SUNCORP-METWAY Ltd, Australia's third-largest insurer, has abandoned talks to sell its banking and wealth-management units, opting to hold out for a better price after the government guaranteed bank deposits and debt.
The Brisbane-based company was unlikely to receive offers "reflecting the operational or strategic value" of the units, Suncorp said yesterday in a statement obtained by Bloomberg News.
Analysts at Citigroup Inc had estimated the assets might together fetch as much as US$6 billion. Suncorp's bank is the nation's sixth largest.
Financial stocks have surged after Prime Minister Kevin Rudd's government guaranteed deposits and the debt banks sell to help finance their operations, lowering funding costs.
Analysts at UBS AG, Merrill Lynch & Co and Citigroup had picked Commonwealth Bank of Australia, the nation's biggest mortgage provider, as the most likely bidder for Suncorp's assets as it takes advantage of financial turmoil to boost market share.
"The funding issue is gone after the government's guarantee," said Brett Le Mesurier, an analyst at Wilson HTM. "It makes a deal less likely because Suncorp will want to charge a premium now that it no longer needs to sell the units."
Suncorp's shares added 1.1 percent to A$9.15 (US$6.57) at the close in Sydney yesterday. Commonwealth Bank said last Wednesday it had been in talks with Suncorp. Shares of Commonwealth Bank rose 4.6 percent yesterday.
The Australian government's move to shore up banks' defenses against the global credit crisis was likely to improve access to offshore debt markets, which should drive funding costs lower, Fitch Ratings said yesterday.
Suncorp was the biggest net beneficiary of the guarantee on wholesale funding, Brian Johnson, an analyst at JPMorgan Chase & Co, said on Monday. The company's A rating from Standard & Poor's, lower than Australia's four biggest banks, leaves it at a disadvantage in terms of funding loans through short-term debt.
"As a bank which was facing the greatest pressures in terms of getting access to wholesale funding markets, the initiative clearly provides some breathing room for Suncorp and means that they may not have to shrink their book or sell their bank," Johnson said.
Suncorp, which on Monday said it was assessing the government's move and continuing talks with potential buyers, said yesterday it was not ruling out a future bid.
The company's board "is willing to re-engage with those parties who have, in the past, expressed strong strategic interest in these assets and is open to proposals that are realistic and offer fair value to our shareholders," Chairman John Story said yesterday.