Dragon Is Prey: Bank On Merger

Sun Herald

Sunday December 12, 1999

GILLIAN BULLOCK

ST GEORGE Bank is shaping as the best consolation prize when the mother of all mergers between the big four Australian banks eventuates.

Under the so-called ``four-pillars policy", the banks are banned from merging with each other, but they can tango with smaller banks or big insurance companies. When put to the test, analysts are convinced the four pillars will crumble, because of this incongruity.

That means Colonial State Bank, Suncorp Metway and NRMA once it lists, all of which have customer bases of 2.5 to 2.7 million, are all takeover plays, as well as AMP/GIO with 3.6 million customers.

The most likely scenario is a scramble among the big four to merge on the expectation that only one merger may be allowed, in which case the other two banks would need to take over one of the so-called regionals to secure its position. And St George stands out as the best consolation prize.

Mike Macrow of Merrill Lynch puts a takeover share valuation on St George of $14.70. The bank is trading around $10.45 with a dividend yield based on last year's payout of 5 per cent.

Craig Turton of Salomon Smith Barney said St George was worth $12.13 today or $15.70 in July 2002. Five dividends between now and then would add 13pc for a total 21/2 year return of just under 70pc, plus franking credits, Mr Turton said.

St George's articles of association require that, until July 2002, a successful bid needs 90pc approval with 75pc of shareholders voting, so any offer would need to be friendly.

NAB, and now the ANZ, each have about 5pc of St George.

``ANZ's move on St George is insurance, a strategic investment," said James Ellis of Warburg Dillon Read. ``The main game is the big four."

Just a single move by one of the majors on a second-tier company could trigger a whole row of mergers.

If ANZ were to bid for St George it would push National Australia down into fifth spot behind Westpac and AMP. The Commonwealth might then bid for Colonial.

This could trigger a merger between the NAB and the AMP, which would then leapfrog into the No2 spot, leaving Westpac out in the cold.

Westpac might then have to look at NRMA or Suncorp Metway or perhaps make a counter bid for St George.

THE REGIONALS
                                Price   Dividend (%)
Bank of Adelaide                $5.15   5.83
Bank of Queensland      $5.10   4.90
Bankwest                $3.10   4.60
Bendigo Bank            $5.21   4.41
Colonial                                $6.30   2.70
St George               $10.50  4.95
Suncorp                          $8.08  5.44

© 1999 Sun Herald

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