Market left stunned by speed of CBA’s move on BankWest

14/01/2009 - 22:00

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A YEAR ago it would have been unthinkable for a major Australian bank to buy BankWest, the only significant regional player in the powerhouse growth state of Western Australia.

Market left stunned by speed of CBA’s move on BankWest

A YEAR ago it would have been unthinkable for a major Australian bank to buy BankWest, the only significant regional player in the powerhouse growth state of Western Australia.

Not only would the political ramifications have been unpalatable, BankWest was in the hands of one of the world's biggest financial players, which had taken the Perth-based group on a national trajectory.

Yet, such was the global turn of events, that Commonwealth Bank of Australia could swoop in and buy BankWest on the cheap, securing nearly 46 per cent of WA's deposit base and a market share estimated at around 40 per cent, leaving daylight between it and its competitors.

While Australian regulatory rules meant BankWest was ring-fenced from the immediate troubles of HBOS, the sale coincided with a stomach-dropping lurch on global stock markets and just days before the federal government was prompted to guarantee bank deposits - ensuring some of the usual competition snags for bank mergers appear to have been waived. Certainly the normally shrill voices that would oppose such a deal were largely absent.

And while CBA may have gone on to make one of 2008's biggest deal-making blunders via a botched placement to institutions, most thought the bank got its ducks in a row nicely before the unravelling of the UK's banking system threw BankWest fortuitously in its lap.

CBA had been in the frame since March when HBOS first struck trouble due to short selling of its shares amid rumours it had debt issues similar to those that had caused the collapse of peers Northern Rock and Bear Stearns.

However, it was not until September, after a failed rights issue by HBOS, that things got more serious. CBA is known to have had a team conducting due diligence on BankWest at this time, just as the world was rocked by the collapse of Lehman Bros, now seen as the catalyst for the worst phase of the credit crisis so far.

It announced the deal on October 8. Unconfirmed rumour has it that the Bank of England, at that time masterminding a rescue of HBOS through its acquisition by Lloyds TSB, gave CBA 24 hours to make its decision.

The acquisition price of $2.1 billion was half what conjecture had put the price tag at just a few weeks earlier, reflecting the pressure on the owner rather than the value of the asset.

While some believe CBA could have bought BankWest for even less, if it had waited, there was clearly pressure from regulatory bodies here and in the UK to have a deal consummated quickly.

At that stage the price for BankWest was viewed as more like $4 billion to $6 billion, though it had previously been viewed as worth as much as $8 billion when the whole of HBOS's Australian operations were accounted for.

HBOS paid around $1.1 billion in 2003 for the 43 per cent to take full ownership of BankWest, indicating it gave up control four years later for much the same price, despite five years of significant growth and investment.

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