Australian, Tuesday 9th June 1998
Mark Westfield
During his recent visit to the New York Stock Exchange Peter Costello called on George Soros and senior executives of his giant Quantum group of funds.
As the Aussie dollar was sustaining a robust attack by funds such as Soros’ and others, the Treasurer no doubt wanted to put the Americans right about the soundness of the Australian economy and its reasonably good prospects, notwithstanding the continuing slide in the fortunes of our Asian trading partners.
A spokesman for Costello yesterday had no comment on the meeting and what may have been discussed. No doubt the Americans listened to the Treasurer politely. Their assault on the dollar continued regardless of Costello’s soothing words.
At one point of the discussion, either in answer to a question or as an issue raised by Costello, he said that after the next election he would dismantle the controversial “four pillars” policy which forbids mergers between the Big Four Banks.
Americans don’t like silly rules such as “four pillars” imposed for politically expedient reasons and which inhibit capital flows. They have a few of their own but being in control of billions of dollars of investment capital means they can call the shots globally and ignore any dysfunctions in their own backyards.
Still, Costello’s undertaking to the Quantum fund people is significant, and sensible, concession.
Assuming the Coalition wins in August or September (or whenever the election is held) it will only take a statement from the Treasurer because “four pillars” was never law.
Like its equally silly predecessor, Paul Keating’s “six pillars”, this policy is merely a warning to the banks not to get together.
To their credit, the banks have not tried to test it as their Canadian counterparts are doing with a similar dictate in their country.
It hasn’t stopped the big four from plotting and planning for the day Costello removes the fetters, however.
Although there will be some relief/expectation/excitement among the Big Four when Costello drops the rule, the banks realise they will then be entirely hostage to the Australian Competition and Consumer Commission and its prickly and unpredictable chairman, Allan Fels.
As Fels’ interpretation of competition is more akin to soothsayings of whatever US guru he is listening to at the time or some text book definition that has little connection with the real world, the banks may find themselves in little better position than if “four pillars” remained in place.
The banks are not monolithic on the issue anyway. National Australia Bank is the most impatient to trigger a round of mergers, Westpac appears to be warming to the prospect, ANZ is looking to its defences and Commonwealth is not interested.
Still, if NAB jumps out of the starting gate and bids for ANZ or Westpac, then it is more than likely that the other two will start talking.
Fels has made some soothing noises recently about the amount of competition he’s starting to take notice in the marketplace for financial services. The banks are not sure whether he’s signalling that he may permit a merger (or two) because Fels likes to keep everyone guessing.
As one merchant banker who has had a bit to do with Fels reveals, the ACCC chairman gets noticeably excited when two parties sound him out confidentially about a proposed merger. He loves being the first to be told.
He also loves to say no, and merger parties have come to learn that the mere utterance of the word kills their proposal. No one is prepared to waste two years of their lives being dragged through the courts.
Yet, the abolition of “four pillars” has the potential to unleash powerful new dynamics in Australia’s financial services industry.
Fels will come under intense pressure to allow at least one big bank merger.