Big banks eyeing Suncorp: Credit Suisse

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This was published 14 years ago

Big banks eyeing Suncorp: Credit Suisse

By David McIntyre

Australia's cashed up "big four" banks may be interested in buying regional lender and general insurer Suncorp-Metway Ltd's underperforming banking business.

The major lenders are showing interest now that they know the risks associated with Suncorp's bank, Credit Suisse analysts Arjan van Veen and James Ellis say.

And the milder than expected economic slowdown means bad debts on banks' balance sheets are likely to fall earlier than anticipated, freeing up the vast amount of capital they were holding to cover potential losses.

"Probably about four months ago, all of them said we have no interest in Suncorp bank, and now, all of them are pretty much saying 'at the right price'," Mr van Veen told reporters on Wednesday.

"The banks seem to be much more comfortable in being able to quantify the risk."

Mr Ellis expects the big four - Commonwealth Bank of Australia Ltd, Westpac Banking Corporation, National Australia Bank Ltd and ANZ Banking Group Ltd - will give back $16 billion of excess capital to shareholders during fiscal 2010 - no longer needed as bad debts are now expected to peak during the current half to September.

While all four have strong capital positions, ANZ and NAB have publicly stated they have excess cash available for takeovers.

CBA and Westpac are still integrating bigger takeovers, BankWest and St George, respectively.

NAB spent about $1.3 billion over the last three months buying businesses in mortgage distribution and lending, broking, life insurance and wealth management.

ANZ continued its Asian expansion last month, paying $US550 million ($A665.58 million) for some of Royal Bank of Scotland Plc's Asian businesses.

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ANZ also has the biggest war chest, with the highest Tier 1 capital position of the big four.

ANZ chief executive Mike Smith said last month that, while he would never rule it out, Suncorp's banking business was "not on the radar".

But Mr Smith also said at the time that he wouldn't be deterred by comments from competition watchdog chairman Graeme Samuel, that he would run a fine tooth comb over any bank takeover proposals before giving approval.

Credit Suisse's Mr Ellis questioned the ability of Suncorp to compete with the big four in the current environment, when its funding costs were probably a full percentage point higher.

The Australian Competition & Consumer Commission "can only knock it down if (they) can demonstrate that it substantially lessens competition," Mr Ellis said.

Suncorp, which reported a 40 per cent slump in net profit last week, mainly because of bad debts at the bank, may be happy to keep it through the bad debt cycle, Mr van Veen said.

But in the long term, it made more sense to sell it because insurance and banking were very different businesses, which didn't necessarily compliment each other, he said.

Mr van Veen said investors regarded Suncorp's banking business as having no net value, because of the negative $2.56 billion valuation of its property, infrastructure and development portfolio, which Suncorp now terms its non-core business.

The value of the banking business would be some multiple of the $2.57 billion of net tangible assets of the core business, Mr van Veen said.

As a comparison, Bank of Queensland was trading at 1.8 times net tangible assets, he said.

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