And more troubles for another bank as well as Bendigo.
Brisbane-based Suncorp Metway has revealed higher bad debts, more losses, more pressure on profits and a plan to try and split up the bank along the lines of the model pioneered by Macquarie Group in late 2007.
Suncorp has already had big losses on property lending, especially in NSW, huge losses in its insurance business on bad weather and other claims and saw the CEO depart after it wrote down earnings and was forced to raise more capital earlier this year.
Yesterday it warned that it lost another $136 million in impairments in the quarter to the end of March, taking the company’s impaired assets to $1.241 billion.
But Suncorp said its capital position had strengthened during the period, with its capital adequacy ratio rising to 13.24%, and its Tier 1 ratio increasing to 11.39%.
But its earnings will be hit by the higher costs lower-rated banks are having to pay for funding, and higher bad debts for the June 30 year.
The shares fell 2.6% to $5.95 after being down as much as 33c yesterday at one stage.
Suncorp acting chief executive, Chris Skilton, said in an update on its capital position, made to the ASX that the Australian banking sector "had continued to be impacted by the deteriorating economy and declining property values.
"Like all Australian banks, Suncorp was impacted by worsening economic conditions and falling property values during the quarter," Mr Skilton said.
"While we believe our full year bad debts will be contained at the top end of previous guidance, given the downside risk associated with ongoing economic uncertainty, we think it is prudent to adjust our full year bad debt charge guidance to the range of 125 to 145 basis points of total loans," he said. (1.25% to 1.45 %.) That’s up from guidance of 1.15% (115 basis points) of total loans.
In the statement and presentation Mr Skilton said:
"Our impairment loss, the total charge of $136 million for the quarter brings our actual year to date impairment charge to $491 million, which includes the $75 million economic overlay we took in the first half.
"This represents 115 basis points of total lending on an annualised basis, assuming you don’t annualise the economic overlay.
"So, pleasingly, what we have seen through Q3 and into Q4 has largely been in line with our expectation following the detailed review of our loan book — with provisioning levels being largely driven by reduced valuations on existing impaired assets, as opposed to new impaired accounts.
"But I must make the important point that, in accordance with our normal practice, we will be obtaining a number of revised valuations during June, and this, along with the continued economic deterioration, leads us to the view that our full year bad debt charge is likely to be at top end of our current 100 – 130 basis points guidance.
"However, given the uncertain economic outlook it would be foolish of me not to acknowledge there has to be some downside risk to this outlook.
"We therefore feel it is appropriate to adjust our full year bad debt guidance to 125 – 145 basis points in order to reflect that risk.
"I would make the point again that we haven’t experienced the large single name impairments that impacted us in the first two quarters of the year.
"We have seen an increase in smaller accounts and this has primarily contributed to the $255 million increase.
"Of the impaired asset balance, 82% are in our non-core book with the majority continuing to be in NSW.
"Specific provisions have increased to $301 million and I think it’s worth pointing out that over 80% of the specific provision relates to the non-core book, primarily in the Development Finance and Corporate segments.
"In total, Suncorp has $55 billion of total loans, with $38.2 billion in core lending and $16.8 billion in non-core run-off."
In essence Suncorp has organised its loans in Metway bank into good (core) and bad (non core).
The reorganisation, if it happens, will see a non-bank holding company set up to own each of the financial businesses (bank, wealth management and insurance) on a separated basis, thereby making it easier to sell the banking businesses and leave the other assets with the new company.
But that’s no certainty: the company said there were a number of problems to be overcome before that could happen. The present structure might not allow the easy separation of the businesses.
It will need regulatory approval.
And Mr Skilton had this warning about the profit:
"The Government guarantee has provided good access to global liquidity and this mechanism is being widely used by all Australian banks.
"Unfortunately, for the regional banks, debt investors are differentiating between AAA rated Government guaranteed paper issued by major banks and AAA rated Government guaranteed paper issued by regionals such as ourselves.
"When coupled with the differentiated fee scale applied by the Government, this puts sub AA rated issuers at a distinct disadvantage.
"This funding disadvantage will be further compounded as AA rated Banks raise non-guaranteed funding at lower all up cost than guaranteed issuance, as they have done from domestic sources and, more recently, from offshore markets.
"This, and our de-risking strategy, will obviously have an i
