Australia and New Zealand Banking Group (ANZ), intends to build its mortgage book and expand its geographical network by acquiring the banking division of insurer Suncorp Group Limited in a deal valued at AUD4.9 billion.
Subject to regulatory approval, the acquisition illustrates the importance of mortgages to Australia’s banking sector, despite rising interest rates and cost-of-living pressure combining to reverse the country’s property market trends.
ANZ announced on Monday that it intends to raise AUD3.5 billion to finance the deal by issuing fresh stock. Analysts observed that the banking group had missed out on a housing boom during the pandemic, which witnessed home values rise by almost 25 percent, due to delays in processing applications.
ANZ’s acquisition is slated to boost its mortgage book to AUD307 billion, and would see it overtake National Australia Bank in third place, according to publicly available data. Shares of the bank remained untraded as the new stock issues were being prepared.
According to filings, new shares were sold at AUD18.90 each, a 12.7 percent discount to ANZ’s closing price of AUD21.64 last week.
Suncorp’s shares rose by 5.7 percent against a broader market gain of 0.6 percent. Suncorp has been attempting to offload an asset which it deemed as non-core. The company said that it will return most of the proceedings of the sale to shareholders.
Due to the complexity of previous Australian bank acquisitions and economic uncertainty, analysts adopted a cautious stance on the acquisition.
Brian Johnson, analyst at Jefferies, said that the acquisition of ANZ was troubling, in light of the growing risks of recession and the bank’s poor operational performance.
He added that the ANZ franchise was already struggling, and adding more complexity appeared ill-disciplined.
CEO of ANZ, Shayne Elliott, said that the acquisition would create a simpler and stronger platform for growth that would advance the bank’s strategic ambitions. He added that the deal marked a historic step for the bank, and was the culmination of over seven years of work.
ANZ’s acquisition to lead to geographical expansion for the bank
The acquisition by ANZ would also lead to a geographic expansion of the Melbourne-headquartered bank into the state of Queensland, where Suncorp is based. ANZ stated that it would retain Suncorp’s headcount and branding for a few years, including a commitment to finance infrastructure for the Olympic Games scheduled to be held in Brisbane in 2032.
The purchase price of Suncorp equaled 13.8 times the past earnings for its banking unit, and below the price-earnings ratio of Suncorp’s overall business, ANZ said in a statement.
Chairman of Suncorp, Christine McLoughlin stated that the agreed price fairly valued the bank, and reflected the hard work of its employees and the progress achieved in delivering strategic objectives.