Toowoomba-based Heritage Bank and Adelaide-based People’s Choice have entered into a non-binding agreement to explore a merger opportunity.
If a merger were to proceed, the combined entity – which would retain a mutual status – would have approximately 700,000 members and $22 billion in total assets.
The two lenders will now assess the potential benefits to members of a merger that would create one of Australia’s largest customer-owned banking organisations.
According to the duo, the merger would provide benefits of increased scale, access to a wider range of products and services, and an enhanced digital experience.
There would be no closures of the existing 90 branches or non-executive redundancies as a result of the proposed merger, according to the lenders.
However, it is expected that the two entities would combine under a new brand.
Both organisations would have equal board representation, and head offices would be retained in both Toowoomba and Adelaide.
A due diligence process is now underway to assess the member benefits and, should both organisations decide to proceed, the proposal will go to a member vote which would occur in early 2022.
'A merger of equals'
Speaking to Mortgage Business about the plans, Heritage Bank CEO Peter Lock said: "It's a true merger of equals; both organisations are of very similar size in balance sheet, we're the third largest mutual, they're the fourth largest mutual. If you put those together that's a $22 billion bank with 1,700 people, 90 branches and a complementary geographic footprint that actually creates a true national mutual bank. In doing that, we will table both brands and create a new organisation with a new brand, under one system.
"It's not a takeover; it's blending two organisations and creating a new one. And it will be one of the largest mutuals. While we're not doing it for that reason, scale is important in the banking industry and particularly in the mutual industry."
He continued: “While we are both successful organisations, joining forces would provide us with the scale, profile and nationwide presence to redefine mutual banking for current and future members.”
Heritage chairman Kerry Betros, added: “Our members’ interests will be the most important consideration in any decision to merge, and they will have the final say in any potential merger.”
Similarly, People’s Choice chairman Michael Cameron added: “Heritage and People’s Choice have been in discussions for several months. We recognise that we are both strong businesses, with approximately the same number of members, employees and assets, so if a merger proceeds, it would be a true merger of equals.”
“People’s Choice and Heritage are both strong values-driven organisations that are committed to mutuality, their members, employees and the communities that they operate in,” People’s Choice CEO, Steve Laidlaw, added.
People's Choice emphasised that a merged entity would enable the credit union to significantly enhance its ability to invest in a broader range of products and services as well as providing access to digital capabilities that would benefit members.
'Creating the foundations for a new mutual model'
The deal is progressing amid a wave of mergers and acquisitions from other banks, the most recent being NAB’s purchase of Citi’s Australian consumer banking arm.
The big four bank had also bought neobank 86 400 earlier in the year, combining it with digital bank subsidiary UBank.
Bank of Queensland also wrapped its merger with ME Bank earlier this year, although BOQ CEO George Frazis has argued against allowing any more consolidation with the big four banks.
The mutuals have already undergone a huge amount of change in the past year.
In fact, the number of mutual ADIs almost halved between 2010 and 2020, from 116 to 64.
Among the mergers in the last year alone were:
- Firefighters Credit Co-operative + Firefighters Mutual Bank
- IMB Bank + Hunter United
- Lysaght Credit Union + Horizon Bank
- Pulse Credit Union Limited + Teachers Mutual Bank Ltd
Further, fellow mutuals Greater Bank and Newcastle Permanent flagged their intentions to explore a merger earlier this month. The combined entity would have $19.8 billion in total assets and 600,000 customers.
Greater Bank CEO Scott Morgan said the future viability of mutual banks is under threat given the growing cost of technological investments, suggesting that only players with scale and large financial buffers will be sustainable.
The mutuals sector was warned by APRA in December that it may need to prepare for mergers, should banks face severe financial stress.
More mergers are also expected, with Macquarie Credit Union and Orange Credit Union now exploring the possibility of merging the two longstanding member-owned banking organisations based in the Dubbo and Orange regions, too.
When asked by Mortgage Business whether the rash of mergers marked the end of the viability of customer-owned banking models, Mr Lock suggested that it simply marked "a catalyst for a new beginning for customer-owned banks".
"With the mergers of, say Newcastle and Greater, and People's Choice and Heritage, we're creating the foundations for a new mutual model. Without scale, it's very hard to get a consistent message that there is a viable alternative [to the majors], in the form of customer-owned banking. But, with scale, and with the creation (particularly for our announced merger where we're creating a new brand,) that will give us the leverage and the jump point to accelerate the call that we are a real alternative.
"This ties back into the community trend for organisations that are true to their values, true to their members and the communities that they are operate in (as evidenced through ESG statements and ESG commitments). And I think that this is what we do. That's going to resonate with people."
[Related: Pulse, Teachers Mutual edge closer to merger]
Annie Kane is the editor of The Adviser and Mortgage Business.
As well as writing about the Australian broking industry, the mortgage market, financial regulation, fintechs and the wider lending landscape – Annie is also the host of the Elite Broker and In Focus podcasts and The Adviser Live webcasts.