Suncorp's decision to sacrifice chief executive John Mulcahy will probably soothe some of the bitterness and anger amongst the regional banking and insurance group's shareholders, but attention will inevitably turn to the role played in recent years by chairman John Story.
Story's tenure will come under scrutiny after today's desperation-style capital raising at $4.50 a share and the decision to slash the annual dividend by more than 60 per cent, to 40 cents a share.
The underwritten capital raising – at a 35 per cent discount to yesterday's closing share price of $7.13 – will cause less pain to shareholders than the dividend cut. Banks have been a core part of the share portfolios of retirees who have relied on them for income. Retirees led the angry backlash against Suncorp at last year's annual meeting in Brisbane.
This year, Suncorp will pay the lowest level of dividends in more than 10 years. The full year dividend was $1.07 in 2007 and 2008.
Story has been a staunch defender of Mulcahy during some difficult times. He was put under pressure when he gave the green light to the waiving of performance hurdles for incentives agreed with Mulcahy during the Promina transaction.
Story bears equal responsibility with Mulcahy for the $8 billion Promina takeover and other costly mistakes. Promina looked like a good deal in October 2006 but Suncorp paid too much for a business that had suffered years of under-investment.
The Promina acquisition became a millstone once the sub-prime crisis hit in 2008. It is telling that Suncorp's market cap is now less than what was paid for Promina.
Mulcahy and Story had their fair share of bad luck. A series of costly storms caused heavy losses, and the demise of the bank's primary source of wholesale funding through securitisation was a severe blow.
Suncorp was slow to respond to the unfolding sub-prime crisis. It was never on the front foot about its capital position. It stuck to the line that its capital was adequate when it should have gone to the market with an underwritten issue when it had a stronger share price.
It was forced late last year to put its banking business on the auction block and was on the brink of a forced sale when it gained a breather from the federal government's guarantee of deposits and wholesale funding. The sale of the banking and wealth management business is said to be back on the agenda.
The capital constraints have forced the banking side of the business to pull back from growing its assets. Recent banking statistics show Suncorp has been losing market share in all lending and deposit categories, according to analysts at Bank of America Merrill Lynch.
The same analysts also highlighted that a recent Roy Morgan customer satisfaction survey found that Suncorp's customer satisfaction had fallen more than for any other bank in the last 12 months.
Mulcahy will remain CEO until a replacement can be found.
Chief financial officer Chris Skilton was a contender when Mulchay was appointed in 2003. But he may be too closely associated with the current problems to be considered for the role.
There are many leading retail banking executives available to take over from Mulcahy, including former St George CEO Paul Fegan, former HBOS Australia CEO David Willis, former St George retail banking executive Les Mathieson and former CBA head of premium business services Stuart Grimshaw.
SUN Price at posting:
$6.73 Sentiment: None Disclosure: Not Held
A personalised tool to help users track selected stocks. Delivering real-time notifications on price updates, announcements, and performance stats on each to help make informed investment decisions.
(20min delay)