No doubt a sense of relief was felt by shareholders in Brisbane-based bank and insurer, Suncorp-Metway on reading yesterday’s market update.
No more disasters from insurance, and no more bad property loans and other disasters in the bank; if anything some small signs of improvement.
The banking business hasn’t been damaged by the speculation about it being sold and by the dud lending on property.
And the Metway banking won’t be sold.
Bad debts are under control, funding levels are OK and the group’s insurance strategy has been given the tick by new CEO, Patrick Snowball, himself a senior UK insurance operator (which is why he was given the gig).
So the shares wandered up 6c (better than the market which was just in the red), to close at $8.74. They had been as high as $8.92.
For the new CEO, having mostly good (or rather no really bad news) to impart to the market meant an easy reception for his first market selling campaign with yesterday’s update.
He said the company’s bad debts have stabilised in the September quarter, but its banking unit continues to see weakness in corporate property values.
Suncorp also said it sees positive signs on opportunities for divesting non-core bank assets, such as underperforming property loans.
And, Mr Snowball said the group’s underlying banking business was sound.
Retail arrears at the end of the September quarter were around the same level as in June 2008 and showing an improving trend, while commercial arrears were lower.
These "positive trends (are) reflected in lower bad and doubtful debt charge", Mr Snowball said according to the presentation filed with the ASX.
In the September quarter, Suncorp’s core bank impairment loss was $9 million, compared to $18 million in the June quarter.
Mr Snowball said the bank’s funding position was secure and its franchise held up well during the global financial crisis.
Suncorp was moving ahead on a run off of non-core bank assets and was seeing "positive signs in the market regarding opportunities for divestment".
"While continued vigilance is necessary, absent any major external shocks, the non-core should run-off in an orderly manner," Mr Snowball said.
Overall, Mr Snowball said the bank’s asset quality "remains pristine" despite the tough global financial conditions and that margins are likely to be stable going forward, as the business focuses on growing its deposit base.
Its Tier 1 capital ratio remained strong at 11.28% at the end of September, although this was down from 11.31% at the end of June.
Summing up the company he said "the underlying business is sound, there are no transformational needs" (i.e. it doesn’t need restructuring of having cost cut).
But, Mr Snowball said while it has "great people, there has been an imbalance between specialists and generalists".
So Suncorp needs to "improve its long-term financial planning" because "crisis management has understandably created a short term focus".
"The organisation is overly complex – a legacy of multiple acquisitions (Promina in 2007 on top of the bank)."
The multibrand is the "right strategy" in that the company sells through a series of businesses such as Suncorp, GIO, Metway, AAMI, Shannons, etc,
"We can out-compete large incumbent and smaller new market entrants but the group currently lacks a number of essential tools required to optimise this strategy," the CEO said.
"The de-risking strategy is sound; the team is on top of the core/non-core split, the Bank’s funding position is secure."
And "while continued vigilance is necessary, absent any major external shocks, the non-core (assets) should run-off in an orderly manner".
"The Bank franchise has held up well, there are significant reserves of support, particularly in Queensland, but continued speculation about Bank sale has the potential to threaten our strategy.
"As conditions stabilise retail customers will increasingly look to the non-major alternatives. As the largest and highest rated, non-major Suncorp is best placed to meet this need.
"Funding markets are stabilising and the reliance on the Government guarantee will reduce and spreads will contract although not to pre-crisis levels," he added.
