Brokers will ‘absolutely be the predominant channel’ if MyState/Auswide merge, says MyState CEO

While delivering its financial results for the year ended June 2024 on Monday (19 August), MyState revealed it had signed a scheme implementation agreement to merge with the Bundaberg-headquartered lender Auswide, in a deal that would see Auswide shareholders receive 1.11 new MyState shares for every share they hold in Auswide.

This implies a 65.9 per cent pro forma ownership of the combined group for existing MyState shareholders.*

MyState will continue as the parent company of the merged group, with MyState CEO and managing director becoming CEO & MD of the merged entity.

Sandra Birkensleigh, the chair of Auswide, will become the chair of the merged company while Warren Lee will continue as the chair of asset manager TPT Wealth.

If shareholders vote in favour of the scheme and all regulatory approvals are met, it is expected that the two banks will merge in “mid-to-late” December 2024 with operational integration largely achieved by the end of the financial year 2027.

The merged group would have around 272,000 customers, a pro forma loan book of $12.5 billion (circa $8 billion from MyState and $4.5 billion from Auswide, both largely originated by the broker channel), net assets of $755 million, and total deposits of $9.6 billion.

According to the banks, the merger would significantly enhance the scale and value proposition of the group, providing it with “the opportunity to accelerate its earnings and growth profile while benefiting from an enlarged balance sheet and increased funding flexibility”.

It would also help the banks diversify their loan balances by geography and support deposit generation, with 23 branches in Tasmania and Queensland. Once merged, 34.4 per cent of its home loan distribution would be in Queensland, with a fifth in Victoria and another fifth in Tasmania.

The banks said that, should the merger go ahead, the merged group board and management would make key business decisions, ensuring minimisation of disruption to both businesses and their customers. The board would comprise four non-executive directors from MyState and three non-executive directors from Auswide.

No details have yet been agreed on what direction the merged entity would take, but it is expected that a review would be taken post-completion to determine whether the two brands will keep running independently or not.

Brokers will ‘absolutely be the predominant channel for the merged business’: MyState CEO

Speaking of the proposed merger, the managing director and CEO of MyState, Brett Morgan, said: “The combination of two high-quality and complementary businesses is consistent with our stated growth strategy and brings significant scale advantages to the group.

“We expect significant cost synergies from the merger,” he said, telling The Adviser that while brokers had helped the bank grow its loan book by 45 per cent over the past three years, he believed the Auswide merger could help the bank “grow by another 50 per cent overnight”.

“Customers continue to choose brokers more and more because of the proposition they offer them and the choice they offer. For us, this merger creates a great ability to better compete for broker-originated business and be better partners than we are now.

“So, brokers will absolutely be the predominant channel for the merged business.”

He said a merged entity “makes great sense” as it enables the two lenders to scale their businesses and invest into “strategically important initiatives, which include things like better digital experiences for customers, but also better origination platforms and integration with brokers”.

Morgan said: “One of the opportunities we’ve identified is being able to invest once into a more modern, better loan origination platform, which will deliver better service to our broker customers and their customers. We both see the opportunity to make a step change with that and only do it once under the merger, rather than twice.

“So, this provides both of our businesses with some additional capacity to invest in a really, critically important technology and service that is important for us to keep growing up and down the eastern seaboard.”

According to Morgan, the merger also “makes a whole lot of sense” given the two companies’ focus on regional customers; their successful partnerships with brokers; and their similar sizes, values, and heritages.

Birkensleigh said that the merger would be “a step-change event for Auswide”.

“Through combining two high-quality banks with strong operational alignment, we intend to unlock a range of efficiencies, synergies and growth opportunities and deliver value for our shareholders,” she said.

“We look forward to the next chapter of success for Auswide’s customers, staff and shareholders.”

MyState’s chair Vaughn Richtor said: “We look forward to the value creation arising from merging two sound customer focused businesses with long histories of serving their local communities.”

MyState said it expects “significant pre-tax cost synergies” of between $20 million and $25 million, largely as a result of the consolidation of technology platforms, the integration of shared services, a refined leadership and management structure, and consolidation of third-party providers.

*Auswide has also entered a binding agreement to acquire 100 per cent of non-bank asset finance lender Specialist Equipment Leasing Finance Company Pty Limited (Selfco) and, if this transaction does not close on or before 30 September 2024, Auswide shareholders are expected to receive a consideration that results in 33.6 per cent pro forma ownership in the combined group that is equivalent to an exchange ratio of 1.11x new MyState shares per Auswide share. The acquisition aims to facilitate Auswide’s entry into asset finance. The total consideration is up to $6.5 million. Key employees, including the managing director, operations manager, and head of programs, would enter agreements to remain with Selfco following the acquisition in order to maintain continuity.

[Related: Broker flows a ‘key component’ for lending business: MyState]