M&A grips Aussie Banks

Implications: 1.Shrinking business pushing bigger banks to swallow smaller banks to increase customer base.

Analysis: HBOS's banking arm - BankWest is a regional player located in Western Australia (WA).Both National Australia Bank (NAB) and Commonwealth Bank of Australia (CBA) have a strong presence in Western Australia.But Bankwest has its headquarters in WA and a wide customer base there. Off late BankWest has made forays into the Eastern side of the continent and has been quite aggressive in its push. With the success of its branches in Sydney and other places by providing 7 days service and friendly approach it has started giving the bigger banks run for their money. The big4 banks too tried offering higher interest rates on deposits and also used the debt market but the going has been tough what with the likes of ING Bank offering even higher interest rates on deposits and at the same time attracting more customers.

Big4 banks at  first, appeared to be reluctant to pass on the recent interest rate cuts by Reserve Bank of Australia,  to their customers because of increase in costs of servicing borrowings due to subprime crisis worldwide.Money has become dear. Borrowings have fallen due to high interest rates.Business is stagnating and customer base is static.

Therefore the only other way to beat competition is to swallow competition. Use muscle power before the steroids run their course. Westpac Banking Corporation (WBC) is in the process of acquiring another regional player viz., St. George Bank, which really set the M&A ball rolling. NAB tried its hand at ABN Amro but gave up because of several writedowns within NAB. CBA has also put its plans on hold for the moment.The sharemarket is not doing well.

But BankWest is an attractive investment. HBOS's other arms such as Capital Finance concentrate mainly in Equipment Finance operations and work through other banks as a broker.

BankWest because of its aggression and success has become an attractive option for the customer base starved and competition wary big banks of Australia. And it won't be long before it loses its identity.