How Macquarie helped ANZ win Suncorp on appeal at the competition tribunal

But whether ANZ and Elliott can be declared winners from the ACT’s determination isn’t as clear-cut as it might seem.

Some investors will have hoped the ACT’s determination went the other way, leaving ANZ in position for a share buyback of as much as $5 billion; the 2 per cent fall in ANZ’s share price likely reflects the potential for that capital return being removed from the market’s thinking, but it’s worth noting the stock closed at a two-year high on Monday.

Worsening outlook for regional banks

Critics of the deal, including Wavestone Capital’s Catherine Alfrey, have also argued that ANZ has paid too much for Suncorp. When the deal was first announced in July 2022 – yes, this saga has been running for almost two years – the announced price represented a net tangible asset (NTA) multiple of 1.3 times. But as the outlook for regional banks has worsened, because of pressure on margins and rising costs, the valuation of Suncorp’s peers has fallen; Bendigo trades at 1.1 times NTA, while Bank of Queensland trades at 0.7 times.

If we accept that ANZ has paid up for Suncorp, and perhaps overpaid, then the market’s focus will be on the synergies that can be extracted from the deal. But remember, to get this deal over the line ANZ promised the Queensland government it will not cut jobs or branches for three years. So any immediate synergies – such as bringing Suncorp’s customers on to the low-cost, but still-immature, ANZ Plus platform – will be relatively harder to find.

Synergy extraction will also need to be balanced against the integration of Suncorp’s operations. ANZ will need to defy the recent history of the banking sector to make this a success; Westpac is still integrating the St George business it bought in 2008, and it is unlikely bank integrations have got easier in the interim.

Indeed, everything in banking has become more complex, more expensive, and more closely regulated in the past five years. ANZ’s big rivals will be quietly thrilled that Elliott and his team will have to deal with the distraction of bank integration and synergy extraction against a backdrop of falling margins, rising costs and relentless cybersecurity threats.

Rolled-gold victor

Elliott’s argument has long been that the Suncorp deal is a long-term play, where the benefits of strengthening ANZ’s position in the Queensland market and in the mortgage sector will play out over many years. Big opportunities are few and far between, and should be seized when they do.

That’s entirely reasonable, and indeed it’s how long-term shareholders should want big organisations such as ANZ to think about the world. But the market is notoriously short term, and the ACT’s green light will hang over the stock for some time.

ANZ’s market narrative has just changed, and it is too early to say whether it has changed for the better.

If there’s a rolled-gold victor from this deal, it is Suncorp and chief executive Steve Johnston, whose decision to end Suncorp’s history of running a combined bank and insurance company was unquestionably the right one.

Climate change means the insurance business has simply become complex enough, and in ANZ, Johnston found a buyer willing to pay a fair-to-full price to take his subscale bank off his hands.

His relief on Tuesday will be palpable. For two years, he’s watched pressure on banking margins, his regulatory burden and his costs increase – and now he gets to wave these problems goodbye. Johnston gets a stack of capital to return to investors from the sale and can get back to focusing on the wicked problem of how to balance climate change, affordability and cost inflation in the insurance sector.

Bendigo lashed the ACT determinations on Tuesday, saying it will “lead to a lessening of competition, leaving customers and communities worse off”.

But for Bendigo and Bank of Queensland, the regional banking sector’s biggest straggler, the ACT ruling may represent a ray of hope, in that it appears to open the door to more potential mergers, or takeovers, between a regional bank and a larger rival.

Any deal for Bendigo, or BOQ, would, of course, have its own complications; Bendigo’s community model may not sit so well inside a big four rival, and BOQ’s challenges and size may reduce its attraction to any potential suitor.

But the ACT’s ruling says the banking sector has changed. The big four’s market share remains huge, and scrutiny on their actions remains appropriate. But this determination says brokers and disruptors such as Macquarie have changed the game – the quality of competition matters more than the number of competitors.