Storms A Cloud On Suncorp

The Age

Tuesday November 25, 2008

ERIC JOHNSTON

SUNCORP Metway says it is likely to pay out more than $150million after storms that battered Queensland, while bad debts across its banking arm could double from current levels given exposures to struggling companies, including Babcock & Brown.

However, Suncorp has raised the stakes for a possible sale of its banking arm, saying the underlying earnings outlook for the business has improved on higher lending growth and tight cost control.

Suncorp recently rejected an offer from ANZ for its banking and funds management arm but has said it is open to further approaches. Analysts believe Suncorp could fetch more than $4.5 billion.

With the Federal Government's deposit guarantee easing the funding squeeze, Suncorp has no plans to solicit further offers for its bank, chief executive John Mulcahy said.

"We're back to running the business as normal," Mr Mulcahy told BusinessDay.

Suncorp said profit growth before bad debts in its bank this year was now likely to come in at the "high teens" percentage range - up from a previous forecast of growth in the high single digits. But its outlook for lending growth has slowed to 5per cent from a forecast of as much as 10 per cent.

Suncorp faces head winds on several fronts. Yesterday it warned that bad debts could rise to as much as 0.4 per cent of total loans, up from around 0.2per cent currently.

A lending review saw bad debt charges increase by $73million during the first quarter, mostly due to exposure to property developers.

Part of the latest charges include a $125 million exposure to Babcock & Brown, although this loan is understood to have been secured against assets.

Suncorp has so far received more than 13,000 claims after last week's storms in south-east Queensland, which are likely to trigger insurance payouts of $150 million.

Bigger rival Insurance Australia Group is expected to pay between $60 million and $70million to customers hit by the storms.

This spooked investors, who sent shares in Suncorp 3 per cent lower to $6.70 yesterday. IAG shares finished up 2per cent at $3.57 on optimism over its Indian expansion.

Despite the tougher environment, Mr Mulcahy maintained that Suncorp was adapting. "We're focused on those things in our business we can control. Yes, there are challenging economic circumstances, but that's not a surprise to us," he said.

Mr Mulcahy said Suncorp was planning to take advantage of the Federal Government's guarantee that will allow it to tap long-term funding markets as early as next month.

Meanwhile, an improved capital position had reduced pressure for a capital raising, he said.

© 2008 The Age

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