NAB To Acquire Challenger’s Mortgage Business

Post by Sharat on August 18, 2009 · Under Australian Economy, Business News, Company News, Mergers & Acquistions, banking, home loans, mortgages · Comment

Australian banking major National Australia Bank (NAB), announced its intention to acquire the mortgage business of Challenger Financial Services for $385 million.

In a bid to increase its market share in mortgage lending, which has recently come to be dominated by CBA and Westpac as a result of the formers acquisition of Bankwest and the latter’s merger with St. George. NAB is set to acquire three mortgage aggregator businesses from Challenger.

Market analysts believe that the multi-brand multi origination businesses are the largest of their kind in the market, including a portfolio of mortgages worth $4 billion and a 5700 strong broker network.

NAB chief Cameron Clyne said of the deal “As I have said previously, we will take advantage of compelling opportunities to enhance our organic growth capabilities. This acquisition provides additional distribution and capability in Australian mortgages.”

Challenger, a non bank finance company was securitising it loan portfolio rather than funding it through deposits. The company has been struggling to obtain finance, with the market for residential mortgage backed securities still frozen. The portfolio of mortgages being sold to NAB was to have been securitised.

NAB has been aggressive in its bid to expand, pursuing a strategy of inorganic growth through acquisition, purchasing Aviva’s Australian wealth management business and acquiring a majority stake in a joint venture wealth management business with Goldman Sachs JBWere.

The Big Four Australian banks have used their relative financial strength at a time of rising bad debt and slower global economic growth, to increase market share in a variety of business segments at the expense of regional rivals and international peers. The latter, unable to weather the financial crisis without either divesting assets, or requiring government financial assistance.

NAB’s acquisition of Challenger will give it a larger market share of loans underwritten by mortgage brokers. The deal gives NAB a 17.5 per cent stake in Homeloans with the option of increasing its stake to 41 per cent, subject to Homeloans shareholder approval.

The acquisition will impact NAB’s Tier 1 capital ratio by 15 basis points, is subject to regulatory approval first and will likely complete towards the end of 2009.

Separately, Sydney-based Challenger Financial said in a statement that it expects to report a loss of between $88m and $93m for the year ended June 30.

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