Rudd's Guarantee Gives Suncorp Time To Rethink Plan To Sell Banking Arm

The Age

Tuesday October 14, 2008

Eric Johnston

BRISBANE-based Suncorp Metway is rethinking whether to push ahead with the sale of its $6.5 billion-plus banking and wealth management arm following the Federal Government's decision to guarantee deposits and term funding for Australian banks for three years.

The move - widely seen as a lifeline for smaller banks - has given Suncorp some breathing room after the global credit crunch had meant it faced being locked out of long-term funding markets for some time.

At the same time the measures removed any doubts customers may have had over safety of their funds.

In the past week, Suncorp received separate approaches from Commonwealth Bank of Australia, ANZ and National Australia Bank for its banking operations and decided to test the market through a formal sales process.

But CBA and NAB opted not to lodge a formal offer for Suncorp on Friday as global markets dived.

This left ANZ as sole bidder, but with a low-end offer.

It is believed that Suncorp and its advisers UBS and Lazard Wylie Carnegie plan to continue talks with each of the three banks, but with wholesale funding likely to be less of a problem, Suncorp is now under less pressure to secure a sale.

The Federal Government's weekend move to provide a three-year guarantee on wholesale financing raised by banks essentially places Suncorp's credit rating in term markets on an equal footing with a large bank. "The Government's announcement changed the game for everyone," said a person involved in the process.

ANZ remains most interested in acquiring Suncorp, although with heavy write-downs and lingering concerns over other credit exposures, it remained the most limited in its capacity to make a large acquisition, analysts said. Brokers placed a combined value of Suncorp's banking and funds operations between $6.5billion and $8 billion. However, some have priced the banking business, the nation's sixth-biggest, at just $3.5 billion.

Despite yesterday's sharemarket surge, Suncorp shares slipped 2.3% to $9.05, on concerns it would abandon the sales process.

Suncorp said in a statement yesterday it was assessing the implications for the potential sale of its banking and wealth management operations.

This was "in light of the significant events in world financial markets over the last week and the Federal Governments' constructive initiatives for the financial sector" Suncorp said.

Suncorp said it would hold talks with various parties and would update investors in due course.

A senior bank executive said the measures meant Suncorp "had just got much more expensive".

Brokerage Goldman Sachs JBWere said yesterday it believed Suncorp should still push ahead with a sale of its bank.

© 2008 The Age

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