BEN 0.59% $10.29 bendigo and adelaide bank limited

AFR on possible merger

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    Patrick Snowball . . . speculation has grown that the British-born CEO is beefing up his UK corporate profile. Photo: Michel O’Sullivan

    TONY BOYD, SARAH THOMPSON, RUTH LIEW AND SHAUN DRUMMOND

    Suncorp Group chairman Ziggy Switkowski has revealed that chief executive Patrick Snowball will retire from the insurance giant and that his successor will be identified by the end of 2015.

    Mr Switkowski said the company's board had known for some time that British-born Mr Snowball, who has held the top job at Suncorp for the last 5½ years, would "return to the UK at some stage" and that his "return is closer rather than further away".

    "About the turn of this calendar year is about when we should have Patrick's successor identified," he told The Australian Financial Review.

    "We have generally been thinking that the end of this year is a time when we need to be ready with our succession well advanced."

    Speculation has been growing in the past few months that Mr Snowball, the former British tank commander who has more than doubled Suncorp's share price to $14.68 under his watch, is looking to exit the company and beefing up his corporate profile in the UK. A Suncorp spokesman said the insurance giant would not comment on market speculation.

    MrSwitkowski said the company had yet to engage an external recruitment agency to search for Mr Snowball's successor but there will be a mandate to do so soon. The company has worked closely with global agency Russell Reynolds Associates in the past. "External consultants will be engaged to conduct an international search.We have had ongoing conversations with internal candidates," he said.

    Suncorp's highly regarded personal insurance boss, Mark Milliner, and Suncorp Bank chief executive John Nesbitt have been speculated as potential successors to the top job. Sources say external candidates may include former St George Bank financial chief and current GPT Group boss Michael Cameron, who is thought to have expressed interest in the Suncorp role.

    Former Westpac group executive Mike Pratt, who was a contender for the Suncorp CEO job before Mr Snowball's appointment, is also thought of as a possible candidate.

    Suncorp, which has a market value of $19 billion, has been one of the most sought after dividend-paying stocks during the past few years among investors seeking yield. Under Mr Snowball's leadership, the company embarked on a multi-million cost savings drive, sold off its portfolio of troubled loans to Goldman Sachs for $1.6 billion, and delivered a series of special dividends to shareholders.

    Meanwhile, speculation is also rising that Suncorp Bank may finally be for sale by the end of the year.

    Morgan Stanley said the logic for Suncorp to sell off its bank has also become stronger after the bank regulator tightened the screws on investor loan growth and the Murray inquiry recommended all banks should be unquestionably strong in its December final report.

    Mr Snowball is understood to have been the one who ultimately blocked an approach by Bank of Queensland early in 2014 to merge with Suncorp Bank. Neither bank has confirmed the talks.

    Bendigo & Adelaide Bank CEO Mike Hirst told the Financial Review he would always be interested in discussing a merger should the option ever arise, but there had been no discussions.

    He said there are pros and cons for a tie up of Bendigo and Suncorp, just as there are for one with BoQ. "There is plusses and minuses to both those arguments," he said. "The two Queensland banks joining would provide opportunity for branch rationalisation. That doesn't exist to the same degree with us – but working with us you get a very strong national network."

    A spokesman for Bank of Queensland said they would not comment on analyst or media speculation.

    Bank investors contacted by the Financial Review said there are compelling arguments for Suncorp Group to sell its bank, but equally the board has no great need to do so. "There would be some real benefits of a merger with BoQ – that easiest benefits would come from that," said one analyst who didn't wish to be named.This includes cutting costs by merging duplicate branches and back offices as well as avoiding any state regulatory issues which require the two Queensland bank head offices to be based there.

    "There is also a compelling argument for one of the big four to gain a greater presence in Queensland and ANZ has been mentioned as an option during the financial crisis."

    He said Suncorp has an incredibly strong insurance group which "is somewhat diluted by its bank".

    However, the investor said Suncorp Bank is "chugging along well now" after selling off its bad debts and has been generating excess capital which it is returning to shareholders. "I don't think there is any real urgency to sell it. It is past its worst. The only reason the board would consider selling it is if they got a good price for it."

    Macquarie Securities banking analyst Mike Wiblin argues getting bigger to try to take on the biggest banks is not the best option for the regional banks. He points to regional banks in the US that have successful specialises instead. "The way good regional banks in the US have succeeded is by being focused," he said. "Focus on one segment, dominate that segment, but just make sure it is one that is not too price sensitive."

    Investors in the regional banks have long been keen to see a merger to reduce costs and bolster returns. Bell Potter banking analyst TS Lim is another who thinks a merger should happen, but he argues, as do several investors, the most logical tie up is Bendigo & Adelaide Bank and Suncorp because it avoids over-exposure to Queensland.

    "Suncorp's bank doesn't have enough scale and [as a result] has about 7 per cent return on equity," he said. "We believe that M&A would be a better way if you really want to compete against the majors.

    "Bendigo is a better bet to buy Suncorp. [It] is strong in agribusiness and so is Suncorp and you would have a better spread geographically." Bendigo is also a bigger bank than BoQ, with a market cap of $6.1 billion to BoQ's $4.6 billion. Mr Lim puts Suncorp Bank's size at about $4.5 billion, meaning if Bendigo should bid it would be more of a takeover than a merger of equals. "Mike Hirst will be in the driving seat," he said.

    Morgan Stanley said last week said Suncorp should buy a health insurer because this would add to earnings – with premiums in this sector growing by 8.4 per cent a year in the decade to 2014 – and sell the bank arguing the capital requirements of the bank will be even more of a drag on the business if the Murray inquiry's recommendations are accepted by APRA.

    The Australian Financial Review
 
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