Greg Roberts AAP Herald Sun June 21, 2013
SUNCORP has sold $1.6 billion in loans dating back to the global financial crisis, but investment bank Goldman Sachs will only pay it 60 cents in the dollar for them.
The $960 million it will realise brings the banking and insurance group closer to completely ridding itself of an $18 billion bad debt problem.
Heavy write-downs will also force Suncorp to post a $470 million to $490 million after tax loss in the non-core or "bad bank" portfolio it set up as a separate entity holding $18 billion in loans in 2009 to separate from its core or good assets.
The bad bank included loans acquired from a badly timed move into commercial property lending on Australia's east coast as the GFC hit.
That was viewed by the market as creating inappropriate risk for Suncorp across credit capital and funding.
The company is Australia's 15th largest on the stock market, with a market capitalisation above $15 billion, behind 14th-placed QBE Insurance.
The loan portfolio had been a difficult, distracting period and monkey on the company's back, said chief executive Patrick Snowball, but that chapter was about to be closed.
The group expects to dispose of at least another $700 million in loan sales in June and July, leaving it with only $500 million in 130 residual loans left in the bad bank.
"What it's allowed is us to be very transparent now about the power, success and the potential of this group going forward through all lines of business," Mr Snowball told analysts in a teleconference.
The market was unimpressed, with Suncorp shares underperforming the market, down 21 cents, or 1.77 per cent, at $11.65 at 1610 AEST.
It flagged that it would ease the shareholder pain of this year's write-downs and weaker profit by increasing its pay-out 60-80 per cent payout ratio and keep the dividend decent.
Morningstar analyst David Ellis said that was significant because if the board was worried about difficulties in the banking business they wouldn't be prepared to have such a high payout ratio.
"I wouldn't be surprised if it was 100 per cent of earnings per share at least in 2013, to maintain solid dividend growth," he told AAP.
He said the 60 per cent discount was a painful surprise but the group's outlook was positive so perhaps clearing and cleaning its balance sheet structure now was the right move.
Goldman Sachs was among a group of interested buyers that specialise more in profiting from loans than Suncorp, including American giant Blackstone, Macquarie Group, Deutsche Bank and Morgan Stanley.