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Suncorp ponders spinning-off its bank

May 7, 2019

Suncorp could consider the potential for a banking division spin-off as the financial services giant examines its current operations and structure.

According to the Australian Financial Review today, the company has undertaken some preliminary work looking at a possible banking spin-off, with investment bank UBS taking an informal role.

A spokeswoman for Suncorp declined to comment when contacted by insuranceNEWS.com.au.

Suncorp has a market capitalisation of $17.6 billion. In the most recent half-year results banking and wealth contributed a net profit of $183 million, while Australian insurance reported earnings of $133 million and New Zealand contributed $111 million.

A separation of the businesses has been speculated about in the past, with Suncorp the only major Australian underwriter to combine banking and insurance operations.

Bell Potter Securities Head of Research TS Lim told insuranceNEWS.com.au today it would make sense for Suncorp to become purely an insurance company, given the distractions in banking and its limitations as a regional player.

“It is probably not a bad time to take a look at it,” he said. “If you look at other statements by the banks in the past week or two, the operating conditions continue to be tough, and regional banks don’t have scale.”

A research report by Mr Lim last year looked at the potential for a regional sector merger between Suncorp and Bendigo and Adelaide Bank.

“The regionals have traditionally lagged the majors in productivity and efficiency and we think operating conditions will become even more challenging post the royal commission,” he wrote.

Bank of Queensland has also been suggested by analysts as a potential partner for Suncorp.

JP Morgan analyst Siddharth Parameswaran says the bancassurance model, in Australia and overseas, often comes in for scrutiny, and in Suncorp’s case the company is compared with IAG and QBE.

“Clearly it has been different and people have asked if that makes sense. It is not a new thing to look at it,” he said.

The combination typically comes from banks seeking to expand their offering by moving into insurance, rather than the other way round, he says.

Suncorp last year announced the $725 million sale of its life insurance business to TAL Dai-ichi Life and this year sold the Resilium authorised representative network through a management buy-out.

The Financial Review says Suncorp CEO Michael Cameron is more supportive of a potential move on the banking division, while the board is more cautious, but says no decisions have been made and the work is “preliminary and purely hypothetical” for the time being.
 

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