As I discussed a while back the big four are unlikely to be allowed to consolidate between themselves, so, with St. George being the largest of the second tier this is as big as they are likely to get within the Oz banking community. Banking deals in Australia are unlikely to ever be much bigger than this, but, to be frank, I can’t see the point.

The dangers for Westpac I would have thought are large. From a business / strategic sense this means that they are increasing their bet on New South Wales, with both of the entities being heavily concentrated there. NSW has been looking unhealthy for a while, So I would not be making this call. The real advantage is cost cutting – only one headquarters would be needed even if all of the branches are to be kept*.

That said, few people could claim to be as knowledgable about St. George as Gail Kelly, so perhaps she has spotted some real hidden value there. She is also likely to know which senior executive she wants, so the integration hit list should be a fairly easy thing to sort out – and my guess would be the hit list has quite a few Westpac names on it.

Having one of the other banks come in and trump the deal cannot be ruled out – someone offering a mix of cash and shares at the election of the holder would be good. The question is, who? The NAB I would have thought unlikely – they have their own issues to sort out. CBA or ANZ? Possible, with CBA as the more likely.

If HBOS had not so recently looked at selling BankWest I would have thought them a strong possibility – the price tag would not be large for them and it would fit with their strategy. They may choose to do it anyway to gain the sort of scale they need – it would mean that there were 5 large banks in Australia as a result. This would probably be the best outcome from a consumer’s point of view as it would reduce the stranglehold the big 4 have on the industry.

I would also expect the regulators to have a say, although I think Westpac would have already discussed this with APRA and they would have some very heavyweight legal advice on the likely ACCC response. That one will be fun for the economists to sort out. If HBOS step in, have a good look – the regulatory and reporting situation there is interesting with a foreign parent, so this one would cause the regulators, lawyers and everyone else a bit more work.

The offer on the table is not a killer one – so it looks like we will have interesting times ahead as this one plays out. Fun for all and big fees for the investment banks and brokers as we all buy and sell shares of the various banks.

*Not something I can believe. I do not know of any, but there would have to be a few Westpac branches really close to some St. George’s ones. Having two branches of the same bank on one block to me at least makes little sense.

[Update] I just thought – Gail could be buying it to hide some mistake she made earlier – but I would have thought this unlikely. Disclaimer – this is just a thought and I have no further information on