Suncorp shifts bad loans, plans special dividend
Suncorp is still tipped to reward shareholders with a special dividend this year, despite a looming hit to earnings from a deal to sell $1.6 billion worth of bad loans.
The company moved to put a turbulent period behind it on Thursday, selling $1.6 billion in troubled loans to Goldman Sachs for 60¢ in the dollar.
The sale of the assets - mainly commercial property and corporate loans - will result in Suncorp's "bad bank" division posting a hefty loss this year, which may drag down group earnings by up to quarter. It will also wind down the remaining $1.2 billion in assets held in its "non-core" bank over the next year.
Despite the hit to this year's profits, analysts say the sale will not stop Suncorp paying a special dividend from surplus capital.
The deal draws to a close a challenging chapter in Suncorp's history and it says it will now be better placed to focus on its core business of insurance and banking.
Chief executive Patrick Snowball concedes the deal will come at a cost to earnings but it also removes a monkey from the group's back.
While many banks went through a rough patch during the financial crisis, Suncorp's lending arm suffered a near-death experience.
In 2009, it was forced to move $18 billion in troubled commercial loans into a "bad bank", after problems caused by insufficient risk settings within the bank.
The sale of the troubled loans will mean its "bad bank" makes a loss of up to $490 million this year, which analysts say will drag down group profits by about a quarter.
Suncorp says its capital position will not be affected by the earnings hit, and it may pay out a bigger share of profits as dividends to ensure returns remain "attractive".
Deutsche Bank analyst Kieran Chidgey says the company will have about $1.2 billion in surplus capital, allowing it to pay a special dividend of 23¢ a share, after last year's special dividend of 15¢ a share.
As well, he estimates it could pay out as much as 100 per cent of its earnings in dividends in a final ordinary dividend of 27¢ a share.