BOQ – Macquarie rates the stock as Underperform

Ahead of Bank of Qld’s result on Friday, the broker suggests the market is pricing in system growth ahead that isn’t coming, impairment reductions that are unlikely and margin improvement that is far from certain. There will be improvement in these areas but not significantly, and the broker has trimmed forecast earnings to reflect lower revenue expectations.

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It’s Virgin Money For Bank Of Queensland

It was, on first view, underwhelming. Bank of Queensland ((BOQ)) announced the acquisition of Virgin Money Australia and received a cool reception from brokers. The underlying problem is that Virgin Money is loss-making at present and comes via previous ventures with Westpac (WBC) and Macquarie ((MQG)). Venturing deeper into the benefits of the acquisition provides a better view of how the bank can leverage the business.

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This Week At A Glance

If the protagonists in the US Cliff discussions have no other incentive to reach a resolution, it is to be able to enjoy a Christmas break. Hence while many in the market are confident an agreement could be reached before year-end, others suggest the incentive to not be stuck in Washington from Christmas to New Year is enough to encourage pre-Christmas success.

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BOQ – Citi rates the stock as Hold, High Risk

Bank of Queensland issued a profit warning and Citi analysts were already prepared. After all, the floods in Queensland have been difficult to miss even if one tried. Having said so, the analysts seem to disagree with management that it was all related to the floods. They suspect that’s merely a convenient excuse, there’s weakness and vulnerability in BOQ’s SME/Commercial book, they point out instead.

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BOQ – RBS Australia rates the stock as Hold

No matter how hard management is trying to convince the market there’s good news to be found inside the organisation, RBS analysts believe questions surrounding the bank’s model remain and this will keep a lid on the share price. Until the key question -how is this model going to perform during an economic downturn- is being answered, negative sentiment is going to prevail, predicts RBS. Target lowered to $7.85 from $8.69 previously. On current RBS estimates dividend payouts will dive in each of the next two financial years. Sector: Banks.

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BoQ’s Interim Profit

Well he would say that but if that’s the main rationale for bidding for Bendigo Bank then Bank of Queensland CEO David Liddy, had better go back to the drawing board.


Mr Liddy said at theBoQ interim profit announcement that the proposed merger with Bendigo Bank Ltd is important for regional banking in Australia.


He said at the results presentation that the merger would create a new force and an alternative in the financial services banking landscape.


“A merged entity would be a strong force and we’re natural allies against the big banks. We are working to be a real force and an alternative to the big banks.”


He said the proposed merger of the two regional banks was recognition of the changing landscape of the financial services sector and he hoped due diligence could start with Bendigo Bank soon.


Surely the point of any merger is to improve returns for shareholders in both companies, not to build ‘new forces’.


For its part Bendigo Bank is busily consulting with its shareholders, many of whom live in and around the central Victoria city.


BEN doesn’t have any significantly large institutional shareholdings so it will be decided by the attitude of thousands of small customers and shareholders, most of who will look to the bank’s board for guidance. (A bit like Coles at the moment)


That’s why BEN has cleverly established a hotline to encourage letter writing and email comments from shareholders and others in the community around Bendigo about the bid from Bank of Qld and what BEN and its board should do.


“There have been some concerns raised in the past fortnight by some members of the Bendigo community, however as the merger discussions progress we believe these concerns will be allayed,” Mr Liddy said in a statement with the profit yesterday.


“We have committed to preserving Bendigo Community Bank branches. We have committed to preserving the Bendigo headquarters. We have committed to preserving the Bendigo brands. We have committed to retaining key executives and giving significant Board representation.


“If we work on the premise, and I believe most in the finance sector do, that mergers are going to occur involving the regional banks, then there is no better fit for Bendigo Bank than Bank of Queensland,” Mr Liddy said.


“For Bendigo shareholders we believe the price is extremely attractive and we believe a merged team is best-suited to understanding their culture, growing the business and has the operational and integration experience to make it work,” Mr Liddy said.


“We both understand how to run growing branch networks involving third parties, whether they are franchisees or community boards.


“I believe we have shown our skills and experience in execution and that together a combined BOQ and Bendigo Bank will be a powerhouse in the Australian retail banking market and provide greater returns to the shareholders of both companies,” he said.


Promoting the merger as the putting together of a regional player and an alternative to the big bank sounds good, but Mr Liddy and his team would be better off talking to as many smaller BEN shareholders as possible.


Yesterday’s solid interim result might be a good starting point.


BoQ reported a 21 per cent lift in first half net profit to a record $48.4 million, from $40 million in the first half of 2006. It was struck on a 24 per cent rise in revenue to $219 million thanks to a 21 per cent rise in net interest income to $154 million.


Mr Liddy said the bank was exceeding targets in its lending and deposit growth and continued to be well ahead of the banking system.


BoQ shares were 29 cents stronger at $17.59 while Bendigo Bank shares eased 16c cent to $16.90.


Interim dividend is 32c from 30c.


Accounts released with the profit show a small but worrying increase in loans in arrears past 90 days from $60.3 million in the first half of 2006 to $94.6 million in the first half of 2007.

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