Watchdog says Westpac takeover of St George will not hurt competition

The Australian Competition and Consumer Commission said Westpac's proposed acquisition was "unlikely to substantially lessen competition" under the Trade Practices Act.

The decision paves the way for the banks to merge when St George shareholders vote on the proposal in November. Westpac, now the second-largest bank with a $45 billion market capitalisation, and St George, the fifth-largest with a $17 billion market cap, will be the colossus of the Australian banking sector with a combined value of $62billion. Next is Commonwealth Bank ($58 billion) followed by National Australia Bank ($43 billion) and ANZ ($34 billion).

The ACCC decision was announced about 4pm, just before the market closed. Westpac shares plummeted 25, closing 99, or 4.04%, lower at $23.51. St George shares rose more than 10 to close 87, or 2.78%, lower at $30.43.

ACCC chairman Graeme Samuel said St George was a relatively innovative and dynamic competitor with a strong focus on customer service. But "other competitors to the merged entity which remain in the market will continue to play a similar role", he said.

Mr Samuel said competition from the other big banks, regional banks, credit unions, building societies and niche players would constrain the merged entity.

"The ACCC acknowledges the role that regional banks have played in challenging the major banks, particularly as they have entered new states and competed aggressively to gain market share," he said.

Mr Samuel said the ACCC's earlier concerns about the aggregation of the BT (Westpac) and Asgard (St George) wrap platforms had been dispelled.

Investigation had shown a range of alternative products, including master trust platforms and, increasingly, separately managed accounts, were available to financial planning businesses and investors, he said.

The ACCC decision comes after both banks indicated they would report strong 2007-08 profits despite the credit crisis that has hit the bottom lines of rivals ANZ, NAB and CBA. St George is expecting a $1.3 billion profit while Westpac has tipped $3.75 billion profit.

A combined Westpac and St George would have more than 5million customers, more than 20% of total lending market share, and more than 25% of the house loan market.

Westpac has committed to keeping the same number of branches and automatic teller machines. The St George, BankSA and Asgard brands would be retained.

Under the current timetable, the proposal will go to St George shareholders by early November. Shares in the blended entity would then trade normally by late November.