BNK Banking Update

MA Financial is acquiring BNK Banking’s subsidiary, Finsure business for approximately AUD152m. Both companies had previously gone into a trading halt on Tuesday. The sale price is a 66% premium to the market capitalisation prior to the announcement of the strategic review.

MA will fund this via an underwritten institutional share placement to raise about AUD100m and a non-underwritten share purchase plan to raise up to AUD10m. Completion is subject to regulatory approval and is expected to occur H1 2022.

Finsure is a top 4 mortgage broking aggregator that provides a network of mortgage brokers support tools and access to a range of lenders in the market, including the big four, ING, Bankwest, AMP, and non-bank lenders such as Resimac. Finsure has more than 2,050 mortgage brokers on its platform and manages a loan book exceeding AUD60bn.

What does the mean for BNK Banking?

The sale of Finsure is part of the strategic review undertaken by the BNK Board. Given that it is anticipated a distribution of a material portion of the sale proceeds will be made to shareholders, it is not the best outcome for subordinated debtholders who are left with a less diversified business with fewer assets to call upon in an event of default.

However, following the sale of Finsure, BNK will still be a strongly capitalised digital bank with a clear focus on originating specialist loans through their alliance with Goldman Sachs and the prime RMBS warehouse program with Bendigo/Blackstone.

Within the banking division, for the September quarter, total lending settlements grew to AUD222m − an increase of 141% year on year and a 5% increase compared to the previous corresponding quarter. BNK Banking commenced the origination of specialist loans though its alliance with Goldman Sachs, achieving AUD160m in applications to 30 September 2021.

BNK’s previous guidance was for a modest increase in underlying NPAT in FY22. The Company now expects underlying NPAT to be 15-20% above the prior year, subject to financial markets remaining stable.

Chart 1. Finsure’s Growth in the September Quarter

Source: BNK Banking Investor Update

Relative Value

The BNK Banking subordinated debt lines offer a quarterly coupon of BBSW3M+395bps with a first call in 2026. The BNKAUS 31s are still trading well wider of other regional and major bank tier 2 subordinated debt and look good in terms of relative value (see Charts 2 and 3 below).