No doubt fans of S&P/ASX 200 Index (ASX: XJO) bank shares were excited by rumours of a merger between Bank of Queensland Ltd (ASX: BOQ) and Bendigo and Adelaide Bank Ltd (ASX: BEN).
The prospect of a union between the two not-quite-big four banks hit headlines last week.
And the possibility has reportedly gained the approval of Morgan Stanley. Though, analysts pointed out a few notable catches.
So, could Bank of Queensland shares could be a buy in the face of acquisition hopes? Let's take a look.
Right now, the Bank of Queensland share price is $7.26. Meanwhile, shares in Bendigo Bank are trading at $10.09 each.
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Bank of Queensland shares in the spotlight amid merger rumours
Bank of Queensland has rejected rumours it's in early takeover talks with its ASX 200 peer Bendigo Bank, but that hasn't stopped experts from weighing in.
Morgan Stanley, for one, says a merger of the two "makes sense" and "could be opportunistic given the Bank of Queensland's recent leadership changes", The Australian reports.
The analysts noted competitive disadvantages facing the smaller banks – said to have been a point of deliberation among Bendigo Bank's board in recent years – could be reduced by a union.
Though, they were also said to point to Bendigo Bank's staunch independence and the complicated task it would be to intertwine its business with that of Bank of Queensland, despite notable cost synergies. Morgan Stanley said, (as per The Australian):
A merged group would adopt a multi-brand approach, but there is no strong evidence that this has been successful in retail banking in Australia, with revenue benefits required to offset additional costs of the multi-brand model.
Meanwhile, Jefferies banking analyst Brian Johnson is reportedly sceptical a merger will go ahead.
As to whether Bank of Queensland shares are a buy amid the rumours, it's hard to say.
Without considering the prospect, Goldman Sachs thinks not. It has a neutral rating and a $7.80 price target on the ASX 200 bank. Though, that still represents a potential 7% upside.
Bank of Queensland shares currently trade with a price-to-earnings (P/E) ratio of 9.59, according to CommSec data.
