Suncorp streamlining crescendos with bank sale
After years of conjecture and the sale of various other financial services business in recent times, Suncorp has made the decision to divest its bank and focus entirely on insurance.
Suncorp has stood out from rivals with its banking and insurance model, frequently raising questions over whether the combination disadvantaged the company, particularly when compared with insurance-focused rival IAG.
Investment market discussion has also centred on whether the Queensland-focused bank is undersized and would be better off if it was merged with a similar operation, with other regional institutions or one of the Big Four flagged as possible buyers.
Nevertheless, the bank has added diversity to Suncorp’s revenue streams, at times offsetting issues affecting insurance areas of the business, and offering a potential counterweight to lessen volatility, and the company has downplayed the prospects of a sale in the past.
Last financial year Suncorp delivered profit after tax of $1.166 billion, including $547 million from Australian insurance, $419 million from banking and $200 million from New Zealand.
Today, Suncorp said it had received a compelling $4.9 billion cash offer from ANZ, and in a presentation outlined the benefits for all stakeholders.
The deal will create value for shareholders, who will likely be rewarded with a pro-rata capital return and possible special dividend, it will be good for the bank’s prospects, and the streamlined insurer will be singularly focused on meeting the needs of customers and communities at a time when the value of insurance has never been greater.
“We acknowledge the needs of insurance customers are rapidly changing, with a preference for digital interactions and for product design to take into account personal circumstances and risk profiles,” CEO Steve Johnston said.
“At the same time, the external environment has seen more frequent and severe natural hazard events resulting in increased costs and affordability challenges.”
The transaction comes as insurers including Suncorp are battling to deal with claims from the record-breaking Queensland and NSW floods earlier this year, which have led to industry-wide claims reaching $4.8 billion.
Mr Johnston says the bank has been regularly reviewed as part of the normal course of business, but on this occasion counterparty interest, the appropriate value of the deal, and cultural alignment and strategic considerations led to the agreement.
“It will allow our bank to grow and expand,” he said. “It will also allow us to really focus in on our insurance business and the challenges and opportunities that are there in insurance at the moment around climate change, frequency and severity of weather, and making sure we get all of those people back in their homes, and we will be able to focus exclusively on this.”
The sale of the bank, which is expected to be completed in the second-half of next calendar year subject to regulatory approvals, is the latest in a number of other transactions as Suncorp has honed its focus and simplified its portfolio of assets and products.
The company sold the Australian life business in February 2019 to TAL Dai-ichi Life for $725 million.
Since then, it has exited the Resilium distribution business, crash repairer Capital Smart and the ACM Parts recycling business and sold its 50% stake in RACT Insurance. Earlier this year it completed the $45 million sale of its Australian wealth business to LGIAsuper.
Recent years have seen banks selling their insurance operations as they have moved away from the combined model. Suncorp, from the other side of the fence, is seeing the benefits of a pure focus on its major insurance operations.
Mr Johnston has indicated that the performance of the insurance business is heading in the right direction and the company will continue to pursue its strategy of reinvigorating its brands, improving marketing and harnessing technology.
“To the extent that we can speed that up through the focus that we have, that will be a benefit,” he said.
