What sort of bank will Westpac and St George be?

The combined bank will be Australia’s leading home lender, with a 25% market share; the leading overall lender, and the leading credit card provider. It will also be the largest wealth platform provider, with A$108 billion of funds under administration. It will have 1,200 branches and 2,700 ATMs, A$408 billion in loans and $299 billion of deposits, based on March 31 figures. According to data from the Australian Prudential Regulatory Authority, also from March, the combined bank will not be a leader in every field, though: in corporate lending it will still lag National Australia Bank and ANZ, and it will trail Commonwealth Bank of Australia in household deposits.

Westpac had a pro-forma tier 1 ratio of 7.7% in the first half of 2008, with a recent investor presentation suggesting the post-merger capital position should be "at a similar level".

The group will have a range of brands. Apart from the Westpac and St George banking names, there will also be a South Australian group, BankSA, that was part of St George; and RAMS, a home lending brand purchased by Westpac in January this year.

Both institutions have important wealth management businesses: in Westpac’s case BT (which was itself formed from a three-way merger involving elements of BT, Westpac and Rothschild businesses), and in St George’s case Asgard. These, in turn, involve a host of other entities: St George’s product manufacturing division, called Advance; its distribution and advice network, called Securitor; and a financial planning arm under Westpac called Magnitude. The administration platforms, Asgard and BT Wrap, are two of the biggest in Australia, serving the more than A$1 trillion Australian investment management industry; it is perhaps little surprise that this was the one area regulator ACCC asked for more information on in giving a tentative thumbs up to the deal in late July.

One of the few visible areas of combination will be on the institutional side, where the business will be combined under the Westpac name with common infrastructure.

At a management level it will look rather more like Westpac than St George, notwithstanding the fact that it will be run by someone who has been chief executive of both banks. St George, whose shareholders will own 28.1% of the combined group, will put three of its directors on to the Westpac board, including St George chairman John Curtis, who becomes the new deputy chairman.

Westpac reckons the deal will be cash earnings a share accretive for St George shareholders from the first full year of the merger, and for Westpac from the third. Merger documents allow for $700 million in integration and transition costs over two years, but ultimately expect pre-tax savings equivalent to 20% to 25% of the St George cost base by 2011. The assumption for revenue attrition, from customers leaving because of the merger, is 5% or less.