The chief executive of National Australia Bank (NAB), Don Argus, stirred controversy this month with the threat that Australia's largest bank might relocate offshore if the Federal Government refused to lift a ban on mergers among the 'Big Four' banks. There is even speculation NAB may make a pre-emptive A$20 billion (about HK$99.73 billion) assault on ANZ Banking Group to try and force the government to abandon what is known as its 'Four Pillars' policy. At the same time, ANZ, the smallest of the Big Four, appears to be gearing up for an acquisition to increase its size and make any such move by NAB more difficult and costly. ANZ could have its sights on St George Bank - Australia's fifth-largest bank after its own takeover of Advance Bank. Any merger proposal between NAB and ANZ would almost certainly see the country's other two leading banks - Commonwealth Bank of Australia (CBA) and Westpac Banking Corp - begin merger negotiations in an effort to match the size and power of a combined NAB-ANZ. Treasurer Peter Costello claims the government is not going to allow any Big Four mergers 'unless we are convinced that consumers will benefit and that competition will be enhanced'. Prime Minister John Howard says 'we have a policy which we're not proposing at present to change' but adds 'we never said that further mergers are for all time out of the question'. Mr Argus argues NAB needs to grow by acquisition to remain globally competitive and if it cannot expand further in Australia then it has no choice but to increasingly shift its focus offshore. The prime minister is sympathetic to NAB's argument but says it needs to be weighed against the fact 'we've already had a lot of consolidation and contraction in the banking sector'. Mr Argus also says the Four Pillars policy needs to be abolished in order for the Big Four to be able to defend themselves from foreign takeovers. There is talk that foreigners such as Lloyds TSB of Britain are weighing up bids for the leading Australian banks. The government has previously indicated it would allow a foreigner to grab one of the Big Four but then the other three would be off-limits. There is some concern that a foreign bank might acquire one of the local banks on the cheap, as the other three - who could afford to make higher counter-bids because of synergy benefits - would be barred from doing such acquisition. Conversely, there is the view foreigners might still not be interested because, after a Big Four bank became foreign-controlled, the Four Pillars policy probably would be scrapped. This would mean two of the other three could merge and become more powerful than the now foreign-owned bank - which would presumably be barred from merging with the other Big Four group. If the government were to lift its ban tomorrow the merger ambitions of the four Australian banks might still be stymied by the Australian Competition and Consumer Commission (ACCC). It is believed the competition watchdog will be comfortable only with the Big Four becoming the Big Three. This means if NAB and ANZ propose a merger then CBA and Westpac would no doubt feel obliged to also try and negotiate a merger proposal that could be put before the ACCC at the same time. The ACCC would then decide which, if any, of the mergers it would allow. It is also a possibility that the banks might be forced to come up with other merger combinations than the ones suggested above in order for a merger to be approved by the ACCC. In a submission last year to the Wallis inquiry into Australia's financial system, the Reserve Bank of Australia said it did not think a reduction from four banks to three would lead to prudential problems - such as creating an institution seen as 'too big to fail' - but said a move to three banks would lead to pressure for a move to two. 'If this were to occur it would give Australia the most concentrated banking industry in the industrialised world, and would take us into uncharted prudential waters,' Australia's central bank stated. Further bank mergers would create a political headache for the government as they mean more huge job losses and would further aggravate consumer fears about escalating charges, branch closures and lack of choice. The Finance Sector Union estimated that about 40,000 jobs would be lost in the industry if the Big Four became the Big Two. The Big Four - which have just reported combined annual profits of about $6 billion - are generally loathed by Australians for their brutal pre-occupation with profits at the expense of customer service or any notion of social responsibility. CBA managing director David Murray was recently forced to apologise for his insensitive comments that the average Australian should be congratulating the Big Four for maintaining a prudent financial system in the face of the Asian crisis rather than criticising them for branch closures and job shedding.
