I get a chance to read our latest defence document, issued yesterday; the "hubris and parochialism" press release was obviously just a taster for this fairly short (about a dozen pages plus the usual boring appendices) but pointed document. I guess we pay The Maitland Consultancy, our PR advisers, for determining the strategy on what we release and when.
It covers six key areas. It questions the BoS cost assumptions; from what base are they proposing to eliminate over £1 billion a year? And what are the consequent restructuring costs? Then, in terms of these savings, how much is new initiatives and how much will arise from stuff that we are already doing, such as the Retail Transformation programme and the cuts in Head office staff?
Thirdly, how would BoS really improve our property management when our "skills are widely recognised as being innovative and market leading"? There is then another very heavy attack on the BoS IT plans, with another go at the vague nature of their plans, the unproven nature of the BankWest system, and the general effort and risks involved in such a large scale migration. Personally, I'm getting a little tired of reading about this, but I guess the theory is that repetition will eventually get what is a very strong argument across to the investors, press and other key people.
The next point claims that BoS are ignoring the precedents from previous banking mergers. Their claims are compared with the Lloyds/TSB experience, and with an analysis of 24 US bank mergers. Conclusions based on cost:income ratios are spurious, and the BoS claims are far larger than previous cases, particularly as this is an "out-of market" merger (in other words, the two organisations do not have a huge overlap of coverage which would enable quick cost cuts by closing branches.)
The final point covers execution risk; how much value might be destroyed by the proposals. There would be a risk to revenues if customers defected because of the disruption caused by implementing IT and other changes. This likelihood is increased in the case of a hostile acquisition; the example of Wells Fargo take over of First Interstate, where there was 17% deposit attrition, is quoted. I am personally not so sure about this one, as there is huge inertia in UK banking, both personal and corporate. Clearly if there are huge systems cock-ups then there will be effects, but I can't see many customers just closing accounts because NatWest is now owned by BoS. However, the other points are all valid, and overall I think it is a pretty good, punchy document.