CBA in talks with HBOS to buy BankWest

(AAP) Commonwealth Bank of Australia Ltd (CBA) has begun exclusive negotiations with troubled HBOS Plc to buy its Australian retail banking arm BankWest.

The nation's biggest mortgage lender confirmed on Tuesday it was in talks with HBOS,
just five days after saying it did not have an offer on the table.
"Whilst discussions are continuing, the parties have not reached agreement," CBA
said in a statement on Tuesday.
A CBA acquisition of BankWest, which could cost as much as $4 billion, would create
a bigger bank than a combined Westpac Banking Corporation-St George Bank Ltd.
Westpac's $17.3 billion takeover bid for St George, based on Tuesday's closing share
price, was approved by the Australian Competition and Consumer Commission (ACCC) in
August.
A HBOS acquisition will also give CBA the biggest market share in Western Australia,
which is enjoying among the highest economic growth rates in the country because of
the mining boom.
For HBOS, the sale of BankWest would provide some much needed cash.
HBOS's UK parent is being taken over by Lloyds TSB Bank Plc to prevent its collapse
and to create Britain's biggest bank.
Tyndall Investment Management portfolio manger Craig Young said a BankWest
acquisition would allow Commonwealth Bank to obtain market share cheaply.
Tyndall manages about $4 billion in assets, including CBA shares.
"It's a good fit with the sellers keen to get some cash out, and Commonwealth Bank
is in a good position to provide cash," Mr Young said.
Mr Young said CBA had a strong capital position and a relatively strong share price,
which meant it could sell more shares to raise money if necessary.
Shares in CBA rose $1.15, or 2.61 per cent, to close at $45.15 as the S&P/ASX200
index gained 1.72 per cent after stocks were boosted by the Reserve Bank of
Australia's 100 basis point rate cut to six per cent.
CBA stock has declined 24 per cent this year compared with the S&P/ASX 200
Financials index which has lost 30 per cent.
National Australia Bank Ltd has fallen 31 per cent and ANZ Banking Group Ltd
declined 34 per cent in the same period.
Westpac has fallen 17 per cent this year but Mr Young said it was unlikely to be
interested in BankWest because of its takeover attempt for St George.
CBA spokesman Steve Batten declined to elaborate on the statement issued by the bank
on Tuesday.
HBOS Australia spokesman Adam Connolly confirmed that HBOS was in acquisition talks
with CBA.
BankWest would probably be sold for between $3.5 billion and $4 billion if CBA made
a tilt, Citigroup analyst Wes Nason said last week.
He said that price represented 1.3 times BankWest's book value.
A CBA acquisition would add BankWest's portion of HBOS Australia's $1.01 billion in
operating income for the six months to June. CBA's operating income for the same
period was $7.38 billion.
By comparison, Westpac's operating income in the six months to March was $5.79
billion and St George's income was $1.69 billion, for a combined $7.48 billion.
The ACCC said a merger of Westpac and St George was unlikely to substantially lessen
competition in the banking sector.
A successful takeover would lead to CBA gaining BankWest's 860,000 customers, which
includes a quarter of all deposits in Western Australia.
BankWest comprises the majority of the 6,000 people employed by HBOS Australia.
Ratings agency Moody's Investors Service placed BankWest's Aa3 senior debt and
deposit rating on review on Tuesday after the CBA announcement.
"If BankWest were to be acquired by CBA, then there would be potential for upward
rating movement," Moody's assistant vice-president Marina Ip said in a statement.
There was no immediate implication for CBA's rating, Moody's said.