(Adds CEO, analyst comment, details)
By Mette Fraende
SYDNEY, Oct 8 (Reuters) - Commonwealth Bank of Australia (CBA.AX) has agreed to buy British bank HBOS’s HBOS.L Australian unit BankWest for A$2.1 billion ($1.5 billion), below book value, to boost its market share in fast-growing Western Australia, the bank said on Wednesday.
The sale comes after HBOS’s shares slid 40 percent on Tuesday, leading a broad-based sell-off in British banks, as the UK government prepared to announce a rescue package for its crippled financial sector.
“It’s certainly an attractive price, indicating some distress and willingness to sell. CBA’s definitely got an attractive deal,” said Mark Nathan, a portfolio manager at Fortis Investment Partners.
CBA, Australia’s second-largest bank, also said it had had exploratory talks with Suncorp-Metway Ltd (SUN.AX), which operates the country’s sixth-biggest bank, but added that it was not currently involved in a sales process.
“It does set an indicative benchmark price for what Suncorp’s worth,” said Nathan.
CBA’s purchase of BankWest, at 20 percent below book value, looks cheap compared to Westpac Banking Corp’s (WBC.AX) takeover of St George Bank SGB.AX at 2.7 times book value.
“The Commonwealth Bank regularly reviews acquisition opportunities but rarely have we seen a quality asset such as BankWest become available on such attractive terms to us,” Ralph Norris, Commonwealth’s chief executive said.
Like many other lenders around the world hit by the global credit crisis, British banks are scrambling to raise funds to shore up ailing balance sheets. HBOS has accepted a British government-backed takeover bid from rival Lloyds TSB Group Plc (LLOY.L).
Suncorp on Monday revealed it had received approaches for its banking and wealth management businesses. CBA has been tipped as a front runner to buy the assets. Analysts believe CBA could afford both.
“We think so. They’re raising funds for this, so they still maintain a very strong Tier 1 ratio and capital position. They remain well placed to consider a Suncorp opportunity,” Macquarie analyst Ben Zucker said.
The acquisition of BankWest would boost CBA’s earnings per share immediately, and create annual pre-tax cost synergies estimated to be at 20-25 percent of BankWest’s cost base, CBA said.
The deal, expected to be completed end January 2009, did not require HBOS or CBA shareholder approval, but would depend on regulatory approvals.
“We can’t preempt the outcome, but expect any issues that would emerge can be overcome,” a CBA spokesman said.
Banking sources said CBA planned to raise A$2 billion through an issue of new ordinary shares to help fund the BankWest deal, with an offer price seen between A$38 and A$43 per share.
CBA’s shares went on a trading halt pending the completion of a bookbuild and placement of securities. They last traded at A$45.15.
It shares have fallen about 24 percent so far this year, caught up in a broader sell off of financial stocks due to the global credit crisis.
Consolidation in Australia’s banking sector has been widely expected as its big four players bulk up to weather the financial market turmoil.
Westpac, Australia’s fourth-biggest bank, is close to acquiring the No. 5 bank St George, while Suncorp’s banking division is another target.
CBA would also acquire HBOS’s life insurance and wealth management business in Australia, St Andrews, but not its other Australian businesses, Capital Finance Australia Ltd, BOS International (Australia) Ltd and HBOS’s Australian Treasury operations.
BankWest has 860,000 customers, mostly in Western Australia state which has been growing fast on the back of a mining boom. It also been expanding its retail banking operations in the more populous eastern Australian markets.
In the same statement, CBA said it had marked down its holding of notes in troubled childcare operator ABC Learning Centres Ltd ABS.AX, which would detract A$100 million from its net profit in its fiscal 2009. ($1=A$1.40) (Additional reporting by Sonali Paul) (Editing by James Thornhill)