Suncorp

ANZ Bank's pursuit of Suncorp's banking unit has been seven years in the making and will make ANZ the third-biggest mortgage lender in the country.

In any case, late last week there was a flurry of activity inside ANZ as the Suncorp deal entered its final stages. ANZ shares fell, analysts and investors questioned the logic of such a deal, and on Monday ANZ said it was walking away from MYOB. The view inside ANZ is it’s a coincidence both deals emerged at a similar time. While Suncorp CEO Steve Johnson had previously argued the case for keeping the financial conglomerate as one, on Monday he said it regularly also assessed the potential for offloading the bank and focusing solely on insurance. In truth, however, Suncorp’s bank has been on ANZ’s radar as a possible target for much longer than seven years: ANZ also came close to buying the Queensland bank during the 2008 global financial crisis. At about 5.30am on Monday morning, ANZ Bank chief executive Shayne Elliott and his chairman Paul O’Sullivan gave the final green light to a deal Elliott said had been seven years in the making.

Australia and New Zealand Banking Group Ltd (ASX: ANZ) wants to buy the banking operations of Suncorp Group Ltd (ASX: SUN), but not for the branches.

Shares of the big bank were in a trading halt today. Customers are really at the heart of what we’re acquiring, not bricks and mortar. The expected annual cost synergies are around $260 million, pre-tax, which is around 35% of Suncorp banking’s reported cost base in FY22. It also represents 1.3 times the net tangible assets (NTA). Australia and New Zealand Banking Group Ltd (ASX: ANZ) wants to buy the banking segment of Suncorp Group Ltd (ASX: SUN). But why? ANZ is buying the earnings and the loan book of Suncorp. The purchase price of $4.9 billion represents a price/earnings (p/e) ratio of 13.8 times before synergies or 9.3 times after the full run-rate synergies.

Australian banking and financial services firm ANZ is set to acquire Suncorp Bank, the banking unit of Suncorp Group Limited, in a deal worth AUD 4.9 ...

This will result in a stronger more balanced bank for customers and shareholders.” Suncorp says the “targeted timeframe for completion is approximately 12 months, during which time Suncorp Group will continue to run the bank”. ANZ says Suncorp Bank will “initially operate under its existing Authorised Deposit-taking Institution licence with no changes to the total number of Suncorp Bank branches in Queensland for at least three years from completion”.

It is understood the two groups started talking in late April, while Suncorp kept other suitors warm, not wanting to put all of its eggs in ANZ's basket.

Sarah Thompsonhas co-edited Street Talk since 2009, specialising in private equity, investment banking, M&A and equity capital markets stories. Suncorp investors lapped up the deal, sending its shares 6.1 per cent higher. The board wanted a shareholder-friendly renounceable entitlement structure, which would compensate investors that did not take up their rights to discounted stock. Surprisingly, there was little talk about the tie-up in the wider market. Selling the bank could see Suncorp shares re-rated and trade more closely to rival Insurance Australia Group, which was at a higher multiple. Bundrock, ANZ’s former country head of Myanmar and a highly regarded operator, was shipped in to provide extra muscle power. Connect with Anthony on Guy Fisher, the company’s head of corporate development, was heavily involved, while the company called on Barrenjoey Capital co-chairman Matthew Grounds and financial institutions group banker Anthony Brasher and law firm Herbert Smith Freehills for advice. And, perhaps most importantly, it was dead keen on securing its target. And, fortunately for all involved, they did. However, sources said ANZ quickly emerged as the strongest contender. Suncorp knew its bank wouldn’t be short on suitors.

The Australian Competition and Consumer Commission will closely investigate ANZ's $4.9 billion takeover of Queensland-based Suncorp Bank, but will.

ANZ will increase its share of the home loan market in Queensland from 15 per cent to 19 per cent and in business from 15 per cent to 22 per cent. ANZ will pick up a small market share and the number of big regionals will fall from three to two, but there is strong competition from CBA and the other big four banks, and from Macquarie, AMP and the fintechs. ANZ is being advised on the Suncorp deal by Flagstaff and Ashurst, with Suncorp being advised by Barrenjoey. If St George was something of a maverick in the market, Suncorp is not, but it’s a solid regional player and ANZ’s share of earnings from Queensland will increase from 14 per cent to 19 per cent if the deal goes through. Instead, the bank will argue small business and other customers will benefit from the increased market strength of both Suncorp and ANZ, which will result in more competition for the majors. That is the view of practitioners contacted on Monday, who say the issue is whether the deal will give ANZ significant power in the Queensland market first and national market second, with the answer to both being no.

Shayne Elliott said the Suncorp acquisition would help it compete with Australia's biggest bank, as he pledged to fund the state's energy transition.

“Now is not the time to close branches and reduce competition in the banking sector,” she said. “If anyone thinks the takeover of Suncorp will be good news for Queensland, they need to think again. Mr Elliott said: “What we love about this transaction is every part of Suncorp bank has a natural home at ANZ. We want all of it. The Finance Sector Union said the three-year commitment to maintain jobs and branches was not enough. James Eyerswrites on banking, fintech and technology. It is keen to lift market share in home loans and SME lending and capitalise on Suncorp’s stronger momentum in the mortgage market, thanks to strong customer popularity and referrals from brokers. It all has a very natural home at ANZ.” The ACCC said it would commence a review when it receives a merger authorisation application, which is expected in three or four weeks. The ANZ chief executive and chairman did not get through security quickly, as they were signed in through the IT system. Hurdles also came from small banks opposing the deal. The deal received mixed views from Suncorp shareholders and analysts, with some querying if ANZ was paying too low a price. “He’s doing his job and he’ll drive a hard bargain, but I don’t think we’ll be at loggerheads,” he said.

Treasurer Jim Chalmers loves watching his beloved Brisbane Broncos at Suncorp Stadium, so approving an ANZ takeover of the Queensland bank won't come ...

Suncorp is part of the Queensland fabric. He joined the Financial Review in 2008 from Treasury. Connect with John on John Kehoeis Economics editor at Parliament House, Canberra. He writes on economics, politics and business. Handing it over to ANZ will not be comfortable for Chalmers, even if the retention of the standalone Suncorp insurance business may allow him to still watch the rugby league at “Suncorp”. “This is bad for jobs and bad for competition, and the FSU will be making submissions to Treasurer Jim Chalmers and the ACCC, calling on them to reject this deal,” she said. Suncorp is a powerful brand in Queensland and its reputation was enhanced following the 2011 floods. ANZ will lease the Suncorp brand for retail and business banking for five to seven years, before this right lapses for the exclusive use of Suncorp’s insurance business, which is not being sold. Not only will the ACCC apply this test to the existing market, but it will also benchmark the ANZ-Suncorp bank deal against the potential alternative for Bendigo and Adelaide Bank to merge with Suncorp and create a “fifth pillar”. About a decade later, Queensland treasurer and future premier Anna Bligh (now the head of the Australian Banking Association) reduced the proportion of Suncorp directors required to be based in Queensland. State Treasurer Cameron Dick was more parochial, arguing Suncorp was a “product of Queensland” and warning he would be “driving a hard bargain to ensure the new entity’s Queensland presence is preserved”. But ANZ and Suncorp will argue this is theoretical and not realistic because Suncorp approached ANZ as the best complement for its bank and rebuffed recent approaches from regional rival Bendigo. The struggling ANZ is the smallest of the big four banks, its 13 per cent share of the mortgage market is half the size of CBA’s, and it is underweight in Queensland.

ANZ boss Shayne Elliott says he's 'not going to be distracted' by the Suncorp acquisition at a time when rival bankers are gearing up for the refinancing ...

Their priority will be to find the cheapest mortgage rate. Some 52 per cent of ANZ’s home loan book came through the broker channel. As their low-cost fixed rate deals come to an end, millions of borrowers will be rolling over into variable home loans, at significantly higher interest rates. Karen Maleywrites on banking and finance, specialising in financial services, private equity and investment banking. “It’s not Shayne Elliott out there selling home loans,” he said. After all, customers are unlikely to be in an overly charitable mood towards their bankers. And given the sizeable execution risks involved, it’s far from assured that ANZ’s absorption of Suncorp will proceed smoothly. “Of course, it’s going to be hard. The country’s major home lenders will be jostling each other to seize extra market share as customers are forced to replace their maturing home loans with new, higher cost, variable rate mortgages. Elliott is doing his best to downplay the integration challenge. “I’m not suggesting that it’s easy,” he said. It’s a curious divergence of paths.

The merger, if it gets through the competition regulators, underlines the fact that nothing matters more in Australian banking than mortgages.

With much of the work to simplify and strengthen the bank completed, and our digital transformation well-progressed, we are now in a position to invest in and reshape our Australian business It will increase ANZ’s customer base by 20%, home loans by 17%, retail deposits 22% and SME loans 20%. From time to time, a Big Four Australian bank will flirt with something daring such as, say, a strategy in cross-border institutional business.

Federal Treasurer Jim Chalmers is obliged to disclose how Labor will deal with its multimillion-dollar stake in Suncorp.

As for who is getting the better of the deal, like most competition-reducing acquisitions, both sets of shareholders will probably share in the upside while customers lose out. Similarly, if this was a jurisdiction such as Hong Kong, the UK or South Africa, ANZ’s shareholders would be asked if they wished to splash $4.9 billion on Suncorp’s banking division. When it comes to banking, Suncorp is a bit of a one-state wonder unlike its genuinely national insurance business which operates non-Queensland brands such as AAMI and GIO. New ACCC boss Gina Cass-Gottlieb will certainly come under pressure to block the deal on competition grounds and the parochial Queensland government also has blocking power. Another disappointing regulatory aspect is that neither set of shareholders get to vote. When it comes to governance and transparency, Labor’s Queensland division is not exactly a star performer. There will be no ‘blind trust’ arrangements,” the prime minister’s code of conduct says, even reaching down to humble assistant ministers. The transaction industry would hate such a reform but if Chalmers wants to do anything, improving the ability of shareholders on both sides of a transaction to vote would be a great start. It might not be a great time to be a teller in ANZ’s Queensland branch network — although this wasn’t mentioned on the shopping list of benefits for Queensland spelt out by Suncorp yesterday. Cormack’s largest investment is about 266,000 Commonwealth Bank shares which are currently worth $25 million. Back in 2014-15, Labor Holdings disclosed to the AEC that it generated total income of $9.06 million for the year, $908,240 of which came from Suncorp Metway in two separate payments of $593,600 and $314,640. So what happens when the Queensland Labor Party owns a multimillion-dollar stake in the $14 billion ASX-listed bancassurance outfit Suncorp which controversially proposes selling its banking division to rival ANZ for $4.9 billion — undermining competition and further entrenching the power of Australia’s big four banks.

The "cornerstone investment" for ANZ is also a show of confidence in Queensland's future.

The deal is expected to complete in the back half of 2023. ANZ will be keeping up Suncorp Bank’s branches in Queensland for a minimum of three years following the deal’s completion, with no net job losses expected during this period. “We know there will rightly be questions from government and regulators about the competition aspects of this transaction. A total of $15bn in new lending will be allocated to ANZ’s commitments to back renewable projects in Queensland as well as green Olympic Games infrastructure. “We have admired the transformation that has occurred under the leadership of Steve Johnston and Clive van Horen and believe Suncorp Bank is a natural fit with ANZ given its culture, risk appetite and customer focus,” he explained. A total of $10bn in new lending will also be allocated towards energy projects.

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