Oct. 8 (Bloomberg) -- Commonwealth Bank of Australia, the nation's biggest provider of mortgages, agreed to buy HBOS Plc's Australian units for A$2.1 billion ($1.5 billion) as the troubled U.K. bank sells assets amid the global credit crisis. The purchase includes BankWest, a lender focused on Western Australia, and St. Andrew's, an insurer and asset manager, Sydney-based Commonwealth Bank said in a statement. Analysts at Merrill Lynch & Co. and ABN Amro NV had forecast Commonwealth Bank would pay as much as A$4 billion for the two units. Commonwealth Bank, with the second-highest credit rating at Moody's Investors Service, is taking advantage of financial- market turmoil that's forcing European banks to sell assets to stay afloat. Edinburgh-based HBOS, which is being bought by Lloyds TSB Group Plc, sold the Australian units for 0.8 times book value, less than half the average valuation in the past nine Australian bank deals, Commonwealth Bank said. ``It's a good price considering Commonwealth is buying assets at a cheap part of the banking cycle,'' said Angus Gluskie, who helps oversee $500 million at White Funds Management in Sydney, including Commonwealth Bank shares. ``It's a great opportunity for well-capitalized banks to buy good assets cheaply from a distressed seller.'' Commonwealth Bank also said it's been in talks with Suncorp- Metway Ltd., without providing further details. Suncorp, Australia's third-largest insurer, yesterday said it's had approaches from potential buyers of its banking and wealth management units, without identifying candidates. Suncorp owns the nation's sixth-largest bank. HBOS Share Plunge Buying BankWest and St. Andrew's expands Commonwealth Bank's presence in Western Australia, the nation's fastest-growing state, the Sydney-based bank said in today's statement. The deal allows Commonwealth Bank to maintain its lead in the Australian mortgage market, which was under threat from Westpac Banking Corp.'s planned purchase of St. George Bank Ltd. Commonwealth Bank shares are suspended for two days as the company seeks to sell A$2 billion of new stock to fund the deal. The stock rose 2.6 percent yesterday, paring this year's decline to 24 percent. HBOS, Britain's biggest mortgage lender, plunged 41 percent yesterday in London trading, taking declines this year to 88 percent. The bank is being bought by Lloyds TSB in a deal brokered by the U.K. government after the deepening credit crisis fueled concerns about its ability to survive on its own. Prime Minister Gordon Brown's government is preparing a rescue package for British banks struggling under seized-up credit markets, its biggest step yet to stem turmoil in financial markets, according to three people with knowledge of the plan. Asian Deals The credit contagion that prompted the U.S., U.K. and European countries to shore up banks with emergency funding is playing into the hands of competitors in Asia and Australia. Nomura Holdings Inc., Japan's biggest investment bank, on Sept. 22 agreed to buy bankrupt Lehman Brothers Holdings Inc.'s Asian unit, taking on Lehman's 3,000 employees in countries from Japan to Singapore and India to Australia. The firm is also buying Lehman operations in Europe and the Middle East. Mitsubishi UFJ Financial Group Inc., Japan's largest bank, is investing $9 billion in Morgan Stanley. Commonwealth Bank will pay 11.2 times the HBOS units' combined 2007 net income, compared with an average price-earnings ratio of 16.6 for the last nine Australian banking deals, the lender said. The price-to-book value of 0.8 times compares with an average of 1.9 times for the last nine deals, it said. `Good Deal' BankWest's cost-to-income ratio is 67.6 percent, compared with 48.9 percent for Commonwealth, the Australian bank said. BankWest funds 63 percent of its business from deposits, compared with 58 percent for Commonwealth. Matthew Davison, an analyst at Merrill Lynch, estimated a price of A$3.7 billion, or 1.2 times book value, according to a report dated yesterday. A price of A$2 billion ``appears a little low to us,'' Jarrod Martin, an analyst at ABN Amro, said in a note dated yesterday. ``Even at A$4 billion purchase price, the deal would be strongly accretive by year 3. Commonwealth Bank appears to be getting a good deal.'' The purchase will contribute to earnings immediately following its completion in January, Commonwealth Bank said. The acquisition, which doesn't require a shareholder vote, needs to be approved by the Australian government and corporate regulator. To contact the reporter on this story: Stuart Kelly in Sydney skelly22@bloomberg.net

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