Australia and New Zealand Banking Group Ltd (ASX: ANZ) shares are an interesting conundrum as investors get to grips with the idea of the company buying the banking operations of Suncorp Group Ltd (ASX: SUN).
The S&P/ASX 200 Index (ASX: XJO) bank is looking to acquire the banking division of Suncorp for $4.9 billion.
ANZ is one of the big four ASX 200 bank shares, along with Commonwealth Bank of Australia (ASX: CBA), National Australia Bank Ltd (ASX: NAB) and Westpac Banking Corp (ASX: WBC).
There is a market perception that ANZ isn't as high quality as CBA and NAB. The latest financial results may give an indication of how ANZ is lagging behind.
ANZ's FY22 half-year result to March 2022 showed continuing operations cash profit dropped 3% to $3.1 billion. NAB reported that its FY22 half-year net profit increased 4.1% to $3.48 billion, while the CBA full-year result showed 11% growth of cash earnings to $9.6 billion.
Additionally, the ANZ share price is down a hefty 15% this year to date, while NAB is up 7%, Westpac is up 3% and CBA is down by less than 2%.
Will the Suncorp acquisition help ANZ catch up with its big four bank peers?
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Expert unconvinced
The acquisition will come with $47 billion of home loans with "strong risk profile", $45 billion in "high-quality" deposits and $11 billion in commercial loans.
ANZ has licenced the Suncorp Bank brand for five to seven years and it has committed to maintaining its current branch footprint in Queensland for at least three years after completion.
However, not everyone thinks this acquisition is the right move by ANZ.
In an article on Livewire Markets, Schroders Australia pointed out that when organic growth becomes hard to achieve, businesses normally go for acquisitions.
It called ANZ's takeover attempt "another example of strategy trumping execution". Schroders said that ANZ has been consistently losing market share with households because of "mismanagement".
Schroders thinks ANZ is missing a trick. It noted that NAB has done a lot of work in its retail business, which has seen investors push up the valuation of NAB shares. It suggests ANZ may not improve its operations because it's focusing on this acquisition instead.
Schroders said:
Alas, ANZ has turned its back on this operational path to value creation, and instead chosen to increase the complexity in its retail business at a price of 1.3 times NTA (net tangible assets). This is a poor strategic choice, likely to lead to value destruction at least equal to the premium paid above NTA.
But, Schroders did say that dropping the idea of buying MYOB was good. Buying MYOB would have seen "value erosion far greater" than buying Suncorp Bank. Schroders thinks the past few decades have shown that acquisitions by banks have not played out well, aside from Macquarie Group Ltd (ASX: MQG).
The expert said CBA and Macquarie have been the best performers because they have been the ones focused most on "operational excellence".
While banks are currently getting a quick boost to profit thanks to rising interest rates, Schroders said that shareholder interests may be best served through "an ever-greater focus on execution".
ANZ share price snapshot
In addition to their 15% fall so far this year, ANZ shares have dropped by 16% over the past 12 months.
However, they have risen by almost 8% over the past month.
At the time of writing on Thursday, the ANZ share price is down 1.24% at $23.575.
