Bendigo and Adelaide Bank Ltd (ASX: BEN) shares are on the slide on Thursday.
In morning trade, the regional bank's shares are down almost 1% to $10.01.
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Why are Bendigo Bank shares falling?
Investors have been selling the bank's shares this morning after responding negatively to a big announcement.
According to the release, Bendigo and Adelaide Bank has agreed to acquire RACQ Bank's retail lending assets and deposits.
The purchase price will be based on book value of the transferring book at completion, which comprised $2.7 billion of retail loans and $2.5 billion of retail deposits at the end of June.
The company notes that the asset and liability transfer is expected to be completed during the first half of 2027. It will be completed at book value and will be funded from cash reserves and will consume approximately 35bps of CET1 capital.
Why make this acquisition?
Management highlights that the acquisition of these retail lending assets and deposits from RACQ Bank, with over 90,000 customers, aligns with its strategy and is expected to contribute positively to its 2030 return on equity (ROE) target.
It highlights that RACQ Bank has a strong deposit franchise with retail deposits representing 92% of the lending portfolio, and a high proportion of lower-cost deposits. The assets are expected to generate net interest income of ~$50 million to $55 million.
Management believes that the simplification to one core banking system by the end of 2025 will enable efficient integration, minimising incremental costs, and leveraging existing migration and integration capabilities.
The estimated migration and transaction costs are ~$25 million to $30 million after tax, with the majority to be incurred prior to completion of the transaction. Whereas the estimated incremental cost to service the transferring book will be ~$12 million to $14 million before tax.
It also highlights that it increases geographic diversity, lifting Bendigo Bank's Queensland exposure to 18% of its residential lending portfolio from 15%.
Commenting on the deal, Bendigo and Adelaide Bank's CEO and managing director, Richard Fennell, said:
RACQ Bank's strong deposit franchise and member focus complements Bendigo Bank's own deposit franchise and longstanding focus on our customers and the community. This acquisition leverages our proven ability to efficiently integrate significant portfolios and is expected to drive improved shareholder returns through cost efficiencies and geographic diversification.
