Sydney brand a turn-off for distant mutual members

Banking Day staff Mutual bank

The squeeze on profits of even mid-sized banks and credit unions is evident in the half-year financials for two Sydney mutuals that hope to merge by the beginning of October.

Endeavour Mutual Bank and Sydney Credit Union as a combined entity will have an asset size of more than A$1.5 billion and around 75,000 members. Uniting the 34th-largest mutual ADI by asset size (Endeavour) with the 28th (SCU) creates a mutual ranked at 19th, sitting just outside the top quartile in this sector of the banking industry.

Mark Worthington, the CEO of Endeavour will be CEO of the merged entity, while Ashley Jennings, the CEO of SCU will be the Deputy CEO and this will be no routine merger for these experienced hands.

The combined comprehensive income for EMB and SCU over the year to June 2018 was $6.08 million.

Over the half year to December 2018 total comprehensive income for this pair was $1.46 million, half of the average for one half in the prior year.

“There has been no material change to the position of either organisation since 31 December 2018,” the info memo assures members.

There are familiar, sector-wide rationales offered for the union of “two member-owned financial organisations which share compatible values and strategic direction.”

The merged organisation, the directors of EMB and SCU wrote, “will have a greater capacity to respond to commercial and regulatory issues, including tighter interest margins, the increased cost of regulatory compliance, and the need to maintain sound capital reserves and operational efficiency.”

As reported in Banking Day two weeks ago, the increasingly low interest rate environment makes trading tough, and turning worse thanks to the RBA’s easing of monetary policy this month.

Where in this metaphorical, profit-draining boat does Endeavour Mutual sit, we asked EMB’s Mark Worthington yesterday.

“We sit in exactly that boat. We have the same overheads,” he said.

In the info memo, the boards project that “once the two organisations have been fully integrated, the merger will release operational cost savings … The estimated reduction in annual operational costs is expected to deliver a more efficient business” – though no savings are spelled out.

The merged entity name will be changed to Australian Mutual Bank Ltd on the merger date. Australian Mutual Bank Ltd will trade under two business names, Sydney Mutual Bank and Endeavour Mutual Bank, with “market research revealing a decisive preference for the name Sydney in Sydney and for the name Endeavour outside of Sydney.”