No matter how much Westpac rationalise and spin its opportunistic grab for St George Bank, the only driver behind the merger is competition. That is, reducing competition.

This morning Westpac and St George have announced the terms of their merger and it’s clear from the statements that both want it to happen.

St George shares hit a pre-crunch peak of $38.50 and traded last Friday at $26.65. The suggested value of 1.31 Westpac shares for every St George share puts the mooted price of $33.10 around 11.4% under the all time high, which was only reached last December.

Now Westpac and some commentators are saying that St George needs the bid because its cost of funds will be too high. But that nobly assumes that the securitisation markets remain shut. Once they re-open then St George will be able to generate funds, at a higher cost, but it can make cuts elsewhere to compensate and keep overall costs low.

Westpac, or another bank, have to swoop now to knock off St George for that very reason.

The merger is certainly not about better deals for customers or the banking industry. The fund managers and big shareholders know it, the finance spinners and their mates on the finance media know it and the other banks know it.

For example, the CEO of leading fund manager Argo Investments Rob Patterson told Bloomberg yesterday, “any sort of rationalisation of the sector reduces competition and can’t hurt.”

Meanwhile, Westpac CEO Gail Kelly (former CEO of St George) was spinning the merger:

Together, Westpac and St George would have a strong AA credit-rating, a larger balance sheet and greater access to funding. This would lower risk and costs for St George, and position the combined business to withstand challenging funding markets and take advantage of opportunities created by the dislocation in capital markets.

Westpac believes the respective brands would be better able to compete and flourish by belonging to the same larger, stronger, entity. Both organisations are strong businesses, with iconic brands, strong and highly complementary cultures and long track records of delivering for customers, employees, shareholders and the community.

There will be many St George customers who won’t want to bank with Westpac, no matter how it’s portrayed. If that happens Westpac’s costs will slowly rise and the rational for the merger will come under pressure, forcing Westpac to cut and make changes at St George that reduce its independence and impact its reputation.

The last time the ACCC considered a bank merger was in 2000 with the Commonwealth buying Colonial. In giving approval the ACCC said:

When the Commission examined the Commonwealth/Colonial transaction, a particularly relevant structural factor was the existence of a strong regional bank in NSW competing against the four major national banks that would remain after the merger.

Obviously, concentration in the various NSW financial services markets has increased and as a consequence the effectiveness of behavioural undertakings could be expected to diminish, other things being equal.

In the end the final decision is Wayne Swan’s, and he also has a public interest test to apply to the deal.

When will bank managements and investors and analysts get to understand that shareholders don’t matter in banks: customers and depositors do.