Co-operative Bank CEO Bruce McLachlan says back office mergers can't be ruled out because it costs a lot to run a bank

By Gareth Vaughan

Co-operative Bank CEO Bruce McLachlan says, although it's not something his bank's currently looking at, bank back office mergers can't be ruled out over the longer-term because running a bank doesn't come cheap.

His comments come after SBS Bank CEO Ross Smith told interest.co.nz last week SBS had held "brief discussions" with other entities about sharing back office services to get economies of scale.

"Yes it's expensive running a bank," McLachlan said in a Double Shot interview. "It costs you roughly $50 million to run a bank. SBS and TSB and ourselves are all kind of $50 million plus, so it is expensive and it is the big barrier to entry, I think."

The Co-operative Bank's March year operating expenses came in at $50.5 million. SBS's were $58.2 million, and TSB's were $51 million.

"So I think we all look from time to time at whatever we can do to get more value from that expense."

He noted Co-op Bank's $2 million annual investment in online and mobile banking, which other banks are also replicating.

"We (Co-op Bank) are not at this stage pursuing any type of tie up with anyone else for the back office. But I wouldn't completely ignore that long run because the amount of investment required to stay relevant is huge," said McLachlan.

Nelson Building Society general manager Ken Beams last week said there was merit in SBS, which is both a bank and a building society, providing "the building society movement" with shared services in areas like computer systems, but it had taken SBS a long time to get their head around this.

'We're already doing it'

Henry Lynch, CEO of the New Zealand Association of Credit Unions (NZACU), said interest.co.nz's articles on building societies and banks potentially sharing back office services were very interesting, noting this is what NZACU does already for financial services providers on a co-operative basis.

Meanwhile, none of a full blown merger, takeover, or being taken over, hold interest for Co-operative Bank's management, McLachlan said, and aren't likely to for the foreseeable future.

“What is your market position, are you relevant today, can you grow your business? We've made huge inroads in the last year just in demonstrating that we have a genuine position in this market. And we want to grow organically, that is our absolute focus."

"Because as soon as you start thinking about mergers, acquisitions all those things, it massively detracts from the job at hand and that is proving your brand is relevant in the market. So that's our absolute focus. Who knows what happens further down the track, but we are very convinced that we have a unique position in the marketplace, which has real opportunity. Talking consolidation and things like that for us at the moment would be a cop out because we would be saying we are not going to be taking advantage of that opportunity," said McLachlan.

The Co-operative Bank posted a $1.4 million, or 24%, rise in annual profit on Friday to $7.1 million.