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Merger vs. Alliance Bank. A Case Study.

12 October 2017 |Industry Updates
Hand holding fountain pen over a blank cheque.

Merger vs. Alliance Bank. A Case Study.

12 October 2017 |Industry Updates

Merger vs. Alliance Bank® - How do the numbers stack up?

There has been a lot of speculation around the costs involved to become an Alliance Bank® partner, so we’ve taken a look at a case study to provide some insight into the quantum of costs involved and compared them with those associated with a merger.

The bottom line in the case study is a merger without loss of branches will cost in the vicinity of 80 per cent to 120 per cent more member capital than becoming an Alliance Bank®.

If branches are closed the number was even higher. The key costs were those relating to staff redundancies and the period between the transfer of business and when systems and back office merge or transfer is completed. In our case study we assumed a combined loan and deposit book of $250M, allowed for six months for this process to be completed and assumed, in the case of a merger, redundancies involving the CEO, five management, five loans processing personnel and five back office staff.

When transitioning to the Alliance Bank® model, in our case study one back office person was required to work on the transition and the cost was borne by the Mutual entity. In the case of a merger the afore mentioned staff - CEO, management, loans and back office personnel - would be retained for approx. six months while systems are transferred. These costs are borne by the merged entity and therefore buried in the merged entities expenses.

To determine your own costs just think about the redundancies that would be inevitable in the case of a merger and how long you need to carry those staff to transition systems. It’s where the key cost differential lies. As an Alliance Bank® Partner, staff whose roles might otherwise become redundant once transfer of business is complete can be re-trained to focus on new customer facing roles that are realised under the Alliance Bank® model.

The case study assumed cost is borne as follows:

Item Transfer of ADI Merger
  Alliance Bank Transferring in Merged Entity
Rebranding Yes   Yes
Contract break costs (if any) Yes Yes  
Post transfer transition staff Yes   Yes
Redundancies Yes Yes  
IT systems upgrade Yes   Yes
IT systems conversion Yes   Yes
IT systems transition Yes   Yes
New Entrant fee Yes    

The key cost variable is post transfer staffing and redundancies.

Case study assumptions:

*Combined loan and deposit book is $250M
*6-month post transfer transition period
*5 branches 
*No allowance for branch lease break costs
*No contract break costs as its assumed same vendors are retained in both Alliance Bank® model and merger
*Member communications costs, IT Systems Upgrade, Conversion and Transition assumed to be similar between Alliance Bank® model and merger

A breakdown of cost assumptions is available on request.

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Bendigo and Adelaide Bank Limited, ABN 11 068 049 178 AFSL / Australian Credit Licence 237879. AWA Mutual Limited®, BDCU Limited®, CIRCLE Mutual Limited®, NOVA Mutual Limited® and SERVICE ONE Mutual Limited® (Alliance partners) are independent mutual entities that have formed an alliance with Bendigo and Adelaide Bank. AWA Alliance Bank®, BDCU Alliance Bank®, CIRCLE Alliance Bank®, NOVA Alliance Bank® and SERVICE ONE Alliance Bank® are trademarks of Bendigo and Adelaide Bank Limited.

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