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Research Update: Suncorp-Metway Ltd. Outlook Revised To Positive On Planned Acquisition By ANZ; 'A+/A-1' Ratings Affirmed

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Research Update: Suncorp-Metway Ltd. Outlook Revised To Positive On Planned Acquisition By ANZ; 'A+/A-1' Ratings Affirmed

Overview

  • On July 18, 2022, Australia and New Zealand Banking Group Ltd. (ANZ) entered into an agreement to acquire 100% of Suncorp-Metway Ltd. (SML) for A$4.9 billion.
  • We expect to equalize our ratings on SML with the higher-rated ANZ if the acquisition proceeds as proposed.
  • We are therefore revising our outlook on the long-term issuer credit rating on SML to positive.

Rating Action

On July 19, 2022, S&P Global Ratings revised its rating outlook on the 'A+' long-term issuer credit rating on SML to positive from negative. We also affirmed our 'A+/A-1' issuer credit ratings on the Australia-based regional bank.

Rationale

We revised our outlook on SML to positive to reflect our view that the bank is expected to become a core operating entity of the higher-rated ANZ (AA-/Stable/A-1+) if ANZ's planned acquisition of 100% of SML is completed as proposed. Furthermore, we expect ANZ to fully integrate SML into its banking operations in the next two to three years, when ANZ transfers its operations to its new retail banking platform. As such, we would expect SML to receive timely financial support from ANZ under all foreseeable situations. If the acquisition proceeds as proposed, we expect to maintain our ratings on ANZ and its other core subsidiaries at the current level (see "ANZ's Proposed Acquisition Of Suncorp-Metway Adds Scale And Geographic Diversity," published July 19, 2022).

ANZ's plan to maintain the Suncorp brand and SML's current management team does not dilute our view of SML's strategic importance to ANZ upon completion of the acquisition.

We affirmed our ratings on SML to reflect our expectation that the Suncorp Group Ltd. (A+/Negative/--; core operating entities rated 'AA-') will maintain its support for the bank until the proposed transaction with ANZ is complete. We expect the proposed acquisition to be completed in the second half of 2023. The transaction remains subject to a variety of approvals.

Outlook

The positive outlook reflects our expectation that ANZ's proposed acquisition of SML will be completed in the next 12 to 18 months. At that point, we expect to assess SML as a core operating entity of ANZ and equalize our ratings on SML with those on ANZ.

Upside scenario

We expect to raise our ratings on SML by one notch, equating them with those on ANZ, if the transaction is completed as proposed.

Downside scenario

Downside rating scenarios are linked to the acquisition not proceeding. Potential scenarios could include a weakening of our group assessment of SML if Suncorp chose to keep the banking operations, or if the bank was sold to a weaker or lower rated entity.

Ratings Score Snapshot

Suncorp-Metway Ltd.--Rating Component Scores
Issuer Credit Rating A+/Positive/A-1
SACP bbb+
Anchor bbb+
Economic risk 3
Industry risk 3
Business position Adequate
Capital and earnings Strong
Risk position Adequate
Funding Moderate
Liquidity Adequate
Comparable ratings analysis 0
Support +3
ALAC support 0
GRE support 0
Group support +3
Sovereign support 0
Additional factors 0
ALAC--Additional loss-absorbing capacity. GRE--Government-related entity. SACP--Stand-alone credit profile.
ESG Indicators: E2, S-2 G-2

Related Criteria

Ratings List

Ratings Affirmed

Suncorp-Metway Ltd.

Senior Unsecured A+
Commercial Paper A-1

Suncorp Group Ltd.

Subordinated A-
Subordinated BBB+
Ratings Affirmed; CreditWatch/Outlook Action
To From

Suncorp-Metway Ltd.

Issuer Credit Rating A+/Positive/A-1 A+/Negative/A-1

Suncorp Group Ltd.

Issuer Credit Rating A+/Negative/-- A+/Stable/--

S&P Global Ratings Australia Pty Ltd holds Australian financial services license number 337565 under the Corporations Act 2001. S&P Global Ratings' credit ratings and related research are not intended for and must not be distributed to any person in Australia other than a wholesale client (as defined in Chapter 7 of the Corporations Act).

Certain terms used in this report, particularly certain adjectives used to express our view on rating relevant factors, have specific meanings ascribed to them in our criteria, and should therefore be read in conjunction with such criteria. Please see Ratings Criteria at www.standardandpoors.com for further information. Complete ratings information is available to subscribers of RatingsDirect at www.capitaliq.com. All ratings affected by this rating action can be found on S&P Global Ratings' public website at www.standardandpoors.com. Use the Ratings search box located in the left column.

Primary Credit Analyst:Mark P Symes, Melbourne (61) 3-9631-2051;
mark.symes@spglobal.com
Secondary Contacts:Lisa Barrett, Melbourne + 61 3 9631 2081;
lisa.barrett@spglobal.com
Peter Sikora, Melbourne + 61 3 9631 2094;
peter.sikora@spglobal.com

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