Well, a deal might not happen, but it’s one way to stop the rot in the share price.
Suncorp Metway’s confirmation of endless market rumours of approaches over its banking business saw the shares rise back above $11 on a day when misery struck the overall market yet again and the index closed down around 3% in thin holiday trading.
Suncorp told the ASX early on that it had been approached by companies wanting to buy its banking and wealth management units.
It said the approaches were "preliminary” and may not lead to formal proposals, but it was enough to run the price up to a high of $11.65 from Friday’s close of $10.78. The shares jumped 11% over Thursday and Friday on those now accurate reports. They closed yesterday up 3.7% or 40c at $11.08.
Suncorp said it had appointed Lazard Carnegie Wylie and UBS AG as advisers.
Suncorp shares have slumped 37% to their lowest point since 1998, thanks to worsening results from its insurance business and concerns about the global credit crunch and fears it might have to sell assets.
In August, the company posted a net profit for 2008 that had halved from the previous year and more as the company reworked its insurance reserves and other assets to boost returns.
Earnings from its wealth management also fell sharply, while it said that profits from the banking business at Metway had been solid.
Then last week it surprised with news of a further shuffle inside its insurance arm (Promina, GIO and Suncorp are the major brands).
"Suncorp has completed the disposal of the Australian and overseas equity assets contained within its General Insurance Shareholder Fund portfolios.
"Suncorp previously announced its intention to derisk these portfolios prior to the end of September 2008 in response to recent regulatory changes requiring additional capital to be held against equity investments.
"The portfolios were valued at approximately $1.2 billion on 30 June 2008.
"The sell down was completed prior to this week’s equity market volatility at an average ASX 200 index level of around 4945.
"The proceeds of the equity disposal are primarily invested in cash."
Media reports said Suncorp is thought to have lost around $A60 million on this deal, although the move was expected to add around $A50 million to its capital position
The ANZ has been mentioned as a possible suitor, but it will be battling to deal with market worries about the adequacy of its write-downs and provisions for the year to September which will total around $2 billion.
The speculation about Suncorp come as Westpac is poised to take over St George Bank, and reports that Commonwealth Bank has been rebuffed in approaches to HBOS Australia for its BankWest operation. Westpac had been mentioned as a possible suitor for Suncorp.
In August Suncorp revealed that earnings had fallen more than 50% to $556 million.
"Bank profit before tax increased by 11.2% to $633 million. The result was at the top end of guidance and featured margin stabilisation in the second half, as well as maintenance of disciplined credit practices," Directors said about Metway’s performance.
"General insurance profit before tax of $307 million, significantly down on last year’s figure of $835 million after severe weather events and volatile investment markets impacted the bottom line. All insurance brands continued to perform well, achieving good premium growth across short tail products.
"Underlying profit of $136 million for the wealth management business, down 9.3% on the 06/07 pro-forma result."
So it is being approached for one apparently solid performer in the banking business and one not so hot operator in its wealth management division.
In a statement yesterday afternoon, ratings group, Standard & Poor’s said it had put Suncorp on Creditwatch as a result of yesterday’s announcement.
The moves included ratings on Suncorp-Metway Ltd. (Suncorp) and Suncorp’s core operating companies and also applies to Suncorp’s insurance operations.
S&P says the move "reflects uncertainty about Suncorp’s future corporate structure following the potential divestment of its banking and wealth management operations. CreditWatch Developing indicates that the ratings assigned could be upgraded, downgraded, or affirmed, depending on the outcome of the divestment negotiations.
"Suncorp announced earlier today that it had received several approaches by entities interested in acquiring its banking and wealth management operations. On a normalized basis, the banking and wealth management operations contribute more than 40% of Suncorp’s group earnings.
"The bank holds a good market position in Queensland, and has sound asset quality and earnings profiles; however, Suncorp has a shorter term funding profile than many of its peers. Should Suncorp divest its banking and wealth management operations to an entity rated above ‘A+’, the final credit profile on these businesses is likely to improve.
"Conversely, acquisition of these assets by an entity rated below Suncorp’s ‘A+’ rating would likely result in a weaker credit profile for these operations. In a divestment scenario, the rating on the group’s remaining activities, namely its substantial general and life insurance operations, would be determined by the resulting corporate structure (whether independently listed or acquired), and the business and financial profiles.
"With the closure of offshore credit markets, funding for Australian banks has become more challenging in the past few weeks," Standard & Poor’s credit analyst Mark Legge said. "This scenario, in particular, adversely affects those banks with shorter term liability profiles and those more exposed to offshore funding markets.
"Nevertheless, any re
