The Bank of Queensland Ltd (ASX: BOQ) share price is currently down around 1% as news broke that the ASX bank share is facing possible legal action from unhappy franchise branch owners.

BOQ is in the middle of trying to lower its costs and improve its profitability. Part of that plan is to buy branches owned by franchisees.

However, there is a point of contention – how much BOQ wants to pay for these branches.

BOQ faces higher costs

According to reporting by the Australian Financial Review, frustrated branch owners are calling the offer value a "very low price".

Due to this, the owners of the branches are looking at legal action against Bank of Queensland with help from BDO, an accounting and advisory business. BDO is suggesting to the franchise branch owners that it can assist them to get a better price and give them "legal and strategic support".

The AFR quoted from documents that BDO sent to the branch owner-managers which said:

[The bank's] decision raises important considerations for franchise owners, particularly regarding the valuation of their businesses, the terms of their franchise agreements, and their future business.

BDO is looking to "bring together all franchisees" to strengthen their "collective bargaining power" and do independent assessments rather than just accept BOQ's offer.

NSW owner-managers reportedly met with BOQ officials last week and "left underwhelmed".

As reported by my colleague Zach Bristow last month, BOQ is working on a number of initiatives to reduce costs. At the time, BOQ said it expected the cost to convert all 114 of its owner-managed branch network to corporate branches at a (pre-tax) cost of between $115 million to $125 million.

The branch owners are suggesting this offer does not reflect "the true value of their business", according to the AFR reporting.

The AFR also reported that:

Last Thursday, the same day the Financial Review queried the payments with BOQ, the bank emailed owner-managers threatening to immediately tear up their franchise agreements if they were caught speaking to the media.

Why is Bank of Queensland doing this?

The BOQ managing director and CEO Patrick Allaway explained in August why BOQ didn't think the franchise model was right for the ASX bank share:

Our heritage retail banking operating model that has served us well in the past, is no longer sustainable in its current state in a lower returning environment.

The conversion of our branch network will provide flexibility in our product distribution and improve our ability to optimise margins. It represents a substantial change for our Owner Managers, many of whom have long tenures with BOQ. We acknowledge, with immense gratitude, their important contribution to the 150-year history of BOQ and will work closely with them to ensure a smooth transition over the coming months.

Bank of Queensland share price snapshot

Since the start of 2024, the BOQ share price has risen around 6%.