‘Tough search’ for BoQ after $65m sale of St Andrew’s to Freedom Insurance flounders

BoQ suffers its 3rd shake-up in a week, with $65m sale of its life insurance arm falling over. Finance sector experts now believe will find it tougher to find a new buyer.

Grant Stewart appeared at the royal commission, after Freedom Insurance signed up a policy for his son, who has Down syndrome. Stuart McEvoy/ The Australian.

BANK of Queensland has suffered its third setback in a week, with a $65 million sale of its life insurance arm falling over.

Finance sector experts now believe Brisbane-based BoQ will find it tougher to find a new buyer for its Perth-based St Andrew’s business, given tough conditions for the life-insurance industry and a swag of deals already having been completed.

Shares in BoQ closed down 31c at $9.43 on Monday - they are currently trading at levels seen in 2013, according to IRESS data.

The proposed buyer of St Andrew’s was Freedom Insurance, which has been battered in the recent royal commission into financial services. Among evidence heard was that Freedom had sold policies to people who did not need them — with staff even wrongly selling a policy to a 26-year-old man with Down syndrome which his father then had to cancel.

Then last week, Freedom also it might face a “liquidity shortfall” if it could not take responsive action.

BOQ blames heart ills for CEO departure, contrasting with earlier assurances

Business bank chief dumps BOQ for Cash Converters

Royal commission: Freedom Insurance signs up 26-year-old with Down syndrome

By this Monday morning, both BoQ and Freedom announced the sale was off.

Freedom’s new chairwoman Pauline Vamos said in the current climate for the sector following the royal commission, obtaining the compulsory regulatory approval for a sale was increasingly taking time.

“Nobody could give a guarantee as to the date” of when approval would be made, she told The Courier-Mail. Given the uncertainty for all parties, neither BoQ nor Freedom could agree to any timeline and Ms Vamos said the relationship between the two businesses remained good.

The setback comes after BoQ chief executive office Jon Sutton suddenly resigned last Wednesday, followed by its business banking boss Brendan White quitting a day later.

St Andrew’s sells life insurance among other products, and had 147,000 customers last year.

The deal was announced in April this year, with BoQ saying that St Andrew’s would be a better long-term fit for Freedom given changing industry dynamics. Customers would also “benefit from Freedom’s specialised industry focus,” BoQ said.

Once the sale was complete, BoQ was to book an expected $8 million profit and lift its top capital levels by 20 basis points.

IMPACT OF NO-SALE

Bell Potter analyst TS Lim said the financial impact of the sale falling over would be minimal on BoQ. BoQ said it would “assess its strategic options” now and Mr Lim expected the bank would try to find another buyer.

“I think it’s going to take some time,” Mr Lim said.

Market conditions were better when the sale was announced, he added. A raft of banks have been offloading their life-insurance businesses already: Suncorp has announced a $725 million deal with TAL Dai-Ichi for its life-insurance division, and Commonwealth Bank’s division to ABA for $3.8 billion.

One industry source said the life-insurance sector here faced several hurdles including greater scrutiny since the royal commission.

Australian financial businesses also had found life-insurance arms were using large amounts of capital for what they viewed as comparatively low profits.

But some Asian buyers’ “expectations of the returns are a lot lower”, he said.

Asked if Freedom would try for another bid, Ms Vamos said: “At this stage it is not on our agenda”. Freedom would focus on existing customers, she said.

Bell Potter’s Mr Lim said BoQ was overall trading well, having improved its risk assessment processes to avoid making bad loans. Despite the executive departures, he said the bank had depth in its remaining people, citing figures such as Anthony Rose, BoQ’s chief operating officer and now interim CEO.

No top brass from BoQ was available for interview, for the third time in a week.