Weekly wrap 3: cynicism over Suncorp Life
Analysts were also surprised this week when Suncorp-Metway (SUN) rediscovered the lost art of individually disclosing the "embedded value" of its life insurance business. This has not happened since before Promina. Funny that this should occur immediately after NAB announced its Aviva acquisition, and that such numbers should make the individual divisional values of the banking/insurance conglomerate a little easier to deduce. Is Suncorp shaping up for a split?Analysts were actually surprised at just how much embedded value there was, but in terms of a split they've grown somewhat bored with waiting. Brokers have been calling for Suncorp to be cleft in twain for many months, and as each month has passed the banking division has continued to look less and less attractive. Indeed, Macquarie does not believe any bidders will be tempted before being able to peruse Suncorp's FY09 reports.On a broader note, Citi decided this week that the Australian economic outlook may not be quite as dire as previously assumed, and that debt impairment expenses may not reach the 96 basis point peak in FY10 the analysts had assumed. Citi believes SMEs and commercial property will drive bad debts, but with conditions and confidence growing the analysts are prepared to consider reducing their peak assumption.Were this to be the case, the smaller and riskier ANZ and NAB stand to win out on valuation from the larger and safer CBA and Westpac.Citi may have on the rose-tinted glasses, but it was up to Credit Suisse to offer some reality. CS noted this week sector-wide impairments increased by 122 per cent in the six months to March, with lending to construction and property and business services the worst hit. Mortgage write-offs, on the other hand, remain relatively benign. These numbers put CBA and Westpac in the better position.