Sale of BankWest on hold for now

New owner, London-based Lloyds TSB, is preoccupied with bedding down a mammoth banking merger at home.

Even before Lloyds TSB's sudden $27.5 billion acquisition of HBOS, momentum had been building for a sale of BankWest to bolster the British mortgage giant's capital base.

Analysts said HBOS's under-pressure chief executive, Andy Hornby, had softened his stance in the past two months towards a sale of the Australian unit.

Any deal for the entire Australian arm of HBOS, which includes an institutional banking operation, would be for more than $7 billion. A move on just the BankWest retail bank could be priced between $3.5billion and $5 billion.

Britain-based investors have previously speculated that Commonwealth Bank and NAB have approached HBOS about its Australian business, while analysts have speculated NAB could undertake an asset swap.

CBA, which recently pulled out of acquiring ABN Amro's Australian business, has appointed Credit Suisse as adviser. NAB has retained Goldman Sachs JBWere as a house adviser.

Analysts said Lloyds was unlikely to retain HBOS Australia, given its track record of exiting its Australian and New Zealand assets over recent years.

"I suspect they'll follow that plan in the future," an analyst said.

In 2003 Lloyds sold its New Zealand banking business, National Bank of New Zealand, to ANZ for $4.9 billion.

HBOS's problems were unlikely to affect the local operations, HBOS Australia chief executive David Willis said last night.

He said BankWest was a strong stand-alone entity, fully regulated by the Australian Prudential Regulatory Authority, and had a strong capital base and liquidity position.

"This acquisition can only strengthen that position," Mr Willis said. "It creates a formidable banking group, providing benefits to customers."

While BankWest has undertaken an aggressive expansion on Australia's east coast, particularly among small to mid-sized business customers, most interest would be for its booming West Australian franchise.

The one-time government-owned bank commands more than 26% of lending and controls a third of the state's deposits.

On a national level, BankWest remains a relative minnow, slightly behind Suncorp with a 3.5% share of retail lending and 3.4% share of deposits.

The Australian Competition and Consumer Commission's recent approval of Westpac's $18.5 billion merger with St George is widely regarded as making any move on BankWest easier.

The Finance Sector Union (FSU), which this morning fronts a parliamentary inquiry into competition in the banking sector, warned that the St George transaction was likely to lead to fewer choices for Australian borrowers.

The FSU has urged the Government to reconsider the St George merger, as it could lead to more than 10,000 job losses.

KEY POINTS

? Any deal for the entire Australian arm of HBOS would be for more than $7 billion.

? It is rumoured that CBA and NAB have approached HBOS already.