Suncorp seeks advice for its ‘bankless’ future

ANZ chief executive Shayne Elliott and Suncorp chief Steve Johnston. Picture: Arsineh Houspian

Suncorp has quietly brought in consultants to assist in figuring out the ideal operating model and management structure, if a $4.9bn sale of its bank to ANZ proceeds.

This column can reveal Steve Johnston-led Suncorp has had Boston Consulting Group conducting work delving into how the company should be structured as a pure insurance player, if a deal to offload its bank gets the green light.

BCG is said to be looking at assisting Suncorp to work out the best structure for the group without its bank, removing duplication and dealing with a string of issues such as stranded costs that would stem from the transaction.

Suncorp has a complicated non-operating holding company structure that houses offshoots, including the insurance brands such as AAMI and GIO, and those that sit within New Zealand. There are also some group functions that have costs shared between the bank and the insurance arm, so it’s a tricky unpicking exercise.

Suncorp chief executive Steve Johnston.

It’s not the first time Johnston has tapped consultants to help with formulating its strategy. More than two years ago, Bain & Company was brought into the fold to assess digital transformation and efficiencies, including headcount cuts.

An investor update by Suncorp last month highlighted the vexed issue of stranded costs, which are lingering expenses related to units being divested.

Suncorp identified $500m of divestment-related costs spanning the separation, transaction expenses and stranded costs.

An article by BCG, published last year, provides some insight into the firm’s underlying approach.

“Companies often incur unexpectedly high one-time costs, as well as ongoing costs that arise from transitional services, loss of scale, and inefficient post-divestment cost structures,” it said. “Moreover, the demands on all levels of the organisation can elevate stress and distract from delivering business results.”

ANZ agreed to buy Brisbane-headquartered Suncorp Bank in a transaction announced in July. The deal requires the Australian Competition and Consumer Commission’s green light to ensure it won’t substantially reduce competition across various markets, as well as approval from the federal and Queensland governments.

If the ACCC or the federal Treasurer were to unexpectedly knock back the transaction, an appeal would likely be forthcoming to the Australian Competition Tribunal – which could take more than six months – or the Federal Court.

At ANZ’s annual general meeting on Thursday, chairman Paul O’Sullivan said Suncorp’s bank presented a “unique opportunity” for the bank to boost its retail and commercial customer base, relative to its main rivals.

He also noted the state was hosting the 2032 Olympic Games and that there was a lot of investment occurring there linked to the energy transition.

O’Sullivan did acknowledge risks, however, around the integration but said ANZ’s track record in New Zealand gave him confidence about how the process would be executed and managed.

A witness statement lodged by Johnston with the ACCC – and made public this week – albeit in a redacted form – sheds more light on Suncorp’s thinking and the board’s knocking back of overtures by Bendigo and Adelaide Bank.

The statement notes two letters sent by Bendigo Bank to Suncorp chair Christine McLoughlin to express interest in exploring a marriage of the two banking operations.

The first letter was dispatched in late June this year and a follow-up on August 9.

Johnston’s witness statement said: “In my view BEN’s (Bendigo Bank’s) letters … lacked detail and in any event were unattractive both from a timing perspective, given the exclusivity arrangements between the group and ANZ, but also the deal challenges based on the work that the group has done since 2019.”

The statement goes on to note that he believes a merger with Bendigo Bank would have led to “material job losses and bank branch closures”, and would be challenging due to differing risk appetites and a messier technology integration. He outlined that Suncorp had two core banking platforms compared with seven at Bendigo Bank.

Johnston admitted that Suncorp was only able to achieve “limited operational and customer synergies” from its bancassurance conglomerate model, despite attempts to refine the strategy.

Suncorp’s earnings though, without the relative stability of the banking arm, will be subject to more volatility due to the unpredictability of natural disasters and swings in investment markets.

The company hopes the divestment will boost the multiple it trades on relative to its main insurance rival, IAG.

In the meantime, Suncorp and ANZ will jump through the regulatory and government hoops and work through a transitional services agreement, in place for two to three years, post the bank transaction’s completion.

Watching brief

Investors are closely watching for any takeover action at $5.2bn annuities and financial services group Challenger.

Apollo Global Management and entities it controls have quietly ratcheted up their stake in Challenger to 19.1 per cent from 18 per cent. It may only be a matter of time before a bid is lobbed – given how close the potential acquirer is coming to the 20 per cent threshold – otherwise Apollo can utilise a creep rule under the law.

That allows purchases of no more than 3 per cent of the target’s voting rights every six months.

Challenger’s shares are hovering close to their highest level in almost three years.

Apollo started acquiring a stake in May last year but got real traction when it purchased Caledonia Investments’ holding in Challenger, with a portion of that subject to approval from the Australian Prudential Regulation Authority.

That approval was forthcoming a year ago.