If Westpac is allowed to take over St George, there’s a chance of at least one more bank merger.

Just as we have now been told we can afford limited competition in steel, retailing, airlines, newspapers and cement with two or three major competitors, the way is clear for two of the remaining big banks: the ANZ, Commonwealth or NAB to merge.

A combined Westpac-St George would be the financial equal to the NAB and Commonwealth, leaving the ANZ as the tiddler.

The Commonwealth and NAB now have to decide whether to go for St George. There are probably too many competition problems for the Commonwealth, leaving the way for the NAB, if it wants to make an attempt.

There would be fewer in market competition problems with the NAB (which is why it stalked St George a few years ago), which is dominant in Victoria and southern states. It is less represented in NSW. St George and Westpac are going to have to give up assets in NSW to get the deal over the line.

But assuming that Westpac and St George merge, what happens next?

Even though the Federal Government says the four pillars competition policy won’t change as a result of a St George-Westpac merger, the way would be clear, theoretically at least, for the ANZ to merge with either the NAB or the Commonwealth.

The NAB though would be out: its competition problems with fellow Melbourne based ANZ would be too great and the asset branch and other sales would remove a lot of the rationale and customers.

The Commonwealth has significant share in Victoria through its acquisition of the State Bank of Victoria 15 years ago which sparked the privatisation of the bank. But its problems would not be as great as the NAB would be in Victoria.

The ACCC allowed OneSteel and BlueScope to carve up the third local steel group in Smorgon Steel last year, citing import competition as a third force: the same logic has been used in the cement industry while the ACCC allowed Rural Press to merge with Fairfax last year to create a major newspaper group to take on News Ltd.

There is growing banking competition from Bankwest of Perth in eastern states, and the online banking businesses of ING, HSBC and Citigroup are growing rapidly. The Bank of Queensland and Bendigo Bank are the remaining regionals, but not major competitive forces.

Westpac said yesterday it is looking for $300 million in cost savings in the merger. As the cuts will mostly come from St George, the bank office and support operations will see significant job and resource losses, no matter how Westpac spins it.

Westpac says the merger will cost $700 million all up, so the pressure will be on former St George boss, Gail Kelly to carve up her former employer. It will happen and there will be screams. You won’t see much change in the branches and the public face of St George, but the rest of the business will be hollowed out.

There would be a lot of screams and moans if the ANZ and the CBA merged. But why would people worry about a lack of competition in banking and the big cartel, when that’s what they have tolerated in steel, cement, newspapers, airlines and retailing.

The declining level of competition in many of these major industries is partly why we have capacity problems on the supply side in these products that have been exposed by the resources boom.

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Peter Fray
Peter Fray
Editor-in-chief of Crikey
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