Paul Fegan who has been in the top job since February this year largely as a result of his predecessor Gail Kelly assuming the top job over at Westpac, will step down officially on December 8th following six years with the company. Mr. Fegan receives a termination payment of A$ 2 million, on top of salary, leave and other entitlements.

St George’s shares will be suspended from the Australian Securities Exchange (ASX) at the close of trading Monday, after shareholders overwhelmingly approved a merger with Westpac. Court orders approving the schemes will be lodged with Australian Securities and Investments Commission (ASIC) later on Monday.

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Hong Kong’s South China Morning Post had earlier reported on its website, that the $200 billion Sovereign Wealth Fund CIC, was in talks with the Australian miner about taking a possible minority stake in the iron ore miner.

A Fortescue Spokesperson said “”There are no discussions with CIC and Fortescue is not seeking any additional new capital,” The report also suggested that CIC wanted to bring in a strategic partner if talks with the founder of Fotrtescue Andrew Forrest were positive.

Baosteel Group, the mainland’s largest iron and steel maker, and ina Shenhua Energy Co, the country’s largest coal miner, would be among the companies the fund would look to invest with, the report said.

“They’ve looked at this before and now the price is in a zone that suits them,” the SCMP website quoted a source as saying.

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Santander, Spain’s largest lender by assets, is a highly rated bank with a strong balance sheet, and other than its stock selling off in line with all banking stocks globally, the lender has little exposure to the US property market. The bank which owns marquee British high street bank Abbey National does have exposure to its own slumping domestic property market however.

Santander is meeting with Australian fixed income investors this week. And plans to establish a Kangaroo bond program largely to diversify its funding base JP Morgan said. JP Morgan is arranging the meeting with Australian investors and is presumable going to manage the offering when it eventually comes to market.

The date for any issue so far has not been set and the amount that the Santander plans to raise has not been defined The bank began meeting Sydney-based bond investors on Tuesday, and hosted further meetings in Sydney yesterday, before moving to Brisbane and Melbourne.

Australia, which under normal circumstances used to be a liquid fund raising source for overseas banks, has been effectively closed to both foreign and domestic issuers for the last couple of months as the global credit crisis froze lending. The decision by Santander to look at Australia as a diversified funding source and begin talks with potential investors is a clear sign that the freeze may be coming to an end.

Also mitigating against foreign bank issuance in Australia has been a sharp move into negative territory by the Australian dollar basis swap, which reflects the cost of borrowing offshore, and a collapse in the Australian dollar itself. A negative basis swap increases the cost of converting Australian dollars into a foreign borrower’s home currency.

The last issuer to test the Australian primary market was Westpac Banking Corp, who raised A$ 1.48 billion of senior debt, which has been the only issue to have come to market in recent months. Westpac is also helping to arrange Santander’s investor presentation along with JP Morgan.

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Merrill Lynch, an Investment Bank estimates A$ 54 billion of debt by just 20 banks. Banks who may decide to retreat to their home markets because of their own capital and credit impairment of their own issues.

Merrill thinks that around $150 billion of $285 billion in domestic syndicated debt is on the balance sheets of offshore banks, with $54 billion held by “retreating” lenders that are likely to be rationing credit in Australia. Whilst this creates a great opportunity for local banks to refinance at much better margins, local banks would also be forced to raise more capital in order to support increased lending. Contrastingly, it is possible that some syndicates may collapse altogether, resulting in potential bad debts which would hurt the economy greatly.

A scenario could occur where a corporate borrower finds itself in trouble because one of its syndicate members is unwilling for their own reasons, to refinance an existing syndicated facility, The Investment Bank says “In such a situation other members of the syndicate may elect not to fill the gap left by the exiting bank, the borrower may be forced into an early workout or liquidation scenario, which could potentially result in a larger bad debt for the banks involved.

Merrill says global banks have now raised more than $800 billion to shore up their capital positions after nearly $1 trillion of write-downs. Australian Real estate investment trusts, which have absorbed 16 per cent of the $285 billion in syndicated debt raised since 2006, are the most likely to be affected by any retreat of the offshore banks, followed by infrastructure and financial services, each with 9 per cent.

Merrill reckons that the focus of lenders is likely to move from non-core markets such as Australia particularly when they are pressured by governments, which have introduced deposit and term funding guarantees to direct scarce capital to domestic markets. It is no wonder that Foreign banks which do not have the benefit of government guarantees on their deposits or a quasi sovereign rating on their debt issued in the international wholesale money markets, are thinking about beating a hasty retreat.

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The spread between Aussie three-month bill swap rates and the Overnight Index Swap (OIS) a key indicator of banking funding costs fell to 32 basis point early Monday down from 45 basis points on Friday. At the height of the credit crisis the peak spread was 140 basis points in October, according to data released by leading inter-dealer broker ICAP Australia.

US borrowing costs have also dramatically fallen from their peak, though the pace at which they have fallen has been much slower, with the spread between the three-month US dollar London interbank offered rate and OIS sliding from a peak of 3.60 per cent on October 10 to 1.70 per cent last Friday.

“The signs are that for Australia we are easing and more so than the rest of the world” ICAP’s Mr. Carr told Dow Jones News Wire. “For (Australia), the issue of interbank bank lending is easing off a lot quicker, than the US or Britain” Mr. Carr said, adding that the recovery reflected the strength of the domestic banking sector.

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The agreement means that Axa will provide new investment and insurance products to the banks 2.3 million retail customers. The deal means that roughly GBP 1.2 billion (AS 2.75 billion) of funds under administration will be transferred to a new entity.

An NAB spokesperson said that abou 129 jobs will also be transferred whilst a further 79 jobs would be cut. The bank said it would try to redeploy affected staff. The spokesman said the staff reductions followed the completion of a 12-month review of the wealth business, and were not the result of the global economic slowdown.

NAB’s announcement followed after it was revealed that Royal Bank of Scotland was planning to cut 3000 jobs from its global banking and markets workforce in the coming weeks.
Other major British companies announced job-shedding plans last week, with unions saying they believed 20,000 jobs had been slashed in the past five days alone as unemployment heads towards a predicted figure of 2 million within a few months.

KPMG warned earlier in the year, that 10,000 Australian jobs could go from the nation’s five main banks over the next year, as lending growth slows and provisions mount due to the credit crunch.
The Australian reported last month that ANZ would cut more deeply into its workforce than previously thought, with a reduction in management layers from 12 to seven likely to yield a headcount reduction of well over 1000 — more than double the anticipated figure.

Since then, conditions have only worsened and on Friday, Fairfax Newspaper went even further and said that an unnamed ANZ source, told them that up to 3,500 jobs could go before Christmas.

CBA Chief Ralph Norris said at the Annual General Meeting that the current environment was the worst it has ever been since the Great Depression. CBA is also believed to be preparing to cut lots of jobs, some say in the hundreds, as part of a cost cutting strategy.The Westpac/St George merger could result in the loss of 2000 jobs.

Deep cuts are expected in the investment banking, Australia’s largest full service Investment Bank, Macquarie Group is putting 600 property and real estate bankers on notice that positions will be slashed across that division.

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The source told the newspaper that the job cuts are expected to take place at least a couple of weeks before Christmas, which does not bode well for ANZ bank employees who do not hang on to their jobs.

“They are moving through the entire organisation. They are trying to take as much cost pressure out as they can,” the source told Fairfax.

ANZ Spokesperson Paul Edwards, when contacted, did not commit to a number but did say a restructuring would mostly affect middle management or less than 10 per cent of employees.
“Although we have said we don’t expect the new structure to impact front line roles, inevitably there will be an impact on roles in middle management,” Mr. Edwards said.

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Australian Banks have come to rely on deposit based funding over the last few months and are no doubt very reluctant to let such a stable source of funding disappear or move to a rival. Any outflow would threaten the funding positions of big banks. The importance of deposit based funding has increased as conditions in wholesale international money markets tighten.

Under the Government’s deposit scheme, only the first A$1 million of a customer’s money with an institution will be guaranteed free. Beyond that, customers are required to pay some kind of insurance premium or fee. In order avoid such fees, if a customer with A$10 million were to deposits that money across 10 institutions equally then under existing guidelines all of those deposits will secure free protection.

The prospect of wealthy depositors diversifying their money across the banking system has led to smaller institutions taking market-leading positions in the term deposit market. In order to counter this potential massive outflow of deposits, Commonwealth Bank said it was looking to introduce special guarantee style accounts.

Such accounts would be priced at a discount rate or include a special fee to cover the costs of guaranteeing deposits of more than $1 million. Smaller lenders such as Bank of Queensland, Elders Rural Bank and Bankwest are making an aggressive pitch for customers with more than a $1 million ready to deposit.

Banks are likely to continue reducing their deposit rates as credit conditions eased in domestic and offshore money markets. Short-term money market rates eased up in October, but the major banks say they are continuing to encounter difficulty raising funds for terms beyond 12 months. Uncertainty in long-term money markets had prevented banks passing on the full benefit of last week’s official rate cut.

Some analysts say that there is an awful lot of uncertainty present, despite the cost of funding in some markets having actually fallen. If there is another full month of relative stability, then it is felt that banks will pass on a little more of the rate cut.

National Australia Bank’s Ahmed Fahour said no local banks had been able to secure medium-term funding in the last month, he said “In the wholesale market people only want to lend money for a month,”

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The bad news started last week with Deutsche Bank downgrading CBA from hold to sell, and then spilled over into this week after Citi followed suit with its own downgrade. Morgan Stanley reaffirmed its sell recommendation all but confirming a rout was in the air. Deutsche and Morgan Stanley slashed both their EPS, and 12 month price targets for the bank.

CBA stock took a battering on Wednesday, falling below broker price targets and the beating continued on Thursday with the stock closing at A$ 33, falling from a high of over A$ 44 at the beginning of last week.

Investor concern largely lies with the bank’s exposure to bankrupt entities Allco Finance and ABC Learning Centres. NAB raised the bar at the start of the week when it raised A$ 3 billion and improved its tier one capital ratio to 8.1 percent. CBA’s tier one capital ratio currently stands at 7.6 percent, short of what investors now expect to be the minimum after NAB’s highly successful capital raising.

CBA intends to do some additional fundraising to remedy this, it has a Dividend Reinvestment Program Scheduled for next week, though that is also going to be a drag on the stock as there will be a constant seller in size on the market until the DRP reaches conclusion.

The perception prior to the high profile insolvencies was that CBA was a lender that had managed to somehow avoid the worst of the credit crisis. Whilst its rivals had to refinance portions of their balance sheets that were being used to hold dodgy loans, either through stock market offerings or hedging agreements, as both ANZ and NAB had to do respectively, CBA seemed remarkable pristine.

The Aussie banking major raised A$ 2 billion mid October to fund its acquisition of BankWest, and in retrospect, that seems like a missed opportunity to strengthen their balance sheet (they could have raised more, but market conditions back then were not particularly great).

If CBA had not acquired BankWest and St. Andrews from HBOS at what was a very reasonable if not distressed valuation, and bought the greater market share in faster growing Western Australia, then investors would have been questioning that decision as well and no doubt some kind of penalty would have been imposed on its stock price at a later date. So it was caught between the proverbial rock and the hard place.

Citi analyst Craig Williams in his briefing said that the structured credit exposures reported by ANZ and NAB earlier this year had led some investors to believe that CBA would outperform its peers on credit quality. This is no longer likely in the aftermath of Allco Finance and ABC Learning Centres becoming insolvent. Mr Williams went even further and said CBA’s provisioning coverage was “lacking” compared to its peers. Mr. Williams said that the bar had been lifted in terms of capital adequacy and CBA was in danger of “not measuring up”

The other challenge that CBA faces is that it must refinance billions of dollars of BankWest term funding that it received on the wholesale money markets. The bank tried to alleviate some of those concerns at its Annual General Meeting on Thursday. Chief Executive Ralph Norris addressed those issues directly in his presentation to CBA’s annual meeting and in its September quarter update.

The bank has raised $11 billion of the $28 billion needed for next year already and has attracted a disproportionate share of the retail deposits that have flown to the safe haven of the banks. It now accounts for about 30 per cent of the system’s deposits and holds $66 billion in liquid assets.
CBA tried to soothe the market by arguing at its AGM that if the UK’s FSA method of calculation were used rather than APRA’s it would be well above both its peers and the average for European banks.

The market had none of that unfortunately and the stock continued to sell off for the rest of the day closing at $33.00 on Thursday.

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Mr. Goode has decided not to seek a full term when he faces re-election at next month’s annual meeting. Mr. Goode, who has served as Chairman of the Australian banking major for the last 13 years, has been both credited for the exceptional growth of the lender due to prescient decisions made when it came to hiring chief executives during that period.

Mr. Goode has also been blamed for the reputational damage ANZ has suffered since the start of the credit crisis. The Chairman presided over the bank during a period of flux, such as the collapse of stock broker Opes Prime, to whom ANZ, had significant exposure, ANZ also had probably the most exposure to toxic debt products in its short term investment portfolio. The bank at the start of September had to go cap in hand to investors to raise over A$1 billion in capital and is more than likely to have to do so again in the very near future in order to strengthen its balance sheet.

The Opes Prime collapse led to an internal review of ANZ’s risk management and compliance processes led by CEO Mike Smith and it was found that ANZ’s risk management and compliance were found to be totally inadequate, suggesting that management was incompetent.

In a statement, Mr Goode said: “It is particularly pleasing to have someone of Sir Rod’s calibre join the board and succeed me. His experience and success in Australia and internationally, including extensive experience in Asia, will be a significant asset for ANZ.”

Sir Rod an Australian native will have to reduce the number of non-executive positions he currently holds to make room for the ANZ Chairmanship. Sir Rod’s most notable position was obviously Chief Executive of British Airways, whom he led through crisis, returning it to profitability. Sir Rod has had a distinguished career, coming up through the ranks of the Swire Group eventually becoming Cathay Pacific CEO, before being poached to run Ansett Australia, and then finally BA.

Sir Rod was one of three independent directories of troubled Australian asset manager Allco Finance and approved the ill fated acquisition of Rubicon, a  real estate funds group  which precipitated the collapse in Allco’s share price. The capitulation in the stock price triggered a market capitalization clause in the company’s debt covenants. Allco was ultimately forced to  enter into receivership at the beginning of November.

Sir Rod’s appointment is part of a complete transformation of the ANZ board which is largely designed to give it more credibility. Former Qantas Chairperson Margaret Jackson will leave along with Mr. Goode next years, whilst the board adds four new directors.

Perhaps the most high profile new director is, Lee Hsien Yang, second son of the first Prime Minister of Singapore Lee Kwan Yew and the brother of the current Prime Minister of the island state. Mr Lee will be joining ANZ’s board as a director. Mr. Lee is a former Chief Executive of Singapore Telecommunications better known as SingTel. Mr. Lee is also currently non-executive Chairman of Singapore conglomerate Fraser and Neave.

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