The Bank of Queensland has confirmed the $1.33 billion purchase of ME Bank and has asked investors for $1.35 billion to fund the deal.
BoQ – which last week flagged it would raise capital ahead of an expected acquisition – will offer new shares at $7.35 each. That’s a 12.6% discount on the last closing price of $8.41.
Combined, the group will have pro forma total assets of more than $88 billion, with total deposits of more than $56 billion, making it the biggest regional bank and a putative rival to the big four – CBA, Westpac and NAB.
But this deal is more than just a takeover because it marks the end of the latest fruitless attempt to best the Big Four banks through the use of technology by so-called Fintechs
Remember the fleet of start-up financial groups that were going to take on the big four banks and eat their lunch by capitalising on the odour from the Hayne banking royal commission?
ME Bank is older than that – it dates back to the last century as a group of industry funds started a bank as a convenience for their members.
But it was only two years ago that the banks (and the likes of AMP and IOOF) were on the nose in the wake of the banking royal commission, the money laundering claims again the Commonwealth and then Westpac (and for that matter, the NAB).
And the banks suffered for a year or more from management changes (including CEOs and chairs), asset sales (some of which started before the royal commission) and more intense scrutiny than normal by regulators.
But Covid and the lockdowns triggered a sharp change in sentiment among customers (individuals, families and SME businesses) who proceeded to flood the big four banks with tens of billions of dollars in deposits (earning virtually nothing) – the estimate is around $200 billion at one stage in late 2020.
Banks in turn (at the instigation of government and regulators) allowed customers and businesses to defer repayments on home and business loans – by the end of December the overwhelming majority of those deals have been unwound, and at the same time many of the other customers have repaid their home loans faster than normal, building up offset payments totalling $40 billion.
A run on cash in the first 10 months of the pandemic ended in December with customers reversing their cash withdrawals and ending a long and steady run on the banks that was belied by the alacrity with which many of the same people boosted their deposits with the same banks.
Since last October the share prices of the big four banks have bounced by between 20% and 30% as investors realised all the doom and gloom about a collapse in property prices, a surge in bad debts and worse had proven to be another GFC style scare, thanks to the support of the federal government and regulators like APRA and the Reserve Bank.
The collapse before Christmas of neobank Xinja signalled the changing attitude. It pulled the plug on itself after around 18 months after it was granted an unrestricted licence by the prudential regulator (APRA) and just two months after an emergency $9 million raising when a $430 million lifeline from a mysterious Dubai-based investment group failed.
Xinja has handed back its banking licence to APRA and returned most of the money to deposit holders by the end of 2020. Why? Despite having built up deposits of $457 million, it didn’t have a lending product to generate enough income to pay the interest on those deposits. So it was chewing up its capital and that ran out.
In January NAB signalled another potential nail in the idea of challenger banks to the big four when it launched a bid for neobank 86 400 and combine it with its own digital-only proposition UBank.
NAB holds around 18% of 86 400’s shares after participating in a recent capital raising round. It is now proposing to buy out the remaining shares for a cost of approximately $220 million, “a premium” on the recent raise. 86 400 said it has over 85,000 customers and 320,000 accounts, as well as a digital mortgage brokerage business.
The deal though is likely to face a difficult time with the competition and consumer regulator, the ACCC. Submissions on the deal to the ACCC close this Friday and the ACCC has a provisional decision date of April 15.
And late last week ME Bank and its owners were reported to be in discussion with the Bank of Qld and yesterday news emerged that the deal was confirmed today by both parties. The ACCC has already pre-approved the deal.
The deal will push the Bank of Qld past the Bendigo and Adelaide Bank in terms of assets – making the Brisbane-based bank the largest regional operator, but nowhere near the size that will enable it to take on the big four.
One new idea remains – Buy Now Pay Later companies led by Afterpay and ZIP here and Klarna in Europe (which is 5% owned by the CBA). Buy Now Pay Later has boomed through the lockdowns and pandemic but as the vaccines are rolled out and life returns to normal, will it still be popular?
Afterpay reports on Friday which will be a big test for investor sentiment.
And the idea has yet to go through a crisis that tests credit providers – like the credit squeeze of the early 1960’s badly damaged hire purchase and providers such as HG Palmer.
But the Big Four remain safe and secure from yet another challenge. (Anyone remember the pack of foreign banks that were going to destroy the Australian banks – Bank of America, HSBC, Citi, Goldman Sachs, Barclays, Natwest, Deutsche Bank, banks from Japan and China? HSBC and Citi linger on with branches and deposits, card offers and specialist products.
Yet they have all come and gone and, despite all their faults and problems, the big four remain strong.