Competition Regulator Approves NAB’s Challenger Acquisition

Post by Sharat on October 8, 2009 · Under Australian Economy, Business News, Company News, Mergers & Acquistions, banking, mortgages · Comment

The Australian Competition and Consumer Commission (ACCC) chairman Graeme Samuel, has approved National Australia Bank’s (NAB) proposed $385 million acquisition of Challenger Financial’s mortgage business.

Mr. Samuel hailed a return to competition in the banking sector by approving the deal and dismissed calls for a second inquiry into the financial system, saying the climate was still too unsettled.

“Who would have thought six months ago that we’d be experiencing an economic recovery and interest rates would be rising? So let’s see how things emerge over the next while in terms of the level of industry competition,” Mr Samuel said yesterday.

Mr. Samuel cited last month’s issuance of $1.25 billion in residential mortgage backed securities by Members Equity Bank, as a signal that competition was returning to the banking sector.

The sale was the largest RMBS transaction since early last year, after the market all but shut in the aftermath of the US sub-prime lending crisis.

Mr. Samuel said the success of the deal contrasts with comments made by former ANZ deputy chief executive Bob Edgar who said in an in interview with ABC on Tuesday, that securitisation markets had collapsed and would take a “long, long time to get back to anything like the levels that the non banks enjoyed just two years ago”.

“If the ME Bank issue, which raised more than was sought, is a sign of the recovery of the securitisation market, then it means the potential re-emergence of the non banks. All our research shows the non banks were the real source of aggressive competition in residential lending. On top of that, there is the potential return of the international banks — some of which retreated to their home bases — which would help competition in business lending.” Mr. Samuel said.

On Wednesday, the competition regulator approved NAB’s proposed acquisition of Challenger Financial’s mortgage broking and distribution businesses, which includes the Choice, PLAN and FAST platforms.

NAB, like the previous owner of the business, will provide “white label”, or wholesale, lending to mortgage managers. Those firms, in turn, distribute mortgages under their own brands.

Mr. Samuel dismissed speculation that the ACCC might require NAB to divest one of the platforms, and said that conditional approval had never been under consideration.

Challenger Financial’s mortgage distribution business has exclusive and non exclusive relationships with approximately 40 per cent of Australia’s mortgage brokers.

Brokers however, have the ability to use rival distribution platforms, which would give alternate lenders the ability to provide financing, preventing NAB’s acquisitions from reducing the level of competition that exists in mortgage lending.

Mr Samuel said the Challenger mortgage portfolio would increase NAB’s share of the mortgage lending market by less than 1 per cent.

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