He acknowledged the bank had not performed well. The bank earns about $500 million on $5 billion in capital. That compares poorly with the insurance business that earns about $1 billion on $7.4 billion in capital.

Had the Suncorp board been proactive and sold its bank in the middle of the pandemic the valuation would have been about 25 per cent to 30 per cent higher than it is today.

Lost value

Banks are valued at less than they were then because of the squeeze on profit margins from rising interest rates, falling house prices and rising costs.

Johnston’s ambitious, 2025 cost-cutting target is unlikely to be achieved given that the cost-to-income ratio was about 57 per cent in the six months to December.

Suncorp’s bank has annual costs of about $700 million. These costs will have to come down about 20 per cent if the bank continues on its current path of minimal income growth.

That’s a big ask at a time when the costs of staff and technology are heading north.

Suncorp has been successful in winning market share this year in housing and customer deposits. But its performance in other key areas is not inspiring.

A bearish view on banking?

The timing of the potential sale of the bank could be because Suncorp and its advisers, Barrenjoey Capital, have a bearish view of the future of banking. The sale could be an attempt to head off recession-induced balance sheet problems.

In reviewing the “strategic alternatives” for its bank, Suncorp’s board could come up with a strategy to prepare it for sale later this year or early next year. It could goose returns by slashing costs and writing loans that other banks won’t.

If it has got wind of a potential trade buyer, then the board just needs to maximise the price.

That could be difficult given the paucity of trade buyers in Australia.

It is extremely unlikely the Australian Competition and Consumer Commission under new chairman Gina Cass-Gottlieb would allow one of the big four banks to buy Suncorp’s bank.

That leaves only four possible buyers: Bendigo & Adelaide Bank, Bank of Queensland, AMP Bank and Macquarie Group.

It would appear safe to rule out BoQ and AMP given the existing list of problematic issues they face and the difficulty they would have with raising capital to fund a deal.

Bendigo appears comfortable in its own skin. But its board could take the view that the acquisition of Suncorp’s bank is worth all the disruption and potential unseen problems.

For example, BoQ and Bendigo both had a market capitalisation of about $6 billion in July 2021 when BoQ completed the $1.3 billion purchase of ME Bank. Now, Bendigo has a market cap of $5.22 billion whereas BoQ’s market cap is $4.5 billion.

Macquarie is growing its bank fast enough without having to buy assets, but it may view the deal as a strategic move at or near the bottom of the banking cycle.

It would be a worry if the windfall gain from selling the bank was earmarked for further expansion in the insurance industry given it is facing escalating climate change risks.