The Bank of Queensland Limited (ASX: BOQ) share price has been struggling this week. BOQ shares had fallen by around 2.5% between Friday and Wednesday. It’s down around 1% in early trading today.
Whilst each bank has its own buyers and sellers, there has also been volatility for other banks in recent times such as National Australia Bank Ltd (ASX: NAB), Australia and New Zealand Banking Group Ltd (ASX: ANZ) and Bendigo and Adelaide Bank Ltd (ASX: BEN).
Has anything happened to BOQ?
This week, it was reported by the Australian Financial Review that ME Bank could get a penalty of up to $100 million for criminal charges.
It is alleged by ASIC that ME Bank made “false and misleading representations in letters to borrowers, and failed to notify customers when repayment rates changed.”
Why does this impact BOQ? The regional bank recently acquired ME Bank. Apparently BOQ found out about this during the due diligence stage, before the acquisition. It has reportedly already paid remediation of more than $100,000 for this matter.
ME Bank appeared in court on Tuesday and is expected to return in November.
Of course, the $100 million figure is seemingly the maximum that could be applied.
How important is ME Bank for the BOQ share price?
If a $100 million fine were applied, it would be a large chunk of ME Bank’s annual profit. BOQ bought ME Bank for $1.325 billion and this was 11.9x ME Bank’s FY20 cash underlying earnings.
BOQ decided to buy the bank to create a compelling alternative to the big banks. Management called the acquisition transformational and strategically aligned.
It will deliver “material scale”, broadly doubling the retail bank and providing more geographic diversification. As the name suggests, Bank of Queensland has a weighting towards the Sunshine State.
BOQ noted there is a clear pathway to a scaled, common, cloud-based digital retail bank technology platform.
In financial terms, management think ME Bank is compelling. It’s expected to add to cash earnings per share (EPS) in the low double-digits to mid-teens when including the full run-rate synergies in the first year (being FY22).
It’s also expected to add to return on equity (ROE) in cash terms by over 100 basis points, including the full run-rate synergies in the first year.
Referring to the synergies that BOQ mentioned, it’s anticipating annualised pre-tax synergies of between $70 million to $80 million.
Do analysts rate the BOQ share price as a buy?
Macquarie Group Ltd (ASX: MQG) is one of the brokers that currently rates BOQ shares as a buy – and there are several buy ratings at the moment.
The broker has a price target of $10 per share on the bank. That suggests that the BOQ share price could rise more than 5% over the next 12 months. The broker likes the acquisition of ME Bank.
Based on the FY22 earnings estimates from Macquarie, the broker puts the BOQ share price at 13x estimated profit. The projected grossed-up dividend yield for FY22 is 7.2%.