DAVID Liddy didn't mince words. "There has to be fundamental structural change in the industry," he said.
"None of the regional banks has the scale. Bendigo is one and a half times our size, Suncorp is about the same size . . .
"There should be consolidation among the regional banks."
The Bank of Queensland chief was speaking at an industry roundtable organised by the deal magazine and, while the sentiment wasn't necessarily new, his emphatic demeanour made industry observers take note.
Whether this very public statement was the trigger is unclear, but not long afterwards the respective chairmen of BoQ and Bendigo and Adelaide Bank were spotted together in a private meeting.
The Australian has confirmed the meeting was a "fireside chat" to explore a $5.5 billion merger between the regional banks.
The discussion was informal and there is no suggestion of an imminent deal or talks so advanced as to warrant market disclosure.
Indeed, Bendigo and Adelaide Bank yesterday said it would buy back up to 3.4 million of its shares to avoid dilution from shares issued under its dividend reinvestment plan.
BoQ chairman Neil Summerson is part of the Queensland business establishment, being a former state managing partner of accounting firm Ernst & Young and chairman of Brisbane Water.
His Bendigo and Adelaide counterpart, Robert Johanson, is a longtime merchant banker and capital markets specialist with close connections to the boutique adviser, Grant Samuel.
There is history between the parties, as Bendigo Bank spurned a $2.4bn BoQ takeover offer in June 2007, in favour of a friendly merger with Adelaide Bank. At the time, cultural differences -- often called "social issues" in merger parlance -- were seen as a key reason for the failure to consummate a deal.
Some of these -- the location of the headquarters and who would be chief executive and chairman of a merged entity -- are still likely to be hurdles.
BoQ ran a strategic initiative, Project Pathways, for most of last year in the wake of the global financial crisis. It was viewed by some as a marketing campaign to find a cornerstone investor.
It was reported that BoQ and its advisers approached several large Asian institutions, particularly Chinese banks, unsuccessfully offering them a stake.
Without a buyer, or at least a partner, the main outcome of Project Pathways was a goal of at least $50m in savings at the bank over the next two years. It plans to pare its cost-to-income ratio in line with the top four banks.
Over time, BoQ has kept its largest shareholder happy, being French bank BRED Banque Populaire, which holds about 12 per cent. The French institution is also understood to be holding almost 5 per cent of Bendigo and Adelaide Bank.
It is believed BRED supports regional bank consolidation. Since the global crisis, regional banks have lost their price-to-earnings premium to the major banks and have struggled to compete as effectively.
BoQ and Bendigo and Adelaide Bank are at a funding disadvantage to the major banks. Both are rated BBB+ by Standard & Poor's, compared with Commonwealth Bank's AA.
An immediate upgrade may be unlikely, but some observers reckon increased scale, as well as geographic and product diversification, would position a merged group for a higher rating.
Others believe there is a window of opportunity for a deal.
An interloper is unlikely to emerge, while regulators such as the Australian Prudential Regulatory Authority would be expected to support a stronger, larger bank emerging.
BoQ and Bendigo and Adelaide Bank last night both said they did not comment on market speculation.
