What's new?

Spring has arrived, along with Suncorp's new boss, Patrick Snowball. The former Aviva executive has some weeding to do to get the insurance and banking group back into shape.

The market has been speculating on what is to become of Suncorp's banking business after years of ill-fated expansion into high-risk lending. The company has quarantined what it describes as the "non-core" portfolio of about $17.5 billion in loans. The market has called a spade a spade and dubbed it the "Bad Bank". Suncorp's strategy is to wind down this loan book of development finance, property investment, leasing and corporate finance loans to $6 billion by June 2011.

That's if Snowball doesn't find a buyer for the bank in the meantime.

But he faces an immediate problem. After the Commonwealth Bank snapped up BankWest earlier this year from a distressed seller, the Australian Competition and Consumer Commission reluctantly waved it through. The ACCC has made it clear it does not want to see any further consolidation of mid-tier banks within the big four banks. In one simple statement, it has removed all the local buyers for Suncorp's banking business and punctured its potential sale price.

That won't stop Snowball from considering an outright sale of the bank as an option but it makes it less palatable. An alternative scenario might include selling just the Bad Bank as a deck-clearing exercise. The bank's earnings have paid the price for too many years of lax lending. Suncorp has begun reporting the bank result in two discrete groups, providing greater transparency of the performance of each. The Bad Bank confessed to a fourth-quarter pre-tax loss of $139 million, offsetting the $138 million pre-tax profit at Good Bank.

On the bright side, Suncorp's general insurance business has weathered a shocking year of natural hazards that ran up a bill of $430 million, offset by $85 million recouped from re-insurers. Policyholders will see the effects in their premium notices in due course. The Suncorp Life business also endured a choppy year but produced a profit after tax of $115 million. This business has been independently valued at $2.175 billion.

The outlook

The interim strategies undertaken by the interim management won't necessarily be adopted by Snowball. He will undoubtedly take time to play himself in for a successful dig before unleashing a few shots of his own.

Price

Suncorp's share price has been recovering from a low of $4.55 in March. The company received a "please explain" from the Stock Exchange in August after the price rallied sharply above $8. It is still a long way short of the $21 levels last seen in 2007.

Worth buying?

While the expectation of a breakup is not a fait accompli, many observers don't believe the combination of a bank and an insurance business is a complementary beast. But the arrival of Snowball may herald the beginning of a better earnings trend.

Greg Fraser is a senior industrial analyst at Fat Prophets stock market research.