Dividend cut the only capital option for Suncorp

The messages were, to say the least, mixed from yesterday's annual meeting of insurance and banking group Suncorp.

These were: a reiteration of the late August outlook statements for the group, including the banking division; an affirmation that the group slowed lending growth to preserve capital; but, despite this, the group foreshadowed a cut in its dividend.

In addition, having misled The Age's banking writer into reporting in Monday's newspaper that the group would pursue a "go it alone" strategy in banking, Suncorp in fact declared that the bank remained on the market.

There was no talk (as there was at ANZ last week) of maintaining the nominal level of the dividend to satisfy the yield expectations of investors in bank shares, even as the payout ratio fell (assuming profit growth).

Nor was there any talk (as there was at NAB, ANZ and Bendigo and Adelaide banks) of underwriting future dividends to maintain capital ratios.

John Story, chair of Suncorp's board, wrote in prepared remarks for the AGM that "we have slowed growth in order to preserve capital" and explained that "in extraordinary times the board believes it should adopt a conservative and prudent approach" to capital.

This may involve "the reduction of the quantum of the dividends payable" this financial year.

Story did not mention any other plans to raise capital. With a share price (at $7.50) two thirds off its 2007 high and a dividend yield roughly double that of its peer group the board is presumably wary of other options such as selling preference shares (let alone ordinary shares).

On the prospect of a sale of the banking business Story said Suncorp was "willing to re-engage" with those taking an interest.

Suncorp turned down an offer from ANZ two weekends ago reputed to have been priced in line with the price accepted by HBOS for the sale of BankWest to CBA. Neither CBA nor NAB made bids (despite expectations that they might do so), removing any price tension at a time of depressed valuations for regional bank assets.

While taking a conservative line on dividends, Suncorp's management contends that the trading outlook is consistent with that explained when releasing the full year financials two months ago.

In the banking business this is "high, single digit growth in profit before tax and bad debts compared to the 2007/08 result."