Suncorp boss Patrick Snowball. Photo: Tamara Voninski
You could fill a fairly fat phone book with the names of chief executives who have claimed erroneously that their companies were at an historic and positive turning point, but Suncorp boss Patrick Snowball’s claim on Wednesday that the group has made a ‘‘break with the past’’ is likely to prove correct.
In June he announced that he had sold a $1.6 debt portfolio in Suncorp Bank to Goldman Sachs at a price of 60 cents in the dollar.
The bank posted a post-tax loss of $632 million in the year to June after booking that transaction, and Suncorp’s bottom line-profit also fell, by 32 per cent to $491 million.
The loss in the banking business flows from a genuinely transformational deal, however, and the better guide to the group’s performance and capacity to reward shareholders was a 19.3 per cent rise in core earnings to $1.23 billion.
Snowball inherited an $18 billion "bad bank" loan portfolio when he took charge of Suncorp in September 2009.
It was a legacy of aggressive commercial real estate lending ahead of the global crisis, about 40 per cent of it in Queensland, and the problem loans equated to about 20 per cent of group assets.
In a fire sale the loans might have fetched 30 cents in the dollar, generating a life-threatening loss for Suncorp, so Snowball stuck with the plan he inherited, to wear the bad debt mountain down.
He had cut it to $2.8 billion by the time he struck the $1.6 billion deal with Goldman.
The residual portfolio was down to $735 million by June 30. It is fully provisioned, $452 million of it is performing, and Snowball says it will be down to less than $100 million by June 2014.
Suncorp was for required to set capital aside to support the dud loan portfolio. Now it is coming free, and a big chunk of it is headed back to shareholders: the group has boosted its regular dividend for the year from 40 cents to 55 cents, but it has also declared a special dividend of 20 cents a share.
The total dividend cheque of $965 million is almost twice as big as Suncorp’s bottom line profit of $491 million, but it is a more comfortable 78 per cent of those ‘‘core earnings’’ of $1.2 billion.
Suncorp is also still sitting on $847 million of excess capital after declaring the special dividend. That suggests another special payout is in the pipeline.
Snowball called the bad loan mountain a monkey on his back while he was dealing with it. He was right to say on Wednesday that the monkey has hopped off, now.
The focus from now on will be on the profits he is extracting from the group’s insurance businesses and the solid regional banking franchise that survives.