Suncorp in merger talks with Bendigo and Adelaide Bank: sources

In 2018, it is understood that Suncorp offered to buy Bendigo at a 21 per cent premium to its market price, but the offer was rebuffed. Picture: AAP

Queensland financial group Suncorp is understood to have been holding recent talks with Bendigo and Adelaide Bank about a merger of their two banking businesses.

The talks that sources say have been unfolding come after DataRoom revealed in November that Suncorp was reviving plans for a possible demerger of its bank.

It also comes after the listed group announced on Monday that it is reviewing strategic alternatives in respect of its banking operations as it does so “from time to time” in relation to all of its businesses.

The pair were in talks about a deal during 2018 and Suncorp’s board revisits a plan for a possible demerger or sale of the bank every May, say sources.

At that time, UBS was working with Suncorp, which is now being advised by Barrenjoey, as first reported by this column late last year.

In 2018, it is understood that Suncorp offered to buy Bendigo at a 21 per cent premium to its market price, but the offer was rebuffed.

Suncorp investors for some time have been eager to see the company spin off its banking arm to capitalise on the strong rerating it would receive as a pure play insurer.

A challenge that Suncorp would need to overcome with relation to a merger of its bank is Bendigo and Adelaide Bank’s community bank structure.

The $14bn listed Suncorp generates most of its income from its insurance operation, but the argument from the company to retain the bank has always been that it provides a defensive aspect to the business.

Banks have a return on equity of about 8 per cent and for regionals that is not expected to increase, whereas for insurers it is 12-14 per cent.

Sources say current boss Steve Johnston has been keen on the deal with the $5.3bn Bendigo and Adelaide Bank since he was Suncorp’s chief financial officer.

A merger is expected to involve Bendigo and Adelaide Bank chair Jacqueline Hey as the chairman of the merged bank while Christine McLoughlin would remain as the chairman of the remaining Suncorp insurance business.

When promoted to chief executive in 2019, Mr Johnston signalled that the strategy was for the bank to be retained.

DataRoom reported that Bendigo and Adelaide Bank could be part of the equation in a straight scrip merger back in November last year when talk in the market around the bank was bubbling to the surface.

While some believe an acquisition or merger of Suncorp’s bank probably makes more sense for Bank of Queensland, creating a Queensland banking champion, Bank of Queensland is understood to be not currently working on a plan.

The Queensland government could take a dim view of a merger between Bank of Queensland and Suncorp because it could lead to major job cuts.

Bank of Queensland shareholders are also against the move, given that it recently paid $1.33bn for ME Bank that it is busy integrating and is currently undergoing an expensive technology upgrade program.

The share price of the regional bank has also been in decline since the start of the year.

ANZ is keen to grow mortgages in Queensland and is known to have had its eye on Suncorp’s bank for some time, but its challenge would be gaining approval from the Australian Competition & Consumer Commission.

Also, most doubt it would pay 1.2 times book value for Suncorp bank at a time that it is trading at about 1 times.

NAB is trading at about 1.2 times and many believe Ross McEwan would be keen to buy Suncorp and could do the deal.

But as is the case with ANZ, NAB’s major problem involves gaining approval from the competition watchdog.

Westpac and CBA are not expected to be interested but AMP would likely to be keen to buy the bank.

The question for AMP would be how it would fund a transaction.

Market experts believe that a demerger of the bank is the right move by Suncorp, suggesting that the bank is a distraction of its core business of insurance.

Financial technology groups are taking market share and regional lenders do not have the capital to invest in the same level of technology as their larger rivals.