Regional bank considers M&A deals in ‘challenging’ market

A non-major lender has been conducting advanced due diligence on potential acquisition targets as it sees M&A as a key growth strategy in an industry it believes is under the threat of disruption from new fintech players. 

Addressing shareholders at the group’s AGM in Hobart yesterday, MyState Bank chairman Miles Hampton said the company’s statutory result over the 2016 financial year – up 4.5 per cent to $31 million – was impacted by a new banking platform and one-off costs associated with advanced M&A due diligence.

“In each of the past three years, we have invested substantial sums as we have sought to identify and negotiate M&A transactions,” Mr Hampton said.

“To date, our investment in this area has not resulted in a successful transaction. However, increasing the scale of our business remains a key priority and we will continue to seek out value accretive M&A opportunities,” he said.

In August, MyState confirmed that it had held M&A talks with non-bank lender La Trobe Financial.

The MyState chairman said the bank’s loan book continues to grow ahead of system, and in FY16 grew from $3.5 billion to $3.9 billion, an increase of 8.7 per cent. Customer deposits grew 8.9 per cent to $2.7 billion over the same period.

“To ensure that we remained within targeted capital ratios, we issued $25 million Tier 2 notes in August 2015,” Mr Hampton said.

“Further, in May 2016, we established a new warehouse trust that increases funding capacity and will also deliver an improvement in securitisation funding costs.”

As a result, the bank had a total capital ratio 13.04 per cent at the end of FY16, compared with 12.68 per cent in June 2015.

Headwinds from wealth management, fintech

Separately, Mr Hampton said criticism has “engulfed the banking and wealth management industry”, which presents significant challenges.

“It appears that significant numbers of customers of some industry participants have suffered from poor service and worse still, poor advice,” he said.

“This does not reflect well on the sector and we face the risk of greater regulation if it continues. At MyState, we remain vigilant to conduct risk and whilst I cannot say it will never happen here, I can say that we recognise the risk and constantly monitor our business to minimise the possibility of us having similar issues to those that have impacted some of our larger competitors.”

The emergence of new fintech players also poses a challenge for traditional banking models, forcing banks like MyState to take a more proactive approach to innovation, Mr Hampton said.

“There is no doubt that the traditional banking and wealth management business models will be impacted as others seek to take market share from us. Our challenge is to monitor, to respond where appropriate and from time to time be prepared to be an innovator ourselves.”

[Related: Bank boss on acquisition path]

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