Can Westpac and St George afford not to close down branches?

Following St George shareholders approval last 13 November to merge with Westpac, management of St George has started sending letters to its customers to say that the bank will continue with its current number of branches even if a Westpac and St George branch are side by side.

The letter also states that St George customers will not be levied an ATM fee should they use Westpac’s ATMs, and vice versa.

That’s nice.

But what the letter of course did not mention is that this arrangement is part of the conditions on which Treasurer Wayne Swan on behalf of the Commonwealth approved last 23 October the acquisition of St George by Westpac.

In fact, it is not only branches that had been mandated to be maintained in their existing numbers but remain but ATMs as well.

We understand of course that the conditions which apply for three years from approval date have been adopted to prevent the current economic crisis getting any worse.

From a strictly business viewpoint however, allowing the existing retail branches configuration network of the combined bank does not make sense.

If the intention of the merger is to strike “the right balance between enhancing the competitiveness and the strength of our banking system” as Treasurer Swan said, then I doubt very much if the merger would produce the desired effect.

Not that I like to see people in retail branches losing their job.

But over time, the merged entity would feel the burden of maintaining redundant branch network.

There may be cost savings from redundancy in back office operations and technology-based infrastructure, but all in all, the merged unit may not be able to produce the level of efficiency which in the first place is a primary reason in any merger scenario.

I would not be surprised if Westpac and St George will return to the negotiating table, this time with Commonwealth Treasury, and start looking at the economics of the merger.

*** Romeo Cayabyab is director of Compucentric consulting and lead researcher and writer of techbusiness.com.au

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