by James Eyers
ANZ will acquire Suncorp’s banking business after Treasurer Jim Chalmers gave the $4.9 billion deal a green light nearly two years after the transaction was announced, adding some additional conditions.
ANZ chief executive Shayne Elliott said the approval showed that “arguments we have made about why this is in the national interest – to have a more effective competitor – must have landed”, and would help ANZ compete with bigger rivals Commonwealth Bank and Westpac.
The decision paves the way for the biggest merger in banking since CBA took out ailing Bankwest during the global financial crisis in 2008.
But the government will prohibit ANZ from closing any regional branches anywhere in the country for three years, and to ensure no net jobs are lost for three years. ANZ had previously committed not to close any Suncorp branches in Queensland for three years.
The government also wants ANZ to “make every effort” to join Australia Post’s Bank@Post service alongside the other major banks, which allow customers to do basic banking at the post office.
Dr Chalmers said the conditions – on top of others already imposed by Queensland, where Suncorp is based – ensured the deal was in the national interest.
The approval comes despite the government pushing merger law reforms as it considers undesirable mergers have increased the market power of big companies and sapped the economy’s dynamism.
But the decision in the ANZ deal recognises the reality of competitive dynamics in the banking sector, including from big tech, and the need for more investment through scale.
“We recognise the way the banking sector is changing,” Dr Chalmers said on Friday.
“This is an on-balance call, but I think it is the right one because it recognises all of the issues at play here, and imposes some pretty strict, enforceable conditions at the same time.”
He said he received clear advice from Treasury, which had incorporated views from the regulators and the Department of Home Affairs, “that it would not be in the national interest to prohibit this transaction”.
Dr Chalmers said he “took seriously” concerns raised by the Australian Competition and Consumer Commission when it blocked the deal last August on the grounds it would substantially lessen competition.
This was overturned by the Australian Competition Tribunal in March, which found the challenge from the “maverick” Macquarie had shaken up the major banks, and ANZ’s purchase of a regional lender would not make that much difference to competition.
“The acquisition has been proposed at a time of significant change in the banking sector, including growing competition from, and opportunities in, digital banking, and concerns about access to banking services, particularly in regional and remote communities,” he said.
Dr Chalmers also factored in Suncorp’s desire to split its banking operations from its larger insurance operations, which face their own pressures, including rising costs.
“I also took into account the unique features of this proposal, including the fact that Suncorp is one of the few remaining combined bank and insurance companies in Australia.
“The proposal will allow Suncorp to focus on its insurance businesses at a time when the sector faces a range of specific challenges, including access and affordability.
“It is critical that Australia has a competitive, dynamic and effective banking sector.”
Mr Elliott said the government’s approval recognised the tribunal’s justification for waving through the deal, and would help ANZ become a stronger competitor to its larger rivals.
“I know we are ‘big four’, but we are half the size of CBA, and Westpac is almost three-quarters bigger than us,” he told The Australian Financial Review.
“We are little compared to them. We are closer in size to Bendigo Bank than we are to CBA. This gives us a little more scale. It doesn’t solve every problem we have, it doesn’t make life easy, but it gives us a bit of a boost.”
ANZ said the additional conditions were “aligned with the commitments” it made when the deal was first announced, and were “not anticipated to impact the benefits expected to flow from the acquisition”.
Suncorp has agreed to waive a $10 million per annum brand licence fee that ANZ was to pay for a period of five years, recognising that ANZ would need to fund its national branch network for three years under a new government condition of the sale process.
“Looking ahead, we’re pleased to be one step closer to this strategically important acquisition, which will allow us to add scale to our retail and commercial businesses while enabling ANZ to more effectively compete in the Australian market,” Mr Elliott said.
“Our plans for the integration are well advanced, and we are confident of the substantial benefits that will flow.”
The approval for ANZ to take out one of the regional banks also comes as the government has launched an inquiry into the regulation of small banks. It ordered the Council of Financial Regulators and the ACCC this month to review challenges faced by mid-tier banks, which are squeezed by growing capital and regulatory costs.
“The issues around regional and smaller banks are real, and that is why Suncorp came to the decision it was no longer the right owners for Suncorp Bank,” Mr Elliott said.
“Regional banking is hard. It is a scale game. We spend a significant amount of money to satisfy customers, to keep them safe, to provide the right sort of services that people want – and this requires scale.
“When you are small, it is hard. [Dr Chalmers] is right to look into that. We need smaller regional specialist banks to do well, to keep us on our toes and force us to be innovative.”
Analysts expect the deal to lift ANZ’s earnings by about 2 per cent over the next three to six years, but say the integration task ahead will be significant.
“We believe the acquisition will add to ANZ’s medium-term cost challenges, and that the acquisition will not significantly shift the dial in terms of ANZ’s capital allocation, which sees the greatest percentage of capital being allocated to the relatively low return on equity institutional division,” said E&P Capital analyst Azib Khan.
ANZ shares were largely flat in early trading on Friday, while Suncorp shares jumped by more than 4.5 per cent to $17.58.
Suncorp and ANZ are targeting a completion date for the deal of July 31.
Suncorp chairman Christine McLoughlin said the board remained committed to returning the majority of net proceeds following completion of the sale to shareholders, expected in the first quarter of the 2025 calendar year.
“Suncorp will focus on meeting the evolving needs of insurance customers and addressing increasingly complex challenges such as climate change and affordability,” said Suncorp CEO Steve Johnston.
Finance Sector Union national president Wendy Streets, who was in Canberra on Friday, had been lobbying federal and state ministers, and was upbeat about the additional job and branch commitments.
“We couldn’t get that commitment out of ANZ without the Treasurer’s support,” she said. The deal would support about 40 towns with ANZ and Suncorp outlets, she estimated.
Under commitments made to the Queensland government, ANZ and Suncorp have agreed to target $15 billion of lending to the state’s renewable energy projects and to support infrastructure development in preparation for the 2032 Olympic Games.
They will also target $10 billion of new lending to support energy projects in Queensland, including bioenergy and hydrogen projects over the next decade.
These undertakings were questioned by federal National Party MP Keith Pitt, a Suncorp customer. “I can understand requirements set by government around maintaining employment service conditions and structural support into regional Australia,” he said on Friday.
“But I can’t understand how it is either lawful or in the interests of ANZ and Suncorp customers and shareholders to direct billions of dollars of investment into unknown, untried, and untested energy projects, with unknown rates of return.”
