Bank of Melbourne revived as Westpac goes back to the future

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This was published 13 years ago

Bank of Melbourne revived as Westpac goes back to the future

Westpac's announcement yesterday that it would rebrand its St George banks in Victoria as Bank of Melbourne is an admission that it did not have its growth strategy right.

By Malcolm Maiden

WESTPAC'S announcement yesterday that it would rebrand its St George banks in Victoria as Bank of Melbourne, the business it acquired in 1997 and then banished to Siberia, is an admission that it did not have its growth strategy right in Australia's second-largest regional banking market.

The group built its national share of deposits and housing loans during the global crisis, in its own right and with its $15 billion takeover of St George in 2008.

But Westpac's own overall Victorian market share of about 15 per cent is lower than it was immediately after its 1997 takeover of Bank of Melbourne, and while the St George takeover reclaimed some lost ground, the St George name is not as strong south of the Murray.

St George punches above its weight in the state, with a 4 per cent market share from a 2.5 per cent branch network footprint. But it is not growing strongly, even though the regional banks have an unusually low overall market share in Victoria.

It could have been different, if Westpac had been willing and able to do what it said it would when it took over BoM and its loyal customers in 1997.

The Australian Competition and Consumer Commission approved the BoM takeover after extracting a three-year promise from Westpac to run the bank as an independent operation, with the boss of BoM also running Westpac's branches in Victoria under the BoM banner, and marketing and pricing banking products tailored for the local market.

BoM's practice of opening on Saturday mornings was also preserved as part of the ACCC go-ahead for the takeover, and that is now the industry standard.

However, the deal with the ACCC was something Westpac didn't value strategically at the time, and couldn't properly execute, because it operated its business on a single-ledger platform.

The name of the game for all the big banks in the '90s and first half of the noughties was to buy smaller competitors, and absorb them completely to extract maximum economies of scale, and Westpac moved to achieve that end soon after it got through the three-year undertaking to run BoM separately. The operational absorption of the Melbourne outfit was completed by 2004, and the BoM name was taken off the Victorian branches and replaced with Westpac's rampant red saveloys by 2006.

The irony is that by the time it retired the Bank of Melbourne name, Westpac was on the brink of discovering the attractions of a multiple banking brand strategy, and like many new ideas, it came from outside.

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Even as Westpac was moving to integrate BoM fully, it was losing the market-share lift it achieved in Victoria in 1997 when it took over BoM. Roy Morgan figures on state banking market share, published early in 2007, estimated, for example, that Westpac's total share of lending and deposits in Victoria had slipped from 19.5 per cent in 2002 to 15.5 per cent in 2006.

Then, in August 2007, Westpac announced it had head-hunted St George CEO Gail Kelly to take over from retiring CEO David Morgan.

Kelly hadn't even arrived at St George in 1997 when it acquired another regional operation, Advance Bank. But she maintained her predecessor Ed O'Neal's multi-brand strategy when she took over in 2002. O'Neal had integrated Advance itself, but maintained BankSA and its 25 per cent share of the South Australian market as a stand-alone business, with a fair degree of autonomy.

At St George, Kelly had watched Westpac shelve the BoM name with disbelief. It was exactly the kind of franchise St George would have loved to have bolted on to expand its own house of banking brands. And her move into the Westpac CEO's chair in February 2008 guaranteed that Westpac would not repeat the mistake it made with BoM with the takeover of St George it was by then planning.

Westpac's merger agreement with St George was announced in May of that year, and Westpac's statement at the outset that it had no intention of blending St George and St George's subsidiary, BankSA, into the master business was a factor in the ACCC's decision to approve the deal.

Now, Westpac says it will convert its existing 34 St George Bank retail branches and five business banking centres in Victoria to the BoM brand it junked half a decade ago. It plans to expand the BoM network to more than 100 branches and business centres over the next five years, and will run them in parallel to its 190-strong Westpac branch network in the state.

Westpac is backed in this move by surveys it has taken that show strong, positive recognition of the old BoM name (In contrast to negative feedback on CBA's Victorian acquisition-rescue, State Bank of Victoria). The surveys also reveal an even split in consumer banking preferences, between local banks and national ones, which also supports the group's dual-brand strategy.

And it is now better equipped to run the satellites as stand-alones. The key there is that unlike 1997, when BoM was acquired, Westpac's regional banks run on a separate ledger system, the Hogan platform that came across with St George.

Westpac believes BoM will increase market share as it attracts new customers and pushes the overall regional bank market share in Victoria up from about 6 per cent towards the national average of about 13 per cent.

All logical. But it would be better placed in Victoria if it had seen its 1997 promise to keep BoM separate as an opportunity instead of a chore, and worked out at that time how to make multi-branding work.

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