Six years after writing off billions of dollars of write-downs and losses on poorly run mortgage business, the National Australia Bank moved back into the US market.
It has agreed to acquire Great Western Bank, a regional bank based in the US Midwest rural city of Sioux Falls, South Dakota, for $US798 million ($A898.5 million).
Instead of mortgages and full scale banking, its taking aim at the rural sector of the US and an area of the country where the value of all crops and agri-products exceeds that from Australia i.e. more than $US25 billion a year.
Given the NAB's poor record in the US it's no wonder the market looked sceptically at the deal: boosting the shares to a high of $40.10 before having second thoughts and selling them down to where they shed around 1% to $39.05, on a day when the overall market rose by around 1.5%.
Perhaps they were not happy with the news that the cost of the buy would trim 2008 earnings by half a per cent.
It's the third time the NAB has tried to launch itself into the US in a big way, the last attempt ended in tears and a multi-billion dollar loss on its HomeSide mortgage business.
And before that it made a solid profit on its National Bank of Michigan that was bought in 1995 and sold in 2000 to ABN Amro, but it lost around $US2.2 on its involvement with HomeSide, a Florida based mortgage servicing business.
It sold HomeSide's operating assets to Washington Mutual, the biggest Savings and Loan in the US and a group now bleeding from the damage caused by the housing slide and subprime mess.
NAB booked two write-downs with HomeSide.
First, in July 2001, NAB had a $450 million write down of the value of its capitalized mortgage servicing rights.
This was followed by a second write-down in September of the same year totalling $1.75 billion. Those losses related to other problems that were emerging within the HomeSide Model that NAB was in the process of bringing to Australia. That was abandoned as total losses came in around $2.2 billion.
That left it with interests in Ireland (since sold), the UK (still owns) and the Bank of New Zealand (still owns).
Now it's returning to the US, but not to high growth building areas such as Florida or the industrial Midwest, or even the east coast, but the rural heartland, where even housing prices are rising.
The NAB says it is buying Great Western to grow its farm lending business in America, and especially the rural states.
The bank says Great Western, which has been privately-owned for more than three decades, has assets of more than $US3.4 billion and about 100 branches in is states in the mid-west agricultural regions of America.
"Great Western Bank offers an ideal springboard to accelerate the organic growth strategy for our agribusiness relationship banking model into the U.S.,'' John Stewart, National Australia's chief executive officer, said in the statement.
NAB expects to complete the purchase of Great Western by June next year.
Great Western Bancorporation has been owned by the Hamann family for more than 35 years.
Mr Stewart said the opportunity to acquire Great Western Bank came as a result of research into the organic growth opportunities for the bank's agribusiness relationship banking model in the USA.
''Great Western Bank offers an ideal springboard to accelerate the organic growth strategy for our agribusiness relationship banking model into the USA,'' Mr Stewart said.
''It is a strong, well run bank with a robust history of expansion, a strong deposit base and sound financial performance.
"Great Western Bank is also active in the commercial lending, wealth management distribution and insurance agency sectors..
"These are all areas where National Australia Bank has a strong track record and we will look to continue to develop Great Western Bank's operations in these areas as well,'' Mr Stewart said.
It is subject to conditions, including US and Australian regulatory approvals and no material adverse change.
NAB said its capital position remained strong after the acquisition and that its earnings outlook was unchanged.
"This acquisition has a minimal impact on National Australia Bank's group financials,'' the bank said in a statement.
"It is expected to be earnings per share neutral by year three, approximately 0.5 per cent dilutive in year one and have no impact on dividend per share.''
And let's hope no quietly buried subprime mortgage bombs.
