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CBA Used Financial Crisis To Extend Dominance
Credit Suisse says it believes that Australian banking major Commonwealth Bank of Australia (CBA) used the depressed equity valuations, caused by the global crisis in banking to extend its dominance of the Australian banking landscape and add further market share.
Australia’s largest mortgage lender increased its market share in mortgage lender partly by offering low variable rate mortgages and through the acquisition of HBOS’s Australian unit Bankwest last year.
The Sydney based bank acquired Bankwest and wealth management firm St Andrews at the distressed price of $2.163 billion, from troubled UK lender HBOS. HBOS was later acquired by Lloyds TSB largely to prevent it from failing completely.
CBA has been able to add between three and five per cent to its various lending and deposit bases by June 30, 2009 as a result of the Bamkwest acquisition.
Despite seeing growth slow in July, CBA continues to remain the clear market leader in mortgage lending with a 29.58 per cent market share when Bankwest is included.
CBA’s share of retail deposits is around 30 per cent.
James Ellis banking analyst with Credit Suisse says that because CBA runs Bankwest as a parallel unit, it is not subject to the same integration issues that face rival Westpac and its recently acquired subsidiary St George.
“I think CBA is looking at the financial crisis as a once-in-a-lifetime opportunity to improve and enhance their strong market position. The banking deal of the decade domestically has been CBA with Bankwest.”
Credit Suisse advised CBA on the Bankwest purchase and then completed the equity raising.
According to an AAP report which cited unnamed sources, during the negotiation for the sale of CBA, HBOS allegedly offered CBA its St Andrews wealth management business free of charge, conditional upon its acquisition of Bankwest.
Credit Suisse believes that of the Big Four banking groups, CBA remains the top equity pick due to strong revenue growth driven by gains in lending market share, increased scale in its wealth management business and high levels of retail deposit funding.
Credit Suisse notes however that the mortgage market will see increasingly difficult business conditions for all banks later in the year, as the first home buyers grant is eventually phased out.
CBA may be insulated from interest rate rises, which the market expects later this year.
On Wednesday, CBA’s chief financial officer said the lender maintained a $68 billion portfolio hedge, which would help mitigate against sudden moves in interest rates. The replicating portfolio was established 15 years ago and allows CBA to smooth its net interest margins over time across 15 products prone to interest rate volatility.
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