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Suncorp’s profit up ‘significantly’ as sale of banking arm hangs in the balance

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The group has reported a “material increase” in earnings in its full-year results.

Suncorp Group has posted a 68.6 per cent jump in net profit after tax to $1.15 billion and an 86.3 per cent lift in cash earnings to $1.25 billion in its results for the 2023 financial year.

The firm noted that the “material increase” in its earnings was driven by continued momentum in top-line growth, improved underlying margins, and a turnaround in investment returns.

Breaking down its results, Suncorp said that Insurance (Australia) delivered a profit after tax of $755 million, an increase of 333.9 per cent on the previous financial year, with gross written premium (GWP) growth of 10.6 per cent to $10.16 billion.

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Meanwhile, Suncorp Bank’s profit after tax rose by 27.7 per cent to $470 million, with lending growth of 9.1 per cent to $54.8 billion, a net interest margin (NIM) of 1.96 per cent (up 3 basis points), and a cost-to-income ratio of 51.8 per cent (down from 59.0 per cent).

Finally, Suncorp New Zealand delivered a profit after tax of NZ$115 million, a 30.3 per cent decrease on the previous year, with GWP growth of 14.3 per cent to NZ$2.44 billion.

“Our Australian and New Zealand businesses have achieved strong growth in premiums, while unit growth across consumer portfolios demonstrates the value of our products and brands. The bank’s continued growth in home lending demonstrates the benefits of improved broker and customer experiences,” commented Suncorp Group chief executive officer Steve Johnston.

“These outcomes are particularly pleasing given the challenging backdrop over the FY23 plan period, including the global pandemic, social and economic disruption and market volatility, supply chain inflationary challenges and unprecedented natural hazard events from three consecutive La Niña weather patterns.

“This is testament to the dedication of our people, strength and resilience of our business, and ability to create long-term shareholder value while meeting the evolving needs of our customers.”

The results come less than a week after the proposed acquisition of Suncorp Bank by ANZ was rejected by the Australian Competition and Consumer Commission (ACCC).

“Suncorp will support ANZ through the next step of the merger authorisation process as it relates to the sale of Suncorp Bank, being a referral of the ACCC’s recent decision not to approve the transaction to the Australian Competition Tribunal for review,” Mr Johnston noted.

“We remain fully committed to supporting Suncorp Bank while the process continues.”

The group’s board has determined to pay a fully franked final ordinary dividend of 27 cents per share, with a full-year dividend payout ratio of 60 per cent of its cash earnings sitting at the bottom of its target payout ratio range of 60–80 per cent.

“The FY23 dividend payout ratio reflects the group’s prudent and disciplined approach to managing capital in the context of the current environment, the FY24 reinsurance renewal and as it works through the tribunal process relating to the sale of the bank,” Suncorp said.

Suncorp confirmed that progress on separating its banking arm is continuing. The expected net proceeds from the sale to ANZ remain unchanged, but the firm now expects separation and other costs to increase from $500 million to between $575 million and $600 million.

The transaction is now expected to be completed by the middle of the 2024 calendar year subject to receiving all the necessary regulatory and government approvals.

ACCC deputy chair explains decision

Discussing the decision to block ANZ’s takeover of Suncorp Bank, ACCC deputy chair Mick Keogh explained that the onus was on the parties involved to prove that the deal would not reduce competition, or that it would provide considerable public benefits.

“On either of those counts, we weren’t convinced, so that’s why we reached the decision we did,” Mr Keogh told ABC’s RN Breakfast on Wednesday.

Sitting in the background of the ACCC’s considerations, Mr Keogh said, was the fact that Australia’s banking sector is “probably one of the most critical sectors of the economy”.

“They came to us with a lot of material. They came to us with potential public benefits in relation to investment in Queensland and jobs and all those sorts of things,” he stated.

“We looked at that very carefully but, as I said, our legislation requires us to be convinced in all the circumstances that there won’t be a loss of competition or that there will be substantial public benefits, and we didn’t reach those thresholds.”

Regarding the ANZ’s plan to appeal the ACCC’s decision, Mr Keogh noted that this was “completely open to them” as part of “a process available within the legislation”.

Meanwhile, in response to criticism of the verdict, Mr Keogh noted that there was apparently confusion between making a single bank like ANZ more competitive and making the banking sector overall more competitive.

“If this merger went ahead, it would restate the balance that exists between the four majors where they’re all roughly the same, and we consider that that has been what’s caused what we call coordinated effects, whereby they all act pretty much in unison. They all watch each other, they don’t try and pinch too much market share off each other,” he said.

“In fact, as we pointed out in our decision, it’s pretty rare that you get an industry where the leaders of all the four major banks all come out within a very short period of time, as they did recently, and all say they’re backing off on competition for home loan mortgages.

“And that’s exactly what we were highlighting. That, where all the four majors are essentially the same, and they work on a ‘live and let live’ basis where they don’t try too hard to compete, they all get a comfortable profit. That’s what we were concerned this transaction would further reinforce.”

According to an approximate timeline published in Suncorp’s latest results, an outcome from the Australian Competition Tribunal is currently expected in the first quarter of 2024.

Suncorp’s profit up ‘significantly’ as sale of banking arm hangs in the balance

The group has reported a “material increase” in earnings in its full-year results.

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Jon Bragg

Jon Bragg

Jon Bragg is a journalist for Momentum Media's Investor Daily, nestegg and ifa. He enjoys writing about a wide variety of financial topics and issues and exploring the many implications they have on all aspects of life.

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