Benefits and execution of $4.9bn ANZ-Suncorp Bank deal in spotlight
Approval of ANZ’s $4.9bn takeover of Suncorp Bank will see the buyer add $70bn in loans to its portfolio and start a huge customer retention drive.
Federal government approval of ANZ’s $4.9bn takeover of Suncorp Bank will see the buyer add $70bn in loans to its portfolio and start a huge customer retention drive, as questions are raised about the deal’s benefits and how well it can be executed.
Treasurer Jim Chalmers on Friday waved ANZ’s purchase of Suncorp’s banking unit through, but added strict conditions to the acquisition as he noted it was an “on-balance call”.
The longstanding but controversial transaction was announced about two years ago and was opposed by the competition regulator last year, before that decision was overruled by the Australian Competition Tribunal in February.
The Suncorp Bank takeover – which is now slated to complete at the end of July – will see ANZ leapfrog National Australia Bank to become the third-biggest participant in the mortgage market. It sees ANZ add 1.2 million Suncorp customers to its books, alongside 2500 employees.
The deal is the largest banking sector transaction since 2008 when Westpac acquired St George, and Commonwealth Bank took over Bankwest.
With the transaction now clear of several important hurdles, some analysts were on Friday questioning whether ANZ could execute well on the deal to ensure it reaped the expected synergies without incurring too many costs.
ANZ chief executive Shayne Elliott acknowledged large acquisitions were risky, but said the bank had a track record in dealmaking.
“We are not naïve, we understand it is really difficult,” he said in an interview. “ANZ is the product of years and years and years of integrations and acquisitions … it (the Suncorp Bank deal) will make us a more effective competitor.”
He argued the migration of Suncorp’s banking customers onto ANZ systems over time, rather than the integration of systems, would limit risks around the transaction.
“We are not integrating any Suncorp Bank systems. Not one,” Mr Elliott said, noting that for some Suncorp customers the migration would occur in two to three years given they were moving to ANZ’s new Plus digital banking platform, which is still being developed.
E&P Capital analyst Azib Khan said ANZ’s subsuming of Suncorp’s bank would take three to six years to yield “potentially very modest earnings-per-share accretion” and would lead to cost challenges for ANZ.
“The acquisition will not significantly shift the dial in terms of ANZ’s capital allocation which sees the greatest percentage of capital being allocated to the relatively-low-ROE (return on equity) institutional division,” he added.
JPMorgan analyst Andrew Triggs highlighted ANZ’s estimated annual cost synergy benefits of $260m would largely be realised in years four to six after deal completion, and said ANZ’s pre-tax integration costs were estimated at $680m over five years.
ANZ’s shares dipped 0.2 per cent to $28.24 on Friday, bucking a 0.1 per cent rise in the S&P/ASX 200. Suncorp’s stock rallied 3.6 per cent to $17.41 as investors cheered the company’s decision to become a pure-play insurance firm.
Regal Funds Management’s Mark Nathan said the acquisition made “a lot of sense” for ANZ and Suncorp.
“The additional conditions are not likely to have any material effect on the deal metrics as ANZ will be able to manage its onshore workforce relative to offshore or contractor workforce,” he added. “Further, significant effort will be required in the integration. Retail banking is a scale game, with ANZ plugging relative weakness in Queensland. For Suncorp, it leaves a much simpler, more focused business that will continue to rerate upwards.”
Suncorp’s chairman Christine McLoughlin told shareholders the bulk of the net sale proceeds from its banking arm would be returned to them.
“Timing of the planned capital return to shareholders is dependent on finalisation of the completion accounts, receipt of a ruling from the Australian Taxation Office and approval from the Australian Prudential Regulation Authority. We expect the capital return will occur in the first quarter of the 2025 calendar year,” she said.
A number of conditions were attached to the deal’s approval by the federal government, including that ANZ would maintain its and Suncorp Bank’s regional branch numbers throughout Australia for three years. The Melbourne-based bank also agreed there would be no net job losses in Australia as a direct result of the acquisition for three years.
ANZ had previously said it would retain Suncorp’s banking staff and branches in Queensland for three years, but had not given any commitments for ANZ staff and branches.
The Treasurer’s conditions also included that ANZ would continue “its ongoing best efforts” to reach an agreement with Australia Post, on a commercial basis, to offer Bank@Post services to its customers.
Given the new conditions attached to the transaction, Suncorp said it would waive a $10m per annum in a brand licence fee that ANZ was to pay for five years and the insurer also agreed to fork out for other expenses.
The takeover will be able to complete after the passage of the State Financial Institutions and Metway Merger Amendment Bill in the Queensland parliament on June 14.
ANZ also had to make commitments to the Queensland government to ensure passage of its takeover.
Dr Chalmers said the conditions he imposed on the deal were about ensuring “access to vital banking services, particularly in the regions” and to also provide some protection to employees of both financial institutions.
Certainty around the transaction saw some analysts flagging increases to their ANZ earnings estimates.
Morgan Stanley banking analyst Richard Wiles said once the acquisition by ANZ completed he would raise his annual earnings-per-share estimates for ANZ by about 5 per cent, before deal synergies and excluding integration costs.
UBS analysts said the transaction was “marginally positive” for ANZ, providing further scale and geographic and product diversification.
Additional reporting: Tricia Rivera
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