NEWS - Financial Services
Published 9:01 AM, 18 Aug 2009
Last update 4:30 PM, 18 Aug 2009
NAB to buy Challenger mortgage business for $385m
By a staff reporter, with Reuters
National Australia Bank Ltd (NAB) has agreed to buy the mortgage management business of Challenger Financial Services Group Ltd for $385 million, as well as a select portfolio of $4 billion of residential mortgages at a discount to face value for loan loss provisions.
The acquisition is expected to be earnings and return on equity accretive in the first year, NAB said in a statement to the Australian Securities Exchange (ASX), while the impact on Tier 1 capital is a reduction of about 15 basis points.
The deal includes Challenger's PLAN, Choice and FAST mortgage aggregator businesses, as well as Challenger's multi-brand 'white label' product.
NAB will also acquire a 17.5 per cent interest in Homeloans Ltd, with the potential to increase to 41 per cent subject to Homeloans' shareholder approval.
NAB chief executive Cameron Clyne said the deal would provide the bank with extra distribution and capability in Australian mortgages.
"As I have said previously we will take advantage of compelling opportunities to enhance our organic growth capabilities," Mr Clyne said.
The transaction is subject to regulatory approvals, including the Australian Competition and Consumer Commission (ACCC), and is expected to be concluded by the end of 2009.
Non-bank lender Challenger has a national network of about 5,700 brokers.
Gaining market share
The move will help NAB increase its share of the market for home loans, dominated by Commonwealth Bank of Australia Ltd and Westpac Banking Corporation, and further consolidate the dominance of the big four banks in home loans.
The global financial crisis has seen non-bank lenders struggle for survival as their funding costs have risen sharply. Australia's big four banks are better placed as they meet about half of their funding needs from low cost deposits.
"We have seen the major banks taking advantage of their relative strength in a difficult environment, clawing back market share," said Tom Quarmby, research analyst at Macquarie Research Equities.
About 92 per cent of all the new home loans in June were underwritten by the banks, underlining their dominance in the Australian home loan market.
The top four banks have boosted their market share of mortgages to about 80 per cent over the past year.
"That's going to be the national progression for quite some time both in Australia and abroad," Mr Quarmby said, citing the example of Canada, where the big domestic banks have similar concentration.
NAB's acquisition follows its purchase of British insurer Aviva Plc's Australian businesses for $825 million in June and its $99 million purchase of an 80 per cent stake in Goldman Sachs JBWere's private wealth management business.
Challenger has forecast underlying net profit of between $215 million and $220 million for the 2009 financial year.
Challenger called for a trading halt on its shares on Monday while it negotiated the deal. Shares in the company last traded at $2.91.
NAB shares closed 0.14 per cent weaker to $27.04, mirroring a 0.15 per cent fall in the benchmark index.
To read commentary by Stephen Bartholomeusz on NAB's acquisition of Challenger, click here.
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