Measuring mergers

The industry has watched St. George and BankWest closely, but what's on the horizon for ACCU and S&L?

March 4, 2010

By John Phillips

The judge of a successful merger between financial institutions requires brand protection for both entities to not only maintain the existing customer base, but to continue growing, while at the same time ensuring integration costs remain within forecast levels.

Westpac Bank and Commonwealth Bank have had great success protecting their respective subsidiary brands of St. George and BankWest post takeovers in 2008.

Many banking pundits anticipated a customer exodus from St. George and BankWest post the big bank takeovers, yet in effect the opposite happened.

The St. George mortgage book increased 15 per cent to $86 billion during 2009, with retail deposits increasing eight per cent to $40 billion.

The BankWest brand experienced similar success, growing mortgages by 29 per cent to $38 billion, although retail deposits did decline three per cent to $14 billion.

At the smaller end of the banking landscape, the merger between Australian Central Credit Union (ACCU) and Savings & Loans Credit Union (S&L) appears to be using the same successful business model.

Three months on from ACCU and S&L becoming a single entity, managing director Peter Evers is keen to maintain the separate brands in the market, for the time being.

"There was a very strong commitment from both boards to let the legal merger happen, and we will continue to operate as two separate brands in the market with two operating models for a period of time, with the intention to bring the technology side of the operating models together by the end of this year.

"From a business perspective, the merger hasn't yet delivered anything to the public outside of some pricing and product alignment, as we still have two technology platforms, which is the big challenge."

The name may change though over the medium term, as the integration is completed over an 18-month to two-year time cycle.

"Both brands are under consideration at the moment, with Australian Central the legal entity for the merger but we have two operating positions.

"At the moment, one is called the Australia Central division and the other the Savings & Loans division, and we will look at the brand value of both, but also some new opportunities to create a new brand for a new future.
"I don't know if it will happen, but my sense of anticipation is that we are likely to emerge with some form of new identity, reflecting the heritage of both credit unions."

Evers adds the board and an executive management team have commenced a process to develop a strategic positioning for the new entity in the longer term.

"It's still a work in progress, but it is a large part of our focus at the moment.

"We have a lot to do running our business as usual, and we have a lot to do with the integration of the businesses, but there is a huge amount of over the horizon work that the board and the executive committee need to complete, to make sure we take advantage of our future opportunities and ultimately meet the members' needs and expectations."

Evers is adamant the operating and integration budget remains on track, which has been approved by the board.
"We have not seen anything materially outside of that at all.

"It is only three months in, and we don't want to give an impression that it's all done, as we still have a long way to go."

The other cost of mergers is often the people, with Evers saying a commitment had been made to 85 per cent of staff, guaranteeing their roles, with redundancies kept to a minimum.

The new ACCU
Historically, ACCU had been a very heavy user of securitisation as a funding tool, which has restricted lending capabilities as these markets have remained virtually closed.

Evers though is now looking to derive more value from existing members, with a direct focus to compete against its banking cousins in the retail banking and personal services sectors, and with the strong geographical dispersion, the new entity won't be restricted to one regional area or state, which has stymied many others' growth.

Both credit unions have a strong South Australian branch network, with Evers adding the ACCU Northern Territory branches have been successful in gaining new members, with some additional product penetration to mortgage holders from the purchased RACWA (Royal Automobile Club of Western Australia).

In addition, S&L has an operating presence in Victoria, providing the new entity with meaningful representation across all of Australia to grow, on the condition that a continued reasonable priced funding source can be established.

The combined entity has funds under advice of $7.5 billion, including wealth management and on and off balance sheet mortgages, retail deposits of $3.5 billion and 350,000 members.

John  Phillips is a retail banking analyst