Does the ANZ Bank really know what its future is after last week’s mad switcheroos?
And will this confuse shareholders in the country’s 4th largest bank, especially when as the Financial Review reports, they will be asked to finance one of these deals – to the tune of $3.5 billion?
As of the weekend, the $4 billion purchase of MYOB from KKR looks like it is on hold while the ANZ talks to Suncorp about buying its Brisbane-based regional bank for $4.9 billion, according to the AFR.
There’s a bit of nostalgia here in that the ANZ was lined up as a potential buyer of Suncorp in the GFC in 2008 after the Brisbane-based financial group had trouble with bad debts in its bank and was still swallowing its big $7.9 billion insurance buy in the shape of Promina, which owned AAMI and several other brands.
The federal government’s deposit insurance scheme and three-year guarantee of bank debt helped steady the ship and the ANZ move was called off. At the same time Westpac bought St George and the Commonwealth bought Bank West in Perth for reasons similar to those that had driven the ANZ and Suncorp to almost marry.
ANZ had been talking around a figure of just over $3 billion for the Metway Bank in 2008 and wealth management businesses (no longer inside Suncorp). That wasn’t enough for Suncorp and the funding and deposit guarantees helped the company’s board decide to reject the offer and others.
Now ANZ and Suncorp have been locked in talks over the weekend, trying to finalise a deal that would see ANZ acquire Suncorp’s bank.
That deal will be subject to regulatory approvals, with competition watchdog the ACCC the having the final say.
Should the pair agree a deal it would be the biggest M&A deal in Australian banking since the financial crisis. In 2008, Westpac bought St George for around $18.6 billion and the Commonwealth Bank acquired Bankwest for a cheap as chips $2.1 billion (and also bought a lot of headaches with customers that took years to be tackled and resolved).
Suncorp Bank is expected to be worth about $5 billion. It is understood ANZ could offer cash or scrip, depending on how talks play out. Some banking analysts reckon ANZ will ask shareholders for fresh capital to buy either Suncorp Bank or MYOB, if that is the backstop deal (and judging by the remarks of some investors, not a very attractive one).
But if ANZ is successful in its talks with Suncorp, then there’s will be competition concerns about a big four buying a major regional competitor – the big four already dominate Australian banking like no other country.
The Commonwealth probably can’t move because of its size and immense profitability compared to the others, but if the ANZ is allowed to buy Suncorp Bank, NAB would be tempted to try and grab Bendigo Bank and Westpac might sniff around AMP Bank (which AMP now says is a core business).
All this activity would lead to a contraction in competition and problems for the ACCC.
Buying Suncorp would instantly add about $60 billion in customer loans to ANZ’s balance sheet, 80% are said to be home mortgages which would be handy at a time when ANZ has failed to keep up with its rivals in the great housing loan boom since the start of the pandemic.
But those customers of Suncorp and not at ANZ (or the other banks) through choice and location (ANZ is said to have a low market share in Queensland).
Silly, short-sighted bank analysts and some ANZ shareholders would support the deal because a reduction in competition means fatter profit margins, more buybacks and higher dividends and profits.
They do not care about the damage a lack of competition would do. Three years and a bit after the release of the final report from the Hayden inquiry into banks and financial services, a lot of the lessons from that inquiry seem to have disappeared.
Competition in banking services has gone backwards in the past year. The nascent threat from neobanks, fintech and buy now pay later to the Big Four’s market dominance, has collapsed.
BNPL companies are dying, fading, taken over or impossible to buy because of bad debts or their market value has slumped alarmingly to where they are no longer viable (Sezzle, Klarna).
Of the four neobank licences issued in 2019, three have gone – one handed back its licence (Xinja), a second is about to do so (Volt), a third was bought late last year by the NAB (86400) and only Judo Bank remains operational.
To be brutally frank, if ANZ is allowed to buy Suncorp’s bank, then it will quietly, over time, close branches to reduce duplication and continue closing its own.
The closures will hit poorer regions in cities and in rural and regional areas (where face to face banking seems to be more highly valued).
Ideally, Suncorp’s bank should be floated off on the ASX or combined with Bendigo Bank to make a more significant regional operator.
The attitude of the new federal ALP government will be watched closely – they have never been a big friend to banks.
The final decision will be down to Treasurer Jim Chalmers, who is from Queensland – perhaps that’s a negative for the deal if it eventuates.
