Suncorp may be sizing up Bendigo and Adelaide Bank yet again

Questions are starting to resurface in the market about Suncorp’s intentions for Bendigo and Adelaide Bank with speculation mounting that UBS has been drafted in by the Queensland lender and insurer to once again explore a tie-up of the two financial institutions.

As reported earlier by this column, talks have occurred before between Bendigo and Suncorp about a merger between their banking operations, involving UBS, but never went anywhere.

DataRoom understands that the possibility could be back up for discussion and analysts from Bell Potter have even floated the plan.

There is some talk in the market that Suncorp is eager to buy Bendigo, although others describe that prospect as unlikely because the move would be highly unpopular among Suncorp’s shareholders.

Still, Bendigo and Adelaide Bank is trading a low earnings multiple, closing yesterday at $10.38 and Suncorp boss Michael Cameron, who has previously worked for Commonwealth Bank and St George, is known to have aspirations for a major bank CEO role.

The last boardroom talks between the two companies was before the retirement of Suncorp chairman Ziggy Switkowski in April.

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

Sources close to Suncorp say there is no deal currently in the works. But perhaps a deal could emerge next year.

The suggestions come as Bendigo’s chairman Robert Johanson is due to appear at the royal banking commission later this week with a focus on its involvement in Forestry Managed Investment Schemes.

They also come as Suncorp investors are eager to see the company spin off its banking arm to capitalise on the strong re-rating it would receive as a pure play insurer.

Any move to buy Bendigo would not be any easy feat for a suitor, partly because of its community bank structure.

Perhaps one option is that Suncorp could buy the banking operation and spin out insurance.

One factor weighing against the move is that such a deal would appear to be against the intent of the royal commission, which has brought to light that banks are not protecting the interests of customers adeuately.

A deal that cuts costs for banks to drive earnings higher may not appeal to the regulators, APRA and ASIC.

Yet the sense is that more merger and acquisition activity is expected in the banking industry during 2019.

Rather than sell whole companies, banks may divest loan books that are not making large enough returns or are not of a substantial size.

Another factor to consider is that Suncorp still has smaller operations that it plans to sell before moving on any major acquisition.