National Australia Bank will pay $660 million for most of British insurer Aviva's Australian businesses to become the country's dominant investment platform provider and insurance underwriter.
NAB, the country's biggest lender, beat AMP and others to clinch the deal - its first acquisition under new CEO Cameron Clyne.
NAB, which has identified wealth management, insurance and its advisory business as key growth areas, said today the purchase would dent its tier-1 capital by about 15 basis points, but forecast A$70 million in annual pre-tax savings.
Aviva, the world's fifth-biggest insurer, joins a growing list of global companies exiting Australia to focus on their domestic markets in the grip of a global financial crisis.
A sale could help Aviva ease worries about its capital position, which has been a cause of investor concern after the group left its 2008 dividend unchanged in March.
“The price they paid looks ok, but I don't think their synergy estimates are realistic,” said Chris Halls, analyst with Argo Investments, which owns A$110 million worth of NAB stock.
NAB's move comes at a time when the Australian government is taking a hard look at the fee structure in financial advice industry.
“The fees are heading down and the whole profitability of platforms becomes more under pressure. What that means is that you need scale. That's the strategic rationale. This is a scale, cost savings play in the existing business line,” Halls added.
The deal would lift NAB's earnings from wealth management to about 10 per cent of the group's total from about 7 per cent now, Halls estimated, noting Commonwealth Bank of Australia Ltd (CBA) earns about 14 per cent of its profit from wealth management.
Australian lenders have largely dodged the global financial crisis and are better placed to grow their businesses with their focus on domestic markets. In contrast, some big US and European banks have left Australia to better focus elsewhere.
Reuters