Joseph Taylor: So, Nathan, ANZ (ASX: ANZ) finally have approval for their deal for Suncorp Bank. Why have they made this move?

Nathan Zaia: Yeah, I think if you rewind a few years ago, ANZ was losing share in the home loan market, and they were not really competitive in terms of loan approval times and processing and work with the brokers. So, they're spending a lot of money to rectify those problems. So, when you're spending a lot of money, like you want to get those scale benefits, so it's not a deal that you're losing share. So, I think this was an easy way to bulk that back up, buy Suncorp, increase their loan book and then hopefully even take costs out of that business when you have duplication of systems and processes. So, I think that's why ANZ would have thought this makes sense for us to go after Suncorp Bank. The problem is though, to buy it, you have to pay up for that. So, you pay a premium for what it's worth or what it would be trading on on market and then you've got all the integration costs that come with it. So, on paper, it sounds all great, but then the valuation upside, it depends on how successful they are integrating down the track.

Taylor: So, touching on that, your valuation for ANZ hasn't been affected by the deal. Does that reflect your opinion that maybe it wasn't really worth the $5 billion?

Zaia: Yeah, there's a few moving parts. They're paid a multiple over the book value of what they got. There's integration costs associated with it as well. And just the size of what they buy, we forecast added about 5% to ANZ's earnings. So, it's not huge. It is a pretty material deal in the context of the Australian landscape, but for ANZ's earnings, it wasn't huge. And the cost synergies aren't expected for a few years out as well. So, there's risks around those and just how much you do take out and how much is just absorbed with inflation and the other costs that creep in as well. So that's why we were not overly excited or ambitious or factoring in all the potential cost savings as well, which might add a small amount to the fair value.

Taylor: So, it's understandable, but not transformative in terms of an acquisition?

Zaia: Yeah, I think that's a fair way of putting it.

Taylor: So, if you look at the other side of the deal, Suncorp (ASX: SUN) obviously is receiving $5 billion. What do you think they'll do with the proceeds?

Zaia: Yeah, well, they've been saying all along that they plan to return the majority of it to shareholders. So, there is a tax component. There's some costs of breaking out the bank. So, ex all that, I think what's left, they will return to shareholders via capital return, buyback, dividends, probably a combination of all. That's what my expectation would be.

Taylor: Great. And ANZ, can we expect them to do any more deals in the future? Or do you think this is it?

Zaia: I think it will be tough for them to do more deals. So, this deal got a lot of scrutiny, ended up getting over the line at the end of the day. But yeah, I think given what ANZ just went through, it took a couple of years to get this deal over the line. Now there's one less non-major player in the market. So, if ANZ or another bank wants to try and do something like this again, I think it will be a very high bar to get over. So yeah, not expecting it.

Taylor: So, with all that in mind, who do you think got the better end of the deal here?

Zaia: Yeah, I don't know if I'd put it one way or another like there's a clear winner here, but I think it's a bigger deal for Suncorp. So, they get rid of a subscale bank that really has been struggling. It is hard to run a smaller bank, especially up against the majors. So, I think being able to focus just on general insurance, that's a good thing for Suncorp. And even the price they received from ANZ, if that bank was trading on the market, it probably doesn't trade on 1.3 times book value. So that's a good thing for Suncorp shareholders.