MAKING NEWS

Mon, 06 October 2008
Suncorp confirms acquisition interest
6/10/2008

Shares in Suncorp Metway and QBE Insurance were rare bright spots on an otherwise gloomy day for the sharemarket after the banking and insurance group confirmed it was in talks to offload its banking and wealth management operations.

Suncorp's stock climbed to its highest level in four weeks, adding 3.75 per cent, or 40 cents to $11.08 as a sea of red spread over the bourse which ended down 3.3 per cent.

Brisbane-based Suncorp confirmed widespread speculation its assets were in play, with several preliminary approaches from parties interested in its banking and wealth management operations, which drive over 40 per cent of total earnings.

Suncorp declined to comment on whether offshore institutions had shown interest in the assets, but confirmed it has raised $1.1 billion of its $4 billion to $4.5 billion funding requirements for 2008/09.

The company's shorter term funding profile - relative to its peers - combined with uncertainty over the impact of a divestment on its corporate structure, earned it a change of status from global ratings agency Standard & Poor's Ratings Services (S&P).

S&P put Suncorp's A+/A-1 rating on creditwatch, saying the negotiations could result in an upgrade or downgrade depending on the credit rating of the buyer.

S&P's credit analyst Mark Legge said funding for Australian banks had become more challenging in recent weeks, with the closure of offshore credit markets.

"This scenario, in particular, adversely affects those banks with shorter-term liability profiles and those more exposed to offshore funding markets," he said.

"Australia's big four banks are among the only 20 banks in the world to carry a AA rating so any small bank is prey," Stuart Smith, senior client adviser at Bell Potter said of Suncorp's statement.

Suncorp's A rating means it faces higher funding costs than AA rated banks.

"I'd be fairly certain that the banking side of Suncorp is selling on a very cheap price to earnings ratio," Mr Smith said, adding a PE ratio of as low as five times had been quoted.

"The problem is offloading the insurance side of the business. Who would probably be a willing but not over anxious buyer? It's probably QBE."

Speculation the insurer may turn predator on Suncorp surfaced in June after QBE abandoned its $8.6 billion bid for Insurance Australia Group, only to resurface last month after Suncorp posted a 47.7 per cent drop in annual profit in late August.

QBE's stock firmed 0.26 per cent to $27.40 on thin volume from the NSW and South Australia public holidays.

Commonwealth Bank of Australia (CBA) has been named as the most likely contender for the banking side business, given National Australia Bank (NAB) and ANZ Banking Group's (ANZ) discounted share price would make the necessary scrip deal expensive.

CBA declined to comment.

Over the past week investors have been looking at the potential for a break-up of Suncorp, which is currently valued at $9.95 billion, EL&C Baillieu Stockbroking financial services analyst Stewart Oldfield said.

"There are concerns that a number of the major banks are examining potential takeovers and any large deal would require share issues to fund those transactions," Mr Oldfield said.

Analysts at Citigroup have estimated Suncorp's banking assets could fetch around $5.5 billion.

Lazard Carnegie Wylie and UBS are advising Suncorp during the talks.

SOURCE: ninemsn

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