Suncorp Bank sale in the national interest, CEO Steve Johnston says

Suncorp chief Steve Johnston says the sale of the company’s banking operations to ANZ is in the nation’s interest as he kicks off his pitch to win over the Queensland government.

Suncorp chief Steve Johnston says the sale of the company’s banking operations to ANZ will be in the nation’s interest as he kicks off his pitch to win over the Queensland government and wary regulators.

Speaking after announcing the $4.9bn sale of Suncorp Bank to the Melbourne-based ANZ, Mr Johnston said the fraught outlook in the insurance sector was one reason why the ASX-listed group pursued the sale of the business.

The proposed deal – in which ANZ will gain $48bn in mortgages, $11bn in business lending and $32bn in deposits – requires approval from the Australian Competition & Consumer Commission and Queensland government.

“Australia needs a viable, healthy, and profitable insurance sector,” Mr Johnston told The Australian on Monday. “Some of these questions that we’ve been asking of governments around improving public infrastructure, subsidies for people to improve the quality of their own housing, tax reform, debate around taxes on products, planning laws, these are all massive ­issues.

“So we’ve got a big job to do and a big role to play and I think the focus that we can apply to it as a monoline insurance company, across Australia and New Zealand, is going to be very important for us and very important for the country,” he added.

Suncorp, and other listed insurers, have struggled to contain the skyrocketing costs associated with repeated natural disasters in the past two years. Suncorp and IAG are widely expected to be forced to lift their natural catastrophe budgets substantially. Suncorp had come in under budget twice in the past 14 years, analysts have said.

Mr Johnston would not be drawn on a potential alternative to the ANZ deal – a tie-up with its regional banking peer Bendigo and Adelaide Bank, which had approached Suncorp this year.

He said the deal done with ANZ was not only due to the price and that it was an all-cash offer, but also because of an “alignment of people and culture”.

“(It was about) how our customers are going to be treated going forward, what the Queensland package would look like and our views around prospects on the regulatory front,” he said.

Shayne Elliott in Brisbane on Monday after announcing ANZ’s deal to buy Suncorp Bank. Picture: Arsineh Houspian

The planned buyout of Suncorp’s banking arm will result in ANZ boosting its underweight position in Queensland and NSW, as well as regaining a slender lead over NAB on housing loans.

The deal requires amendments to the State Financial Institutions and Metway Merger Act 1996, which requires that Suncorp’s head office, alongside its key executives, be located in Queensland.

ANZ, in a bid to keep regulators on side, has committed to no branch closures or job losses in Queensland for three years.

This was a good outcome for the state, Mr Johnston said, as he hailed the “very clear, very good” commitments made by both parties to Queensland.

“Look at ANZ’s strategic intent, which is to grow in Queensland. They have been underweight in Queensland and they have a huge opportunity here to use Suncorp Bank as a platform to grow,” Mr Johnston said.

But the acquisition could still face an uphill battle on the regulatory front, with the Queensland government already putting ANZ on notice that it faces scrutiny about its plans for Suncorp’s ­banking operations. Queensland Treasurer Cameron Dick said Suncorp Bank “is a product of Queensland (and) wouldn’t exist without Queensland”.

“We will be driving a hard bargain to ensure the new entity’s Queensland presence is preserved. Queenslanders deserve nothing less,” Mr Dick said.

Heritage Bank, a Queensland-based mutual, separately criticised the acquisition. Its chief executive, Peter Lock, said it would do nothing to promote competition and would further entrench the dominance of Sydney and Melbourne in the banking sector.

“The takeover of Suncorp by ANZ will simply increase the power of the major banks in Australia. That’s not great news for banking consumers,” Mr Lock said. “It’s even worse that we’re losing a Queensland-based bank, and the different perspective that brings. Having all the major banks based in Sydney and Melbourne means that there is a metropolitan perspective that dominates, when it’s not really representative of the rest of the country.”

Meanwhile, the Finance Sector Union predicted looming job losses and an “aggressive branch closure program”.

“This is bad for jobs and bad for competition and the FSU will be making submissions to Treasurer Jim Chalmers and the ACCC, calling on them to reject this deal,” FSU secretary Julia Angrisano said. “Elliott is trumpeting no net job losses for three years. What he really means is that there is no future for thousands of our members across Queensland once that three years is up.”

If it goes ahead, the transaction is expected to yield Suncorp net proceeds of $4.1bn, representing $3.21 a share.

Perpetual portfolio manager Vince Pezzullo said Suncorp had made its banking operations “match fit” in recent years. “It was a bit of a distraction in terms of what the long-term plans for it were and how it fit within the business,” Mr Pezzullo said.

“They needed to get into a position to grow the bank balance sheet efficiently and at the right margins. They managed to do that over the last several years and here they have a willing buyer.”

Jarden analyst Kieran Chidgey told clients the Suncorp exit from banking was not a surprise. “With a slowing housing market crimping earnings growth prospects and potential reductions to Suncorp’s stubbornly high bank cost-to-income ratio, potential for near-term bank returns above its cost-of-equity appeared increasingly unlikely,” Mr Chidgey said.