Suncorp to review future of banking division

Suncorp is undertaking a ‘strategic review’ of its banking operations in a move that could lead to a spin-off or sale of its bank, but shareholders and analysts question the timing.

Suncorp has confirmed it is undertaking a review of its banking operations. Picture: Richard Gosling

Suncorp shares jumped more than 3 per cent on Monday after the company confirmed it was undertaking a strategic review of its banking operations.

But shareholders and analysts have questioned the timing, saying a sale of the banking unit would be very difficult given the challenging outlook for the sector.

A spin-off, to separate out the insurance and banking busineses into two ASX-listed companies, meanwhile, raises its own challenges, not least on the potential credit rating impact.

The share price move, which saw Suncorp shares jump to $11.23, and confirmation of the review, comes after speculation the bancassurer was mulling a spin-off or sale of its bank in a bid to boost returns for shareholders.

“Suncorp Group refers to recent media commentary regarding Suncorp’s banking operations,” the company said on Monday.

“As previously advised, Suncorp, from time to time, reviews its strategic alternatives in relation to all of its businesses and is currently doing so in respect of its banking operations.”

It is not the first time the company has mulled splitting out its operations. Investors have long pressured Suncorp to spin off the banking unit in the hope of unlocking further value in its share price and boosting shareholder returns.

In November, The Australian’s DataRoom column revealed that Suncorp was looking at reviving plans for a possible demerger of its bank.

But Morningstar banking analyst Nathan Zaia threw cold water on the idea of additional value from a separate ASX listing.

“Splitting them out into two ASX-listed companies, I don’t think that will unlock any value,” Mr Zaia told The Australian.

“The sort of discounts that we have IAG, Bendigo Bank and Bank of Queensland trading on based on our fair value estimates, they’re not far off from what Suncorp trades on anyway.”

The one way shareholders could benefit would be if a buyer paid a premium for the bank, he added.

“But then that would hinge on their ability to extract synergies to justify paying that premium, which is always easier said than done.”

There were also negatives for the bank to separate out from the larger company, Mr Zaia warned.

“I’m not opposed to the idea (of a spin-off or sale) because I think owning the two businesses together, you don’t really get much in the way of synergies in terms of cross-selling banking and insurance products, in terms of your risk and compliance.

“But being part of a larger group means Suncorp gets a better credit rating so it gets slightly better funding costs than it would if it was a stand-alone bank.”

At least one shareholder shares these views, telling The Australian that separating the businesses could see the credit rating hit at an already challenging time.

“They’re obviously going to try and test the market but this is a really hard time to try to spin off a Queensland regional bank. Look at how the other regional banks are trading at the moment.

“Now’s not the time to have a bank with anything other than a stellar rating.”

Spinning off the bank comes as the sector is hit with an uncertain outlook, declines in household savings and property lending, and a potential jump in defaults. Bank stocks are down around 15 per cent over the past month but the sector surged on Monday, with the big four up more than 2.5 per cent.

Before Monday, Suncorp shares had declined about 11 per cent over the same period, while IAG was down just 2.5 per cent. IAG shares also rose on Monday, by a more muted 0.9 per cent.

The majority of Suncorp’s income comes from its insurance operation, but its bank has, in the past, been viewed as a defensive element for the business.

As previously reported by The Australian’s DataRoom column, sources say current boss Steve Johnston was keen on the bank demerger or sale when he was Suncorp’s chief financial officer, but when he was promoted to chief executive in 2019 he signalled that the strategy was for the bank to be retained.

The move to offload the bank would follow a series of sales by Suncorp in recent years to streamline its operations: in April, it finalised the sale of its Australian Wealth business to LGIAsuper for $55m. It sold its Australian life insurance division in 2018 to Japanese financial giant Dai-ichi.