What might the ANZ deal mean for Bank of Queensland shareholders?

A man holds his hand under his chin as he concentrates on his laptop screen and reads about the ANZ share price

A man holds his hand under his chin as he concentrates on his laptop screen and reads about the ANZ share price

The Bank of Queensland Limited (ASX: BOQ) share price is in focus as Australia and New Zealand Banking Group Ltd (ASX: ANZ) seeks to buy the banking division of Suncorp Group Ltd (ASX: SUN).

BOQ may be best known as the regional bank based in Queensland. But it recently bought ME Bank which decreased its focus on Queensland and increased its exposure to other states like Western Australia, Victoria, and so on.

Now ANZ is making a similar move. By buying Suncorp’s banking operations for $4.9 billion, ANZ would increase its market share in Queensland.

Why is Queensland attractive?

The ANZ CEO Shayne Elliott explained why the big four ASX bank wants to increase its exposure to the sunshine state:

ANZ is committed to making a meaningful contribution to the economic and social prosperity of Queensland and today’s announcement will see ANZ increase its presence, and we believe improve competition, in one of Australia’s most important regions.

Since March 2020, Queensland has recorded better economic growth, better workforce participation and more interstate migration than any other state or territory in Australia. It contributes 18% to Australia’s GDP and we believe we can use the resources at our disposal to further contribute to its continued success.

What will this mean for ANZ’s business?

The bank believes that, as the smallest of the major banks, a stronger ANZ will be able to “compete more effectively” in Queensland. It thinks this would offer better outcomes for customers.

Based on the FY22 net profit after tax (NPAT) of approximately $355 million from Suncorp’s banking operations, ANZ is buying it at a price/earnings (p/e) ratio of 13.8 times.

It’s partly funding this deal through a fully underwritten pro rata accelerated renounceable entitlement offer to raise $3.5 billion. In other words, it’s launching a capital raising.

ANZ said, for Suncorp team members, it will be business as usual with no net job losses for Suncorp bank for at least three months after completing the deal. There will also be no changes to the total number of Suncorp Bank branches in Queensland for at least three years after completion.

The Suncorp banking operations come with $47 billion of home loans, $45 billion in “high-quality” deposits, and $11 billion in commercial loans.

How will this impact BOQ shares?

Bank of Queensland is obviously a smaller bank than ANZ, so the sound of a stronger competitor may not be helpful for the bank.

Yet, on the other hand, it reduces the amount of competition for BOQ.

Competition has been one of the main factors driving down margins in recent times for banks.

In its FY22 half-year result, BOQ said that its net interest margin (NIM) was 1.74% for the half, representing a decline of 12 basis points in that period. This included seven basis points of an underlying decline primarily due to “industry dynamics including ongoing competition”.

Faster loan growth from here for ANZ (and the Suncorp banking operations) could come at the expense of growth for another bank. After all, a person or business has to pick which bank to get their loan from.

In the last result, BOQ reported housing loan growth momentum, with $2.6 billion of growth in the half across all brands. BOQ and Virgin Money Australia saw growth of 1.8 times the system, while ME Bank returned to growth at 0.3 times the system.

Is the BOQ share price a buy?

The broker Morgan Stanley rates BOQ as a buy, with a price target of $8.10. That implies a possible rise of around 10%.

The post What might the ANZ deal mean for Bank of Queensland shareholders? appeared first on The Motley Fool Australia.

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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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