Analysts sceptical about possible Bendigo pitch for AMP Bank

Jefferies analysts Brian Johnston and Christopher Kightley said in a research note that Bendigo seems “adventurous” when it comes to mergers and acquisitions.

Banking analysts at Jefferies have expressed caution about an acquisition by Bendigo and Adelaide Bank of AMP’s $1bn banking operations.

It comes amid speculation in the market that Bendigo is interested in buying the banking operations at AMP with the financial giant potentially subject to a break-up.

The board of AMP could opt to sell parts of the business separately, as it continues with a strategic review aided by Goldman Sachs and Credit Suisse, but most believe the likely scenario is a major global group like Blackstone or Brookfield acquires the company and sells off the various divisions.

It is understood Bendigo has expressed interest in the bank, which has a book value of about $1bn, although the company has declined to comment.

Jefferies analysts Brian Johnston and Christopher Kightley said in a research note that Bendigo seems “adventurous” when it comes to mergers and acquisitions and would require a “massive dilutive” capital raising of about $1bn to buy the bank from AMP, with it trading at 0.56 times its net book value. They also said Bendigo’s execution track record was patchy.

The analysts point out that AMP Bank has a shortfall between its $20.5bn mortgage book and $17bn deposit base.

Household deposits are only $5.3bn, and the $12bn of non-household deposit funding would be challenging for Bendigo and Adelaide Bank, to which S&P has ascribed a BBB+ rating.

Another factor, they argue, against a transaction is that AMP Bank has no branches, so synergies would be limited.

Both Bendigo and AMP are reliant on third-party channels to originate home loans.

“With ANZ having lost market share up until August and Westpac still losing market share, there is now an ongoing price war, as seen in increased customer refinancing, making it difficult for an acquirer to retain acquired market share,” the analysts said.

“It’s hard not to conclude an acquisition of AMP Bank, with an equity base of $1.2bn, at anything other than an absolute bargain basement price would add value for Bendigo shareholders,” they said.