Some questions:Q1. If you were a Suncorp shareholder and someone...

Some questions:

Q1. If you were a Suncorp shareholder and someone said I want to buy your company, how much would you expect to get paid?
a) 100c in the dollar for the book
b) more than 100c in the dollar
c) 1 month VWAP per share + 35% bid premium


A1: c, and either A or B. If you buy a bank you are buying a book for so many cents per dollar in a manner that is referenced to a share price.



Q2: If you were going to buy Suncorp how do you justify paying 100c in the dollar when you know Suncorp's ROE (as reported to APRA) is 7%? i.e. If you are Telstra and want to meet your 10% ROE, you need to pay less than 70c in the dollar.

A2: You need to be very comfortable that Suncorp's shareprice is discounted 35% to its book value before you start. And you would compare Suncorp's T1, ICR and NIM to your own and say Yes I can beat that. [This is what drives bank mergers - if you beat the income to cost ratio, can increase net interest margin and lower T1 obligations then you get synergies]. Alternatively you are saying the market has mispriced Suncorp or you (Telstra) can sack the board and management of a bank and run the business in a superior manner.



Q3: If you were a director of Suncorp and someone bid 70c (or any price less than 100c in the dollar) would you recommend the deal to shareholders even if it was at a hefty premium to the share price?

A3: Hell NO! You know if the shareholders want their money back you can always realise close to 100c in the dollar by putting the book in run off. Also it would be optically unappealing for any director to accept a bid at less than par.



Q4: If you were telstra can you bid par and beat your 10% ROE?

A4: Not a chance- so it just is not a consideration.



Oh yeah and by the way RAMS, Aussie and Co were accepted by APRA prior to the GFC. During the GFC, RAMs blew itself up and its book was sold to Westpac (check the fine print a RAMS mortgage is actually written by Westpac). Wizard went bust and was acquired by Aussie; Aussie arguably either did or very nearly did become insolvent and was saved by the CBA who bailed them out with a 33% equity issue (guaranteed by Ruddbank Mk1) and now CBA does their manufacturing. Then APRA whacked everyone's T1 obligations and the BIS redefined what counted as T1 and T2 capital.


I know I sound negative, but that's because the answer is no.


And....as far as Australia Post goes: Would you buy it for one dollar given its USO and falling letters volumes? Unless you can get the Government to agree that Post doesn't have to deliver the mail anymore Post is not worth 1c because it has an ever growing chasm of red: Rising costs, Falling volumes and Fixed regulated pricing. The trick is for a foreign buyer to take it, run it into the ground expropriating the short run profits and then nick off overseas leaving a steaming wreck behind that has to be nationalised and re-capitalised. (then come back in 5 years with a new SPV for the second round privatisation)