Australia’s ANZ to buy Suncorp’s banking arm for $3.3bn and boost mortgage business

An ANZ bank logo is pictured in Sydney, Australia April 23, 2018. REUTERS/Edgar Su

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  • ANZ to raise AUD 3.5 billion to fund the deal
  • ANZ pulls out of talks to buy MYOB Group
  • Suncorp will return majority of net proceeds to shareholders

July 18 (Reuters) – Australia and New Zealand Banking Group (ANZ.AX) buys the banking arm of insurer Suncorp Group (SUN.AX) for 4.9 billion Australian dollars ($3.33 billion), as as the smallest of Australia’s major lenders is looking to revive growth at home after falling behind rivals.

The deal announced on Monday will bolster ANZ’s business presence in a fast-growing national region and boost its assets in mortgage lending, the most lucrative business for Australian banks, by almost a fifth, helping it to overtake National Australia Bank Ltd (NAB.AX) for third place in the company.

ANZ had previously expanded rapidly in Asia, which it has unwound in recent years. It lags Commonwealth Bank of Australia (CBA.AX), Westpac Banking Corp (WBC.AX) and NAB in terms of market value and other metrics.

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“It’s not offshore, it’s not far from their core capabilities, in terms of acquisitions, it’s not bad,” said Hugh Dive, chief investment officer at Atlas Funds Management, which holds shares of ANZ and Suncorp.

ANZ is aiming to raise A$3.5 billion by issuing new shares to pay for the deal, in Australia’s biggest capital raise this year.

The takeover, which is subject to regulatory approval, will increase ANZ’s mortgage portfolio from A$47 billion to A$307 billion. It shows how important mortgages are to Australian banks, even as rising interest rates and cost of living pressures dampen property prices, with many economists predicting a recession by now. a year.

ANZ missed most of the benefits of a COVID-19-induced property boom that saw home values ​​jump by a quarter in the year to early 2022 due to delays in the processing applications, analysts said.

The lender said separately that it had dropped out of talks to buy accounting software maker MYOB from private equity firm KKR & Co (KKR.N). ANZ revealed the talks a week ago.

“(ANZ’s) acquisition appetite is troubling, given growing recession risks and ANZ’s poor operating performance to date,” Jefferies analyst Brian Johnson said in a client note. .

“ANZ’s main franchise is already struggling, and adding more complexity during a time when MQG is driving up deposit costs seems unruly,” he added, referring to mortgage challenger Macquarie Group Ltd. (MQG.AX).

ANZ shares were not traded as the bank prepares its new share issue. The new shares were sold at A$18.90 each, a 12.7% discount from ANZ’s closing price of A$21.64 on Friday, according to its filings.

Shares of Suncorp, which is trying to offload an asset deemed non-essential, rose 5.7%, against a broader market gain of 0.6%. The company will return most of the sale proceeds to shareholders.

ANTITRUST REVIEW

The deal would represent a geographic expansion of ANZ, which is headquartered in Melbourne, Queensland, where Suncorp is based and does most of its business. ANZ sees itself as under-represented in Queensland and would retain the target membership and brand image in the state for at least a few years, ANZ said.

ANZ would also commit to funding a host of energy and infrastructure projects in Queensland, including some linked to the 2032 Olympics in its capital Brisbane.

The deal would create a “simpler and stronger platform for growth” that “advances our strategic ambitions”, said ANZ CEO Shayne Elliott.

The purchase price was 13.8 times the past earnings of Suncorp’s banking unit, ANZ said, below the price-earnings ratio of Suncorp’s overall business but within the range of major Australian banks. .

Suncorp President Christine McLoughlin said the agreed price “fairly values ​​the bank” and reflects “progress in achieving our strategic objectives”.

The deal presents the biggest task yet for new antitrust regulator Gina Cass-Gottlieb, who took over as chair of the Australian Competition and Consumer Commission (ACCC) in March. In a statement, the ACCC said its review of the deal would include the role of regional banks and competition with the majors.

“We will consider Suncorp’s role as an effective competitor and challenger to large banks in Queensland and other states,” an ACCC spokesperson said.

ANZ’s Elliott said on a call with reporters that the bank hoped its status as the smallest of the big banks would help win approval. “We look forward to making the case, but we will work on it over the next few months,” he said.

($1 = 1.4734 Australian dollars)

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Reporting by Byron Kaye in Sydney and Sameer Manekar in Bengaluru, with additional reporting by Scott Murdoch; Editing by Daniel Wallis, Richard Chang, Kenneth Maxwell and Muralikumar Anantharaman

Our standards: The Thomson Reuters Trust Principles.

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