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Case Study Analysis: Merger Of Westpac And Bank Of Melbourne

1995 words - 8 pages

1Executive SummaryThis report is a strategic evaluation of the merger between the Westpac Banking Corporation (Westpac) and the Bank of Melbourne (BML) that occurred 23 November 1998.The history of the Australian Banking Industry is examined, with explanations on government controls and regulation that characterised the industry before deregulation. The current environment of the financial industry is also covered, outlining the context within which the financial players operate.Key decisions and motivating factors of the Bank of Melbourne (BML) and the Westpac Banking Corporation are discussed and strategically evaluated.The authorisation and the merger are evaluated, and the position that Westpac holds seven years after the merger is examined.The Westpac Banking Corporation operates successfully today, and are reporting excellent financial growth, backed by industry awards for corporate governance and social responsibility.2The Australian Banking Industry2.1HistoryThe Australian Banking Industry has traditionally been characterised by tight government control and regulations.Following the federal government initiated Campbell Inquiry in 1982, the controlling government took significant steps to deregulate the banking industry. The aim was to dramatically restructure the industry and increase competition between financial intermediaries (Dow, D. 2000), and extend the products and services offered by banks. Following deregulation, there was increased merger and acquisition activity, particularly between the four major banks who sought to expand quickly and aggressively gain market share. Building societies and credit unions also proliferated and held a significant percentage of the industry share.2.2Current EnvironmentThe "four pillars policy" is a government control designed to prevent the mergers between the four major banks in Australia; the National Bank, the ANZ Banking Group, the Commonwealth Bank and Westpac Banking Corporation. The policy stipulates that no mergers will be permitted unless there is evidence of increased competition.The Australian Banking Industry can be considered as a mature industry, dominated by a small number of major banks (Hill, Jones, Galvin p228) competing with smaller, regional banks. In 1997, the four major banks controlled almost two-thirds of the total industry assets, with the remainder controlled by regional and foreign banks (Dow, D. p8). These banks operate in the retail-banking segment of the market and deal with transaction accounting. Transaction accounting is defined as banking associated with day-to-day banking accounts that include statement, passbook and cheque accounts.Market concentration refers to the ration of competitors in the relevant market. The banking industry in Australia has high barriers to entry. Economies of scale and sunk costs to establish a reputation and meet prudential requirements are significant barriers to entry (Fels, 1998).The climate of the industry is rapidly changing....

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