By Morag MacKinnon
SYDNEY, Oct 2 (Reuters) - As Suncorp-Metway Ltd CEO Patrick Snowball completes his first month at the helm of the embattled insurance and financial services giant, bidders are circling to see what he will do with the company's troublesome banking assets.
As economic activity improves, the signs are that unlike his predecessors, Snowball has time on his side.
Snowball, a former Aviva Plc insurance executive, brought a team of former colleagues to Suncorp's Brisbane headquarters to help him complete a strategic overview of Australia's fifth-largest bank as he began his four-year term at Suncorp.
The company, which divides its business into banking, insurance and life, last year abandoned the sale of its distressed banking unit just as the Australian government came to the rescue of the financial system with a guarantee on deposits and funding.
With a single A rating from Standard & Poor's, Suncorp relies heavily on costly wholesale funding and securitisation, making it uncompetitive with its higher rated "Big Four" rivals.
As the global credit crisis took hold and Suncorp's fortunes sank, bankers familiar with the situation said Australia and New Zealand Banking Group offered 0.8 times book value, or around A$2 billion ($1.8 billion) for the regional lender.
That was broadly in line with the price Commonwealth Bank of Australia paid for HBOS Plc's BankWest unit last October.
Today, analysts say Suncorp's banking unit is more likely to fetch somewhere in the vicinity of A$1-A$1.2 billion, if it's sold in one lot.
Investors and analysts are speculating on whether Snowball and his team will have found a way to unlock value in the unit or whether they will have decided to fast-track some, or all, of the sale of the nation's last sizeable banking asset to concentrate on its insurance business.
John Grace, a portfolio manager at Ausbil Dexia, says the market is awaiting comment from Snowball on his strategy.
"Clearly there's a challenge in front of him," said Grace. "The urgency that was there is probably not there as much at the moment," he added.
And with Australia's competition regulator likely to attempt to block any further consolidation in the nation's banking oligopoly, the question is, which offshore and local players are eyeing the assets and how long until deals can be done.
Locally, ANZ and National Australia Bank are considered the most likely of the big four lenders to make a bid, according to bankers.
Australia's other big banks, Westpac Banking CorpAX> and Commonwealth, are considered unlikely as both focus on bedding down last year's large purchases of local regional lenders.
Offshore, Rabobank is mentioned by many M&A bankers as a possible buyer of Suncorp's solid agribusiness banking division.
HSBC and Standard Chartered Bank, with relatively small operations in Australia, might also consider picking up some, or all of the assets, they suggest.
"As an entry point into Australia, Suncorp would be a great franchise for any foreign player," said Arjan van Veen, an analyst at Credit Suisse in Sydney.
While its higher cost of funding means Suncorp can't compete in commercial lending, Snowball and his team could sell some of its non-core businesses, such as lease financing and agribusiness, analysts said.
"If it were to go back to a real retail operation, where the core franchise really is, there may be some real value in that," said Rohan Walsh, a fund manager at Karara Capital in Melbourne
Such moves may prove to be stop-gap measures, however.
"They'll probably sell the bank at some stage," said van Veen. "If they hold, they could get a better price."
($1=1.133 Australian Dollar)
(Editing by Lincoln Feast)
((morag.mackinnon@thomsonreuters.com;+61 2 9373 1815)) Keywords: DEALTALK/SUNCORP
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