The National Australia Bank says it will become the country’s biggest life insurer and investment platform provider after buying Aviva Australia Holdings for $825 million.
But life insurance and funds management are low value businesses at the moment, thanks to the impact of the credit crunch and recession.
The real game is in financing housing and you’d have to wonder why the NAB is going deeper into a sector where growth prospects depend on stockmarket performance and there’s going to be significant changes that will hit fees and commissions in coming years, especially for so-called investment platforms.
Housing is the only area of lending that’s growing at the moment as the banks cut their credit lines to businesses, or lift rates and re-price what they see as higher risks.
NAB revealed yesterday that it had beaten three other groups for the local arm of Aviva, the world’s fifth biggest insurer.
Aviva is retreating back to the UK and China and India. The company has been badly hit by the recession and credit crunch.
The NAB is buying Aviva Australia Holdings’ wealth management business for $825 million: these include the Aviva’s life-insurance operations and investment platform, called Navigator, which seems to be the real prize.
NAB said the acquisition was expected to be earnings per share (EPS) and return on equity accretive in the first full year following acquisition, excluding integration costs.
NAB chief executive Cameron Clyne said in the statement the acquisition would enhance the bank’s offering in key wealth management segments, including insurance and investment platforms.
"The acquisition meets the objectives outlined in the NAB Strategy earlier this year," Mr Clyne said.
"Our MLC and NAB wealth management business is a key area of growth for us and we are well positioned to respond to changes currently taking place in the wealth management market as a result of the financial crisis and regulatory reviews," he said.
But the wealth management business of the NAB has hardly bee a write home success in the past year as it has been hammered by the credit crunch and recession. (As have all funds managers).
The NAB would argue that it’s getting the business cheap with Aviva wanting to get out of Australia (Much the same way that the Commonwealth bought the BankWest business cheaply from the departing Royal Bank Of Scotland).
But it is going deeper into funds management at a time when it is going to be under pressure from poor returns, rising unemployment, which will clip super levy flows and the continuing impact of the recession.
Excluding integration costs, Aviva Australia would add to earnings and return on equity from the first full year following the acquisition, Melbourne-based NAB said in the statement.
NAB will leapfrog life insurance market leader Commonwealth Bank and No. 2 provider ING to become the biggest in the country. NAB will also move to the top of rankings for the biggest investment platform provider, over rivals such as Westpac’s BT, after buying Navigator.
NAB shares rose 39 cents to $22.49.
