Are mergers keeping mutual banks alive?

The recent all clear given to the ANZ-Suncorp merger has prompted questions over the future of bank consolidation in Australia. Some believe the decision will serve as precedent by opening “the door for further smaller bank mergers.”

Exploring mergers

Mergers and acquisitions are like clockwork. Even jumping on CBA’s website we’re given a glimpse of the many amalgamations that date back all the way to 1913.

The GFC served as a catalyst for some major mergers, with 2008 seeing CBA acquire Bankwest, Westpac merging with St.George, and globally, a multitude of other lenders followed suit.

So, with this in mind, are the days of big bank mergers behind us or is it just the beginning? FirstPoint Mortgage Brokers’ managing partner Troy Phillips said it’s unlikely.

“I don’t think big banks will go for anything too small unless it provides a niche into another market,” he said.

“There will be mergers at the small end but don’t think there will be any at the big end of town. They still have massive market share … I hope the ANZ merger isn’t just a play for customers. I hope it’s a play to get into niche markets.”

Considering, as of mid-2022, the big four banks had over 90 per cent of the market share in Australia, the play to expand customer base may not be what’s at play here. Getting into more personalised and irregular markets may be what ANZ is hoping to extract from Suncorp.

Where we’re likely to see mergers persist, said Phillips, is with the smaller and mutual banks. ACCC has weighed in on the matter, too, introducing reforms that aim to “make it faster, stronger, simpler, more targeted, and more transparent.”

This could see mergers continue, seeing our smaller banks take advantage of the opportunities these transitions can bring.

Mutuals leading the charge

Smaller banks have the most to gain from mergers, said Phillips. Considering they don’t have the market share of the big banks, a merger can be a power move to expand customer base.

Phillips said that “there’s a lot of money to be made” in smaller banks merging: “Smaller ones will merge. That makes sense. They’re interesting plays because they service a market that the big banks don’t.”

Mutuals have been consistently cropping up in merger and acquisition discussions. Earlier this year we heard that Qudos Bank and Bank Australia were looking to merge, with votes to be cast in early 2025.

Meanwhile, Beyond Bank and P&N Bank recently announced that a memorandum of understanding has been signed between the two mutual lenders to investigate the potential of a merger. If merged, the new entity would create one of Australia’s largest customer-owned banks, with total assets close to $20 billion and 450,000 members.

As discussed in Mortgage Business Uncut, the list goes on and on, with mutuals all over the board joining forces.

While these mergers serve to increase market share and customer base, the decision may not a be a voluntary one. As Annie Kane, editor of The Adviser asked in the podcast episode: “Is it even possible to be a mutual lender nowadays?

“You’ve got only a small number of members and a small amount of assets under management because so many of them have merged.”

The pandemic certainly didn’t help either, with banks suffering financially forced to merge. As described by the Federal Reserve Bank of Cleveland: “When profitability is challenged, banks tend to view merger activity more favourable as merging with another institution can reduce costs through scale. Therefore, consumers may have seen their community banks change names or disappear altogether as more bank mergers and acquisitions occurred.”

Merging allows for customer-owned banks to survive. In fact, APRA outlined that this model has survived in Australia since 1847 and “literally hundreds of individual entities have disappeared along the way … some deliberately, such as the original ‘terminating’ building societies, others as a result of poor governance or financial stress, and then there are those that have sought survival or growth through mergers.”

In fact, over the last 16 years there have been more than 100 mutual mergers and exits across Australia. KPMG supported this as it said since 2005, the number of mutuals has shrunk from 170 to less than 65 today.

Merging is keeping our mutual banking sector thriving. While the big banks may not continue with intense acquisitions, history shows that our smaller banks likely will.

Jack Campbell is the editor of Broker Daily. After graduating from the University of Wollongong in 2022, Jack began his journalistic career working on Broker Daily’s sister brand, HR Leader. In August 2023 he was made the news editor and worked alongside some talented journalists writing articles and recording podcasts.

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