People's Choice CEO Steve Laidlaw
A national, mutual banking brand is the ambition of Heritage Bank and People’s Choice Credit Union as they seek to forge a union that will make the new enterprise the largest mutual bank in Australia.
The boards of the two mutual ADI’s (the third and fourth-largest customer-owned banking organisations at present) yesterday announced they had entered into a non-binding agreement to explore a merger opportunity.
The merged mutual would have around 700,000 members and A$22 billion in total assets, and rank as the largest mutual bank, ahead of the mooted Newcastle Permanent and Greater Bank tie-up (announced two weeks ago).
People’s Choice chair (and ex Suncorp CEO) Michael Cameron, said: “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.
“By joining forces, the merged entity would be of a size and scale that would enable both organisations to deliver more for their members through enhanced products, services, digital capabilities and competitive pricing.”
The combined entity would operate a network of more than 90 branches and employ approximately 1700 people.
There would be no branch closures or non-executive redundancies as a result of the proposed merger.
People’s Choice resulted from the merger of Australian Central Credit Union, and Savings & Loans Credit Union, both Adelaide-based, in 2010. Heritage – formerly Heritage Building Society - hasn’t been part of a merger since 1981.
The two current mega-mergers will mean the top three mutual ADIs (including Great Southern Bank, now losing its ‘number one’ ranking) will have a 40 per cent market share amongst mutuals. The top six will account for more than 50 per cent of sector assets.
A merger “would provide greater geographic diversity for Heritage, with People's Choice's business focused mainly in South Australia and the Northern Territory and complimenting Heritage's focus on east coast markets, particularly its home state of Queensland,” Fitch Ratings observed yesterday.
The combined entity would “account for about 0.5 per cent of banking system assets at June 2021, 0.8 per cent of system mortgages and 1.2 per cent of household deposits,” Fitch said.
Heritage Bank has a BBB+ long-term credit rating from Fitch and Baa1 by Moody’s.
In a joint Zoom call by the CEOs of both mutuals with Banking Day yesterday, it became clear that overlapping technology upgrade priorities and work in progress shapes the timing and the rationale for this merger.
Asked about the cost side to this proposal, Steve Laidlaw, CEO of People’s Choice said: “The principal efficiency is on the technology side. We are on a significant technology transformation program …. [and] looking to upgrade to the latest version of Fiserv.”
Heritage, its CEO Peter Lock explained, “runs a more bespoke system”.
“We’re running a tender to completely replace that. We have a panel of vendors and Fiserv is among them.”
Lock and Laidlaw then clarified that neither of their current brands would be maintained in the long run.
“We’re going to have a new brand for the organisation. We’ll come up with a new brand,” Laidlaw said – as is the case with the majority of mutual banks since this concept began to replace credit unions and building societies over recent years.
“It’s not the brand, it’s what the brand stands for. We both love our brands,” Lock said.
If the merger proceeds, both organisations would have equal board representation and head offices would be retained in both Toowoomba and Adelaide.
One of the more sensitive decisions – the choice of CEO – is also on the backburner.
Allowing time for due diligence and regulatory processes, the proposal will go to a member vote in early 2022.