SUNCORP-METWAY will push ahead with a formal sales process of its banking and wealth management arm following an approach for the businesses in recent days from three of the nation's biggest banks.
The move represents a substantial reversal in policy for the Queensland-based bank and insurer, which has resisted any carve-up of its operations since the Queensland Government engineered a three-way merger of the financial services house before it listed on the sharemarket 11 years ago.
It is also acknowledgment by Suncorp that conditions in global funding markets are likely to remain tough for the foreseeable future - particularly for banks with smaller balance sheets - which could seriously limit its ability to continue to grow its lending book.
It is believed Commonwealth Bank, National Australia Bank and ANZ have made separate approaches to Suncorp since the middle of last week to sound out the Brisbane-headquartered bank's interest in offloading its banking and associated wealth management arm.
Talks remain at an early stage and no pricing has yet been discussed. However, Suncorp has decided to move to a formal sales process to test the value of the business. Analysts expect any sale could exceed $8 billion.
The approaches underscore the wave of consolidation taking place across the banking sector as a result of the global financial crisis. Smaller banks in particular are coming under pressure, given the freeze in wholesale funding markets. Other banks have also been looking to sell down assets to raise capital as part of efforts to repair damaged balance sheets.
St George Bank cited the global credit crunch as a key factor behind its decision to accept a $17.5 billion-plus offer from Westpac in May.
"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.
It is believed Commonwealth Bank was among those attempting to test Suncorp's willingness for a transaction, given the cashed-up bank has also been eyeing the $4 billion-plus retail franchise of BankWest.
However, CBA chief executive Ralph Norris recently told an analyst briefing that it was his preference to expand in Queensland over Western Australia.
National Australia Bank is also interested in Suncorp, given a desire to expand in fast-growing Queensland, including throughout the state's regional area.
Suncorp operates the nation's sixth-biggest bank, which has assets of nearly $75 billion and more than 210 branches, mostly based throughout Queensland.
Suncorp has been a heavy user of mortgage brokers to increase its national share and more recently has been lending aggressively to small-to-mid-sized commercial property development.
In the year to June 30, the bank increased earnings 11.2% to $633 million, based on revenue of $1.21 billion. However, the bank's holdings of non-performing loans rose sharply.
Earnings for Suncorp's wealth management arm dropped 9.3% to $136 million. It has more than $24 billion in funds under management, although this also includes mandates from Suncorp's giant insurance business.
The bank, which previously traded under Metway Bank, was rolled into the broader Suncorp business more than a decade ago to provide a one-stop shop for financial services. The move was also aimed at bulking up the business to prevent it being swallowed by a larger bank.
Suncorp, which is being advised by Lazard Carnegie Wylie and UBS, said it had received "several approaches" by unnamed parties expressing interest in acquiring the banking and wealth management operations of the group.
"These preliminary approaches may or may not lead to formal proposals being put to Suncorp," it said in a statement.
SUN Price at posting:
$10.45 Sentiment: Buy Disclosure: Held
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