining boom.

BankWest and St Andrew's owner, HBOS plc, is in the process of being taken over in the UK by rival bank Lloyds TSB Group, in a deal worth STG12 billion ($A29.65 billion).

Commonwealth said it would fund the acquisition through a $2 billion accelerated institutional placement.

It said the method of funding the acquisition would allow it to maintain APRA Tier 1 capital at 7.6 per cent and Tier 1 capital under UK FSA rules at 10.1 per cent.

Commonwealth said ratings agencies Standard & Poor's, Moodys and Fitch all had confirmed the group's credit rating with stable outlook following the acquisition.

The Commonwealth Bank said, even with the acquisition, it was determined to continue to carry substantial surplus capital due to the current volatile market conditions.

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