Westpac sets itself up to challenge CBA

Westpac Banking Corporation has set itself up to challenge Commonwealth Bank of Australia Ltd (CBA) as the country's biggest bank, after increasing cash earnings by six per cent on strong loan and deposits growth. But Australia's second biggest bank said loan growth was likely to slow in fiscal 2009 as consumers and businesses curtail borrowing in the face of the economic slowdown.

Westpac, which expects to complete its $15 billion takeover of St George Bank Ltd on December 1, reported cash earnings of $3.73 billion for the 12 months to September 30 from $3.51 billion the year before. The cash earnings result, the bank's preferred measure of profitability, was in line with analysts' estimates. "For us this is a transformational deal and will position the combined group in a
very different way in the Australian landscape," Westpac chief executive Gail Kelly told reporters.

Once Westpac takes over St George, Australia's fifth biggest bank, it will become
Australia's third biggest company after BHP Billiton Ltd and Commonwealth Bank.
Westpac's market share in home loans and household deposits will also rise to over
20 per cent, second to CBA.
Its reported net profit rose 11.8 per cent to $3.859 billion, as revenue grew by
12.3 per cent to $11.420 billion, Sydney-based Westpac said in a statement.
"This was a solid result and probably the best of the big four," Tolhurst Noall
analyst George Galanopoulos said.
"A successful merger with St George would really cement their market position and
strategically it makes sense."
Westpac, the last major retail bank to report earnings this year, passed National
Australia Bank Ltd as the country's number two financial institution, as its more
conservative approach cushioned it from losses related to complex asset backed
securities.
NAB and ANZ Banking Group Ltd last week reported falls in full-year profits because
of exposure to bad debt and risky securities.
The combined Westpac-St George will have a market capitalisation of about $53.5
billion at Thursday's price, compared with Commonwealth Bank's $56.07 billion.
The combined bank's total assets will increase to near $600 billion, second only to
NAB among the banks.
Shares in Westpac added four cents to close at $20.30. The stock has done better
than fellow financial companies, having declined 27 per cent this year compared with
the 40 per cent slump in the S&P/ASX 200 Financials index.
Ms Kelly described the profit result as a robust performance in challenging times.
"We're particularly pleased with our revenue performance," she said.
During fiscal 2008, Westpac's impairment or bad debt charges rose to $931 million,
from $482 million in the previous year, mostly due to a small number of corporate
customers.
Westpac said its impairment charges were expected to rise in the year ahead, as
unemployment in Australia "modestly" increased.
Westpac declared a final dividend of 72 cents, taking the total for the year to
$1.42, compared with $1.31 last year.
Westpac is slightly more bullish than most of the major banks on the economic
outlook, forecasting economic growth of two per cent in calendar 2009, because of
the federal government's fiscal stimulus and policy flexibility of regulators.
Chief financial officer Phil Coffey said credit growth in the banking system was
slowing.
"The one off-set is that we're growing market share," Mr Coffey said.
The bank's loans grew by 14 per cent to $313.5 billion in fiscal 2008, and was a
standout in the annual result, he said.
While wholesale funding from overseas markets was uncertain, Mr Coffey said Westpac
was in a good position.
"We're in good shape because our deposits are growing so fast and we have a lot of
liquid assets," he said.
Westpac's total deposits increased by 16 per cent or $31.7 billion to $233.7 billion
in fiscal 2008.
Integration costs from the $15 billion merger with St George still were expected to
be about $700 million.
Westpac ended the year strongly capitalised with a Tier 1 ratio of 7.8 per cent, up
from 7.4 per cent in March.
"Their capital position is the strongest," Mr Galanopoulos said.
Further boosting its capital position, Westpac will underwrite fully its dividend
reinvestment plan for its 2008 final dividend, and introduce a discount of 2.5 per
cent on shares issued under the plan.