Analysts say Commonwealth Bank of Australia Ltd (CBA) is using the financial crisis as a once-in-a-lifetime opportunity to enhance its dominance of the Australian banking sector.
Australia’s biggest lender and deposit holder has grown its market share of the mortgage market thanks in part to its low variable mortgage rates and the acquisition of HBOS plc’s Australian retail arm, BankWest, last October.
After paying HBOS plc $2.163 billion for BankWest and wealth management unit St Andrews Australia, CBA added between three and five per cent to its various lending and deposit bases by June 30, 2009 from BankWest’s loan books.
CBA’s market share growth slowed during July but the bank remains the market leader with a 29.58 per cent share of the market when BankWest is included.
It’s share of retail deposits is around 30 per cent.
Credit Suisse’s banking analyst James Ellis said that by running BankWest as a separate but parallel operation, CBA was not being distracted by the same merger integration issues faced by rival Westpac and its subsidiary St George Bank.
“I think CBA is looking at the financial crisis as a once-in-a-lifetime opportunity to improve and enhance their strong market position,” he said in an interview on Wednesday.
“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.
Mr Ellis observes that in recent months the price of the deal has dropped from 0.8 times book value to 0.7 times.
AAP understands from other sources that HBOS plc offered CBA its St Andrews Australia wealth management unit for free conditional upon CBA buying BankWest.
CBA is Credit Suisse’s top stock pick of the big four banks because of its strong revenue growth driven by market share gains, better wealth management operation and high level of retail deposits funding its loan books.
But Mr Ellis notes the phasing out of the first home owners’ grant later this year will make the mortgage market tougher for all banks.
CBA may be insulated from interest rate rises, which the market expects later this year.
The debt futures market has fully priced in a 25 basis point rise in the cash rate following the central bank’s November board meeting.
The bank’s chief financial officer David Craig said on Wednesday the bank was also running a $68 billion hedging portfolio as a capital buffer to mitigate against sudden movements 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.