Suncorp raids kitty to pay dividend

The bancassurance group yesterday became the third major financial institution in a week to put out a profit warning that spooked the sharemarket.

Like National Australia Bank and ANZ Bank before it, Suncorp's share price was smashed by the disclosure that its profit will from a net $1.06 billion last year to just $525 million to $550 million when it reports its 2008 figures next month.

At one point, the stock had lost as much as 18.5 per cent before recovering slightly to close at $11.53, a of $1.85, or 13.8 per cent.

Yesterday's announcement surprised the market, which was not expecting such a heavy fall in profit. A decline to $660 million had been factored into the share price because of the worsening conditions affecting Suncorp's insurance, investment and wealth management operations.

The company disclosed that on the expected figures its earnings would not cover the total $1.07-a-share dividend payout it has committed itself to keeping.

Suncorp will have to find as much as $525 million from retained profits if all of its shareholders elect to take the 55c-a-share final distribution rather than opting for its dividend reinvestment plan.

The group will hold its annual payment at the same amount in 2009, representing a three-year freeze.

Its chief executive, John Mulcahy, said he expected a strong recovery in group profits next year, which would be enough to cover the dividend charge.

He described present economic conditions as the worst he had seen in his career, saying they had been compounded by severe weather. "Suncorp has not been immune from this at all," he said.

Analysts indicated that the group's net 2009 profits would be about $1.02 billion, although the weakness in global and domestic economic growth would again reduce its earnings.

Deutsche Bank responded to Suncorp's announcement by lopping 15 per cent off its cash earnings-per-share target, which would cut next year's likely profit result by $220 million. The bank had previously predicted a $1.23 billion profit.

While the group has pinned its fortunes on the expansion generated by last year's $7.9 billion takeover of Promina, the bad luck surrounding the timing of the acquisition has again come back to haunt it.

Insurance claims from the severe storms that have wreaked havoc in Australia and

New Zealand will lop an extra $215 million from the bottom line after they broke through its normal provisioning level of $200 million.

Investment earnings will by $140 million and wealth management's contribution by $34 million because of the sharp in equity markets. Brokers said Suncorp's margin on its insurance profits would only be maintained at 10 per cent by releases from reserves and lower claims valuations.

In contrast, its bank earnings are likely to rise 12 per cent to $635 million, despite a bad-debt charge rising to about $75 million. That is a lot lower than the cover set aside by its major rivals.