Suncorp profit crunched by bad debts

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This was published 14 years ago

Suncorp profit crunched by bad debts

By Eric Johnston

Suncorp Metway has capped off its toughest year since the financial services group listed more than a decade ago after delivering a 40 per cent drop in profit after being crunched by rising bad debts and a string of catastrophe payouts in its insurance arm.

Chairman John Story said shareholders would no doubt be disappointed after the financial services giant was caught out by a freeze global credit markets last year and a large exposure to troubled commercial property market.

Stock in Suncorp was down as much as 27 cents, or 3.5 per cent, to $7.53 in early trade.

Suncorp reported a net profit of $348 million, this was in the range of the guidance issued by the Brisbane-based giant at the start of the month of a final figure between $340 million to $360 million.

Acting chief executive Chris Skilton gave some hope to shareholders the worst was behind Suncorp, but retained some caution towards the outlook for the group.

''While we have seen external conditions stabilise and there has been some evidence of recovery it is still too early to declare the end of the uncertainty,'' Mr Skilton said.

The results sign off on a turbulent period for Suncorp, where it was almost forced into a sale of its banking arm late last year after funding market shut down. Combined with disappointing insurance results, this resulted in the resignation of chief executive John Mulcahy in February.

Following a global search, UK insurance executive Patrick Snowball is scheduled to take charge as the group from next month.

Mr Skilton said Suncorp had adapted its business model over the financial year in response volatile market.

Since February, Suncorp's banking arm has isolated the bulk of its bad debt exposures and has pledged to revert to a lower risk model, writing mortgages and loans to small and mid-sized businesses. At the same time, the insurance arm, which owns brands such as AAMI and GIO, has driven through further cost savings.

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''These were necessary, though difficult decision, which have had some short term impact on the full year result. They were, however, decisions made with the longer term interests of the group and shareholders in mind,'' Mr Skilton said.

Suncorp's banking arm was hardest hit with full year earnings of $117 million slumping 82 per cent on last year.

Bank earnings were hit by a bad debt charge of $710 million, a tenfold increase on last year's $71 million. This gave Suncorp a bad debt ratio to the equivalent of 1.28 per cent of total gross loans and advanced - a rate that ranks substantially higher than its bank rivals.

Profit across Suncorp's insurance arm was cut by $255 million after it was hit with higher than expected payouts linked to bushfires in Victoria and flooding throughout parts of Queensland. The insurance trading result of $462 million was down from $607 million last year. However it managed to grow gross written premiums by 6 per cent after pushing through some price rises.

Elsewhere Suncorp's life insurance arm returned a profit of $122 million which was down, 16.4 per cent on last year as fee income fell across its funds management arm.

Suncorp's $1 billion capital raising earlier this year helped strengthen its balance sheet giving its banking arm a tier one ratio of 11.3 per cent, one of the highest among the nation's banks. Its insurance business has the equivalent of 1.6 times the minimum capital requirement.

At expected, Suncorp cut its final dividend as part of efforts to preserve capital, declared a final payout of 20 cents a share. This took the full year dividend to 40 cents a share, which is down some 60 per cent on last year.

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