ANZ is poised to swoop on Suncorp’s bank in a $5 billion offer aimed at bolstering the big four institution’s languishing home loan division if the deal passes competition and political hurdles.
The Melbourne-based bank was preparing a $3.5 billion capital raising as soon as Monday for the deal, which would value Suncorp’s bank at $4.9 billion. Market speculation suggests ANZ has been in Suncorp’s data room assessing the business since early last month.
Any deal would likely require approval of the Australian Competition and Consumer Commission and federal Treasurer Jim Chalmers, and also have to navigate Queensland laws that bind the bank to its home state.
In a test for new ACCC chairwoman Gina Cass-Gottlieb, the competition regulator confirmed on Sunday it would decide “whether a public review into the impact of competition is necessary, taking into account the bidders” if an offer was to eventuate.
The deal, revealed by Street Talk on Friday, stands to be Australia’s biggest banking buyout in more than a decade.
ANZ had gross loans of almost $655 billion as of March this year, but its home loan book was flat at $278 billion.
Suncorp has a gross loan book of $59.5 billion, with $28.2 billion of that located in its Queensland heartland. Its overall lending is heavily swayed to bread and butter home mortgages at $48.1 billion.
Next takeover candidates
The merger would take out one of Australia’s three main regional lenders in Suncorp. Finance industry sources predict if the deal is done, the focus would shift to the potential merger between the remaining two: Bank of Queensland and Bendigo and Adelaide Bank.
Neither ANZ nor Suncorp would comment on Sunday.
The deal would unite ANZ and Brisbane-based Suncorp’s bank nearly 14 years after the global financial crisis almost triggered a shotgun wedding between the two entities. That proposal in 2008 fell apart at the last minute.
Delays processing home mortgages meant ANZ missed the recent boom in growth as Commonwealth Bank of Australia and National Australia Bank grew market share. ANZ has since faced a difficult road growing its book as the housing market slows and competition increases.
ANZ chief executive Shayne Elliott promised discipline on pricing, as competition for refinancing of fixed mortgages intensifies. But Westpac and ANZ are competing hard on price, with potential implications for net interest margins despite the rising rate environment.
Suncorp’s bank is part of a financial conglomerate formed in 1996 by merging Queensland state-owned entities QIDC and insurer Suncorp with the listed Metway Bank. Pressure has mounted for decades on whether to keep insurance and banking in the same company – even last year investors were arguing the two divisions together failed to provide tangible benefits.
Under Suncorp chief executive Steve Johnston, ironically an advisor to the Borbidge government in 1996 who helped push through the merger legislation, a review of the banking arm was revealed last month.
The last big regional buyouts were in 2008 when CBA bought Bankwest and Westpac acquired St George. Since then, smaller fintech lenders have emerged with mixed results.
Several industry sources thought ANZ would be the most likely of the big four banks to secure ACCC approval, given it had the lowest home mortgage book among peers. CBA, for instance, had more than $600 billion in home loans – more than double ANZ’s book.
‘No man’s land’
Another factor is that regional lenders are thought to have a comparatively tougher run against the big four banks, given the massive budgets the larger institutions can spend on compliance or information technology.
“The regional banks are … in no man’s land,” one veteran banker said.
The institutions would have approached the ACCC to sound out the possibility of a deal being blocked, sources said, even though the competition regulator was likely only to provide non-committal hints.
JP Morgan analyst Siddharth Parameswaran this month told clients that the ACCC might look at such a deal, but noted Suncorp had only 2 per cent of market share in total Australian lending.
A deal would also require federal treasurer approval under the Banking Act. Mr Chalmers, also a Queenslander, declined to comment on Sunday.
Close to home
Another hurdle lies in Queensland legislation binding certain functions of the Suncorp Metway banking entity and its holding company – Suncorp Group Limited currently – to the state.
That includes requiring the head office to be located in Queensland and the managing director to reside in the state, along with key functions such as treasury operations.
Queensland Treasurer Cameron Dick’s office confirmed it expected “full compliance with the long-standing legal provisions”.
A source with knowledge of government operations said the government was still awaiting clarity about what legal changes would be required for any takeover and suggested the process would be long.
Shadow treasurer David Janetzki, himself a former general counsel of Toowoomba-based Heritage Bank, argued “the spirit of the localisation legislative obligations has been pushed” over the years, but ANZ would need to “carefully consider what may be appropriate”.
“I would hope that some element of the ‘operational offices’ obligation remains and some physical connection, whether it be through board meetings or executive presence, be retained,” he told The Australian Financial Review.
“I accept it is probably a forlorn hope given the complexity of the business and the war for executive talent”.
Other questions being asked in the market included any job cuts with Suncorp’s banking arm being shed. The entire group employs almost 13,500.
The market will watch for investor reaction to the proposal on Monday.
Suncorp shares closed on Friday at $11.10, having fallen from $12.26 in late May along with other banking sector stocks. ANZ shares were at $21.64, and were at $25.68 in late May.
More on the ANZ-Suncorp deal
- ANZ to buy Suncorp bank in $4.9b ‘cornerstone’ deal. ANZ confirmed it will raise $3.5 billion to finance its $4.9 billion purchase of Suncorp’s bank and pledged to keep branches open for three years.
- ANZ’s ‘once-in-a-lifetime’ deal comes with complexity. Shayne Elliott says seven years of simplification has set ANZ up for the $4.9 billion acquisition of Suncorp’s bank. But with deal making and growth comes complexity around execution, writes Chanticleer columnist James Thomson.
- Macquarie, UBS launch ANZ Bank’s $3.5b raising. ANZ Banking Group is offering new shares at a 12.7 per cent discount to the last close in an effort to raise $3.5 billion to acquire Suncorp’s bank.
- Shayne Elliott’s banking epiphany. ANZ’s tilt at Suncorp is a way for the Melbourne-based lender to claw back some of the share it has ceded in the crucial home lending market over the past four years, writes columnist Karen Maley.
- ANZ/Suncorp deal will be first test for new ACCC boss. The watchdog has long bemoaned the market power of the big four banks, but proving that an ANZ takeover of Suncorp will substantially lessen competition may prove complex, writes Chanticleer columnist James Thomson.
- ANZ’s $5b tilt at Suncorp puts spotlight on competition. The big four institution has swooped on the insurer’s bank to bolster larger player’s languishing home loan division if the deal passes political hurdles.
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