Westpac has approached St George Bank to merger in an all share deal that could be worth over $15 billion to SGB shareholders.
The news of the offer was revealed this morning in a statement to the ASX.
The offer has come from former St George CEO, Gail Kelly, now running Westpac.
If it happens, it would create the largest bank in the country. It will also set off a scramble by the NAB, and perhaps the CBA; test merger and competition policy and the new Federal Government’s anti-bank commentary.
It will also overshadow the Federal Budget, something the Government won’t take too happily as it was preparing for a major push. Public interest will be all about this rather than the budget changes.
The deal will be well in excess of $15 billion and perhaps as high as $17 billion. Westpac shares closed at $25.97 on Friday and St George $26.65. That valued WBC at $48.77 billion and SGB at $14.95 billion.
Westpac’s statement this morning started:
"Westpac Banking Corporation today announced that it is in merger discussions with St.George Bank Limited concerning an all-scrip merger to create Australia’s leading financial services company.
"St.George and Westpac are each successful businesses, with iconic brands and strong and highly complementary cultures.
"The merger proposal recognises that, together, the two businesses would be stronger for customers, shareholders, employees and the community.
"Together, Westpac and St.George would have a strong 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."
The news will see all other bank shares rise sharply in price.
A flood of leaks about the 2008-09 budget with expensive cars to be taxed more, relief for some for health insurance, more money for the environment, money to reform middle class welfare payments and possibly a means test, perhaps a commitment on paid maternity leave, and a tax review.
That tax review has already been overtaken in two small areas by the decision to lift taxes on cars worth more than $57,000, and higher excise on alcopops. As I said, small tax increases, but you’d expect a comprehensive tax inquiry would mean all tax rises are precluded.
As well the changes to the Medicare levy and private health insurance will have an impact on the health care sectort As well thwith stocks like Ramsay Health, healthscope, primary health Care and NIB affected. Today’s meeting of MBF members to discuss a bid from BUPA Australia (from the UK), is likely to be impacted by the proposed changes.
But the tax inquiry isn’t so comprehensive: it won’t look at untaxed super, the GST or the increasingly costly tax concessions for superannuants 60 years of age and over awarded by the Howard/Costello Government.
Will it look at capital gains taxes and the way the family home is exempted, and will it look at the way negative gearing is distorting the housing market? On what was announced yesterday, it would seem so.
But while the budget will detail a lot of the fiscal and social policy of the Rudd Government, its economic forecasts will not be the guiding force for business and the economy.
They came out on Friday with the second Monetary Policy Statement of the year from the Reserve Bank.
The news wasn’t very good and will force quite a few revisions to earnings estimates, especially for 2008-09
The RBA raised its inflation forecast and said economic growth will slow over 2008 and into 2009. Non-farm GDP is forecast to be at 1.75% at the end of 2008, a big fall on the 4% plus at the end of last year, and the best indicator of what the RBA is aiming to do with the domestic economy.
Interest rates could rise, but don’t bet on it for a month or three or longer.
The Australian dollar finished at $94.36, up a third of a cent from Friday’s close in Australia and about steady with the level before the release of the RBA update at 11.30 am Friday.
The RBA cut its forecast for growth in June 2009 to 2.75% from the 3% predicted in February. Gross domestic product will expand 2.5% in June 2010, compared with a previous outlook of 3%: it will fall to an annual year end rate of 1.75% at the end of 2008.
GDP slowed to 0.6% in the fourth quarter of 2007 from the previous three months, when it rose 1.1%. First quarter GDP figures are due for release on June 4.
In its second monetary Policy Statement for the year the RBA had this to say about the outlook for the Australian economy…..
The available economic data for 2008 suggest that a significant moderation in domestic spending is now occurring.
After strong growth last year, the volume of retail sales is estimated to have fallen slightly in the March quarter, and this has occurred against the background of a sharp decline in consumer sentiment. Indicators of housing construction activity have also fallen in recent months.
In the business sector, surveys point to a noticeable fall in confidence in early 2008, though trading conditions at this stage are reported to have softened only modestly.
Labour market indicators, at the time of writing, have for the most part remained strong in recent months, with employment continuing to expand in the March quarter and unemployment remaining close to recent lows.
Developments in financing activity and in the established housing market are generally pointing to more subdued demand this year. Housing loan approvals have fallen in recent months and, to a lesser extent, there has been a slowing in the growth of housing credit outstanding.
