Bank of Queensland is believed to be buying ME Bank for $1.3bn, with a deal expected to be announced as early as this week.
The understanding is that a $600m equity raising is also on the cards.
Based on these numbers, market experts say it puts the deal at more than 14 times ME bank’s earnings, making it highly dilutive.
Chief executive George Frazis will likely be selling the acquisition to investors as one that will drive a lot of synergies, creating the ability to scale up the business without additional costs, given that ME bank does not come with the costs of a branch network.
Major cost cuts could also be on the agenda.
Bank of Queensland, with a $3.93bn market value, is advised by Luminis Partners, Goldman Sachs and UBS, while Macquarie Capital has been working on a sale of ME bank, with final bids received about two weeks ago.
The Australian’s DataRoom column first flagged on Monday that Bank of Queensland was the frontrunner to buy the business after The Australian earlier revealed that ANZ Bank was gunning for ME Bank.
Some now suspect that ANZ may now return to the negotiating table to buy AMP Bank.
Bank of Queensland was also looking at AMP’s banking operations, as first tipped by DataRoom in December.
Some have suspected that the logic for BOQ to buy the ME business is to roll it into its Virgin Money operation to build scale, although the understanding is that BOQ will retain the ME brand.
BOQ bought Virgin Money in 2013 and it operates as a stand-alone business within the listed company.
Mergers and acquisitions were always thought to be on the cards for BOQ since the appointment of Patrick Allaway as chairman in 2019.
Allaway has an investment banking background, having previously worked at Citibank and Swiss Bank Corp (now UBS).
ME, with a $15.6bn mortgage book and $19.6bn in deposits, is owned by 26 industry super funds, including AustralianSuper, HESTA and Sunsuper and was founded in 1994, offering home loan discounts to members and competition to the major banks.
It generated an $80.8m net profit in 2020.
Bank of Queensland’s net profit fell by 61 per cent for the 2020 financial year to $115m.
The bank’s shares were trading almost 3 per cent lower to $8.41 at market close.
After the market closed, BOQ entered a trading halt.
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