Suncorp May Have Trouble Finding Acceptable Buyer For It’s Banking Business

Post by Sharat on July 6, 2009 · Under Australian Economy, Business News, Mergers & Acquistions, banking · Comment

Australian Bancassurance group Suncorp-Metway, may have to expect a lower divestment price for its banking assets, and seek potential buyers from its regional rivals. Australia’s competition regulator may forbid a sale of those assets to the Big Four banking groups, fearing that too much market share would be held amongst the banking groups, hurting consumers and limit their choice.

Banking majors NAB and ANZ are thought to be the front runners to acquire the banking assets of Suncorp-Metway , which are valued at $7.7 billion, however both suitors may be prevented from consolidating the Australian banking landscape even further.

The chairman of the Australian Competition & Consumer Commission (ACCC), Graeme Samuel, has signalled that the regulators blessing may not be forthcoming, if a transaction involved one of the Big Four lenders acquiring a smaller regional lender.

Previously, Mr. Samuel has made public, comments about being uncomfortable with CBA’s acquisition of Bankwest, and approved the merger fearing that the alternative might have been the collapse of the Western Australia based bank.

Suncorp, which is based in Queensland is keen on jettisoning its banking business in favour of transforming itself into a pure insurance and wealth management play. However the reluctance of the regulator to approve a deal which included a Big Four buyer, has analysts speculating over the future of the bancasssurance group.

Scott Russell, banking analyst with Morgan Stanley told The Australian said he believes that given the uncertainty of the regulator view of such a deal, it would be extremely difficult for Suncorp to negotiate a sale to any of the Big Four.

“It’s not insurmountable (but) there are significant hurdles to executing an accretive break-up of Suncorp. These hurdles include ACCC concerns in retail and small to medium enterprise banking, questionable interest from the major banks, who are the only credible potential buyers in our view, the agreement on price and dis-synergies upon spin-off. Earnings in the bank are under enormous pressure and the new chief executive’s experience is in insurance rather than banking,” he said.

Suncorp’s loan book it valued at $55 billion, and the sale of its banking unit it is thought will be the first priority of newly appointed chief executive Patrick Snowball.

The bancassurance group’s share price has more than halved over the last year, hit by the sell off in financials and broader equities, but compounded by a strategy of diversifying into insurance and wealth management rather than banking.

In an interview with The Australian, the incoming Suncrop chief said

“I come from a background where we have multi-disciplined businesses within an organisation and I’m very comfortable with that. If you look at someone like Aviva, we had a broad spectrum of companies and we were able to demonstrate that the sum of the whole was greater than the sum of the parts, and of course that’s the important aspect of any organisation that has a mixture of businesses in it.”

Many analysts have compared Suncorp’s business model with that of financial supermarkets such as UBS and Citi that bore much of the brunt of investor skittishness when credit markets froze. Both UBS and Citi have announced that they intend in future to concentrate on their core businesses.

The expected division of assets will be welcomed by analysts and investors many of whom believe diversification of Suncorp’s business has made the group hard to value.

Suncorp’s insurance business which includes its acquisition of Promina has a gross written premium of $3.3 billion, whilst its wealth management assets have a value of $23.4 billion. The wealth management arm has been divided from the main bank and re-branded Suncorp Life, in a move that many analysts believe will make it easier to sell the bank.

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