{"id":128002,"date":"2022-06-27T07:23:20","date_gmt":"2022-06-27T07:23:20","guid":{"rendered":"https:\/\/fin2me.com\/?p=128002"},"modified":"2022-06-27T07:23:20","modified_gmt":"2022-06-27T07:23:20","slug":"market-divided-on-merits-of-potential-suncorp-break-up","status":"publish","type":"post","link":"https:\/\/fin2me.com\/markets\/market-divided-on-merits-of-potential-suncorp-break-up\/","title":{"rendered":"Market divided on merits of potential Suncorp break-up"},"content":{"rendered":"

Investors and analysts are divided over the case for hiving off Suncorp\u2019s banking division after the insurance conglomerate confirmed it was considering its options.<\/p>\n

Suncorp shares rose on Monday after the company told the ASX it was reviewing \u201cstrategic alternatives\u201d for its banking arm, in response to a report in the Australian Financial Review<\/em> that it was mulling a possible sale or spin-off of the bank.<\/p>\n

<\/p>\n

There has long been debate over whether Suncorp should sell or spin off its bank.<\/span>Credit:<\/span>Paul Harris<\/cite><\/p>\n

For years there has been speculation Suncorp could offload its bank, which accounts for about a third of group profits, and has been valued at about $4.5 billion by Morningstar analysts.<\/p>\n

Suncorp chief executive Steve Johnston appeared to pour cold water on the idea when he was appointed in 2019, pointing to practical reasons for keeping the bank and the insurer together. \u201cThe bank is core and strategically important to the group, and the focus is about making it stronger,\u201d he said.<\/p>\n

But Suncorp\u2019s board now appears to be considering its options for the bank, though its statement on Monday was scant on details: \u201cAs previously advised, Suncorp, from time to time, reviews its strategic alternatives in relation to all of its businesses and is currently doing so in respect of its banking operations,\u201d Suncorp said.<\/p>\n

The review is likely to prompt ongoing interest from the market, as some think Suncorp\u2019s larger insurance business would fetch a higher valuation if it did not also have a bank attached to it.<\/p>\n

Hugh Dive, chief investment officer at Atlas Funds Management, backed splitting up the business, pointing to Tabcorp\u2019s recent de-merger of The Lottery Corporation, which made a strong debut on the ASX last month.<\/p>\n

In Suncorp\u2019s case, Dive said the combination of a bank and insurance company meant it traded at a lower price to earnings multiple than if it were purely an insurer. \u201cWhen you\u2019re buying Suncorp, you\u2019re not really buying it for the bank, you\u2019re buying it for the insurance,\u201d Dive said.<\/p>\n

However, others are unconvinced about the case for splitting up the business, pointing to the added costs of running Suncorp\u2019s bank as a standalone operation.<\/p>\n

Morningstar analyst Nathan Zaia said while there were some high-level arguments for separating the bank and the insurance businesses, Suncorp\u2019s bank currently benefited from lower funding costs because it was part of a bigger group.<\/p>\n

Zaia said it was unlikely that competition authorities would allow a big four bank to buy Suncorp\u2019s banking unit, and it was a \u201ctough market\u201d for regional banks such as Bank of Queensland and Bendigo and Adelaide Bank.<\/p>\n

\u201cI don\u2019t think that just splitting them up miraculously changes the outlook for either business. It does give investors an option, however, if they want to hold one or the other,\u201d Zaia said.<\/p>\n

Opal Capital portfolio manager Omkar Joshi said making Suncorp\u2019s bank as a standalone company would create additional administrative costs, funding costs and capital requirements.<\/p>\n

While Joshi said a pure-play insurer may attract a higher valuation, this could be cancelled out by a lower valuation for Suncorp\u2019s bank, if it were a standalone business. \u201cI don\u2019t think there\u2019s a reason to do it from a financial market perspective,\u201d Joshi said.<\/p>\n

Suncorp shares gained 3.6 per cent on Monday to $11.22.<\/p>\n

The Market Recap newsletter is a wrap of the day\u2019s trading. <\/i><\/b>Get it each weekday afternoon<\/i><\/b>.<\/i><\/b><\/p>\n

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Investors and analysts are divided over the case for hiving off Suncorp\u2019s banking division after the insurance conglomerate confirmed it was considering its options. Suncorp […]<\/p>\n","protected":false},"author":3,"featured_media":128001,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1],"tags":[],"yoast_head":"\nMarket divided on merits of potential Suncorp break-up - Fin2me<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/fin2me.com\/markets\/market-divided-on-merits-of-potential-suncorp-break-up\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Market divided on merits of potential Suncorp break-up - Fin2me\" \/>\n<meta property=\"og:description\" content=\"Investors and analysts are divided over the case for hiving off Suncorp\u2019s banking division after the insurance conglomerate confirmed it was considering its options. 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