Commonwealth Agrees to Buy HBOS Plc's BankWest Unit

Commonwealth Agrees to Buy HBOS Plc's BankWest Unit

Oct. 8 (Bloomberg) -- Commonwealth Bank of Australia, the nation's biggest provider of mortgages, agreed to buy HBOS Plc's Australian units for A$2.1 billion ($1.5 billion) as the troubled U.K. bank sells assets amid the global credit crisis.

Buying BankWest and St. Andrew's expands Commonwealth Bank's presence in Western Australia, the nation's fastest- growing state, the Sydney-based bank said in a statement. The deal allows Commonwealth Bank to maintain its lead in the Australian mortgage market, which was under threat from Westpac Banking Corp.'s planned takeover of St. George Bank Ltd.

Commonwealth Bank is taking advantage of HBOS's trouble in the U.K., where the government stepped in to ensure Lloyds TSB Group Plc's purchase of the Scottish bank after it lost more than half its value in a week on funding concerns. HBOS, Britain's biggest mortgage lender, is pulling back lending and selling businesses to help free cash as credit markets seize up.

``It's a good price considering Commonwealth is buying assets at a cheap part of the banking cycle,'' said Angus Gluskie, who helps oversee $500 million at White Funds Management in Sydney, including Commonwealth Bank shares. ``It's a great opportunity for well-capitalized banks to buy good assets cheaply from a distressed seller.''

Commonwealth Bank shares are suspended for two days as the company seeks to sell A$2 billion of new stock to fund the deal. The stock yesterday rose 2.6 percent, paring this year's decline to 24 percent.

Less Than Hoped For

HBOS plunged 61 percent in London trading last month on concerns about a shortage of funds to back its mortgages, leaving the company in the same predicament that led to the government-backed bailout of Northern Rock a year ago. HBOS raised 4 billion pounds ($7 billion) in July in a share sale to shore up capital depleted by asset writedowns and the worst U.K. housing market since the early 1990s.

Lloyds agreed Sept. 17 to buy HBOS in a stock swap valued at 12.2 billion pounds at the time. HBOS shareholders will receive 0.83 Lloyds TSB shares for every HBOS share they own. The companies have said they aim to complete the deal by early next year.

Westpac Threat

Buying BankWest will help Commonwealth Bank Chief Executive Officer Ralph Norris, 59, maintain its lead in Australian mortgage lending from Westpac, which was poised to move into first place with the St. George purchase.

The price for Bankwest and St. Andrews, equivalent to 11.2 times the HBOS units' 2007 net profit, will contribute to earnings immediately following its completion in January, Commonwealth said. The acquisition, which doesn't require a shareholder vote, needs to be approved by the Australian government and corporate regulator.

Australia's banking industry is dominated by its largest lenders -- National Australia Bank Ltd., Commonwealth, Westpac Banking Corp. and Australia & New Zealand Banking Group Ltd. -- who are barred from merging with each other under the government's so-called Four Pillars policy.

St. George, Australia's fifth-biggest bank, agreed to be bought by Westpac last month after an independent expert recommended the A$17.4 billion offer to create the nation's biggest mortgage lender.

Dominate Rivals

Commonwealth, with a combined 1,159 branches following the purchase, will dominate its rivals in mortgages, deposits, credit cards and lending, it said in today's statement.

BankWest, founded in 1895, had about 860,000 customers and A$36.7 billion of deposits as of Sept. 5. The company has about 120 branches in Western Australia, a state that produces a third of the world's traded iron ore and 75 percent of the nation's gold, and plans to open 160 more across the country, according to HBOS's Web site.

HBOS Australia, which has more than 6,000 employees at units including BankWest, Capital Finance Australia Ltd. and St. Andrew's Australia, posted a 15 percent increase in pretax profit to A$757 million in 2007. Fee and commission income rose 36 percent while net interest income climbed 24 percent.

St. Andrew's provides consumer credit insurance and life insurance across Australian states, according to the HBOS web site. It has A$22.4 billion of funds under management.

``The Commonwealth Bank regularly reviews acquisition opportunities but rarely have we seen a quality asset such as BankWest become available on such attractive terms to us,'' Commonwealth's Norris said in today's statement.

BLOOMBERG