The Federal Treasurer has approved wide-moat ANZ Group’s (ASX: ANZ) acquisition of Suncorp Bank from no-moat Suncorp (ASX: SUN), the final hurdle on a deal announced back in July 2022. No direct job losses for three years is a commitment which was already made by ANZ, with the Treasurer adding additional conditions that Suncorp maintains regional branch numbers nationally and endeavors to maintain banking services with Australia Post. We don’t think the cost of either is material to the combined group and have little bearing on the financial success of this deal for ANZ.

Cost savings over the medium term underpin the acquisition, driven by consolidation of systems and processes. Suncorp will help cover some of the additional approval-related imposts by waiving its $50 million brand licensing fee and contributing more to integration costs. The acquisition is expected to complete at the end of July 2024.

Our ANZ fair value estimate of $31 and Suncorp fair value estimate of $14.50 are unchanged and already assume completion of the acquisition. Suncorp Bank earnings account for around 5% of our ANZ Group forecasts from fiscal 2025, and we do not view the deal as materially value-accretive given the acquisition price and integration costs. Suncorp is expected to return most of the $4.1 billion in net sale proceeds to shareholders via capital returns.

ANZ shares are currently fairly valued while Sucorp is currently trading at a 20% premium to our fair value.

We have allowed for a modest loss of Suncorp Bank customers and make no specific allowances for ANZ hitting its $260 million in pretax cost synergy target. This represents around 2% of our combined fiscal 2028 operating expense forecasts. These savings are slated to be realized 4-6 years after the acquisition and could be absorbed by inflation and reinvestment to fend off competition. We do not believe the acquisition materially alters the competitive landscape. There is abundant competition from other retail banks, member-owned banks, foreign banks, and nonbank lenders.