Recovery under way at Suncorp
Sydney Morning Herald
Thursday February 25, 2010
SUNCORP Metway will slice dividends to preserve cash for its troubled banking arm, but its chief executive, Patrick Snowball, has pledged to rebuild the financial services group from the ground up over the next few years as he seeks to improve returns and win over investors.Suncorp's first-half profit jumped 41 per cent to $364 million powered by its flagship general insurance business which after years of poor performance enjoyed a boost from surging investment income and the low level of payouts as the rate of storms, floods and fires abated.In contrast, its banking arm continues to provide headaches. While there are signs bad debts, mostly concentrated in commercial property and several highly leveraged corporates, are starting to fall away, lending losses nearly wiped out profit for the bank which returned cash earnings of just $4 million for the December half.Mr Snowball, who took charge in September, said while Suncorp's position was improving from a disastrous 2009, there was still some way to go before turning into a "great company"."While the increase in profitability is welcome, I'm certainly not getting carried away with the extent of the improvement," Mr Snowball said.Going into the global financial crisis, Suncorp was hit from several sides as its thinly funded bank was left holding a number of bad loans to commercial property, and high-profile corporate collapses.At the same time the insurance arm was pummelled by plunging investment returns and payouts linked to storms and bushfire claims.Suncorp almost sold its bank to ANZ, but later opted to split the $50 billion lending book into a "good bank" and "bad bank" with the latter slowly being wound down.Suncorp's latest result falls in the the middle of the $355 million to $375 million profit guidance range issued earlier this month.However many were left disappointed after its interim dividend payment of 15c a share for the half was 5c down on the same payment a year ago. Most analysts had tipped Suncorp to deliver an interim dividend of 20c a share.Mr Snowball said Suncorp's capital needed to be robust enough to absorb potential risks, ranging from a tougher regulatory environment for banks to external shocks.The move on dividends should deliver the company an additional $190 million in capital, although this could be returned to shareholders as the bad bank is wound down over time. Shares in Suncorp yesterday slumped 6.4 per cent to $8.62.Suncorp's general insurance business, which operates brands such as AAMI, GIO and Vero, delivered an interim profit of $347 million, an 89 per cent rise on the previous corresponding period.
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