CBA, BankWest credit ratings reviewed

The Commonwealth Bank of Australia (CBA) and BankWest have had their ratings reviewed by Standard & Poor’s (S&P) in light of the acquisition announcement made yesterday.

BankWest has been placed on CreditWatch Positive while its new parent has had its ‘AA/A-1+’ ratings affirmed, with the research house saying the bank’s rating outlook remains stable.

S&P credit analyst Mark Legge said the proposed transaction gives CBA an opportunity to increase market share in important areas such as deposits and home lending, while the “relatively modest size of the acquisition means CBA is well placed to successfully integrate BankWest into its operations”.

BankWest’s assets are slightly more than 10 per cent of CBA’s, Legge said.

“Importantly, as the acquisition is being funded by an immediate AUD$2 billion ordinary share raising, there will be no adverse impact on CBA’s capital adequacy.”

Legge did say, however, that “funding and integration challenges will need to be prudently managed” in the current environment, with any additional funding required remaining a risk.

Meanwhile BankWest’s ‘A+/A-1’ ratings have been placed on CreditWatch with positive implications. S&P said the CreditWatch would be resolved when the acquisition plans are finalised and integration plans are available, which is expected in January 2009.

“The ratings on BankWest are likely to be raised by one or two notches if the acquisition proceeds as currently structured because BankWest is likely to be categorised as either a core or strategically important subsidiary to CBA under S&P group methodology,” a statement from the research house said.

“Conversely, if the acquisition does not proceed, the ratings are likely to be determined by the plans in relation to BankWest’s ownership and its strategic importance to its shareholders.”