NAB to buy US regional bank
1:27 PM Nov 29, 2007
Reuters
Australia's top lender by assets National Australia Bank Ltd has agreed to buy the privately owned Great Western Bank for $798 million ($US707 million) to expand its US agribusiness banking interests.
Great Western has assets of more than $US3.4 billion ($3.9 billion) and a network of 100 branches, mainly in the mid-west agricultural region of the United States.
Analysts said Great Western should be insulated from the fallout from turmoil in credit markets and would complement NAB's Australian agribusiness, but buying in the United States while the credit problems remained had raised eyebrows.
"You'd be pretty alarmed if you saw NAB were buying a traditional retail bank that had those kind of mortgage exposures," said BT Financial analyst Jack Chemello. "Great Western has no exposure to that, and NAB does have a long history of strength in the agricultural lending sector."
Chief executive John Stewart told a briefing that NAB sees the United States as a highly attractive market, where margins in agricultural lending were about 100 basis points higher than in Australia.
He said the farm credit market in Great Western's six key agricultural states totalled $38.6 billion, close to the size of the Australian market at $41 billion.
The mid-Western states tend to be more stable through economic cycles than other parts of the US, he added.
'Springboard'
"Great Western offers an ideal springboard to accelerate the organic growth strategy for our agribusiness relationship banking model into the USA," Mr Stewart said, adding Great Western had a robust growth history, strong deposit base and no subprime exposure.
The takeover was expected to be earnings per share neutral by year three, about 0.5 percent dilutive in the first year, and have no impact on dividends, NAB said.
Australia's big banks have benefited from 16 years of economic growth and have escaped exposure to the troubled US subprime market, which has led to billions of dollars of writedowns elsewhere.
NAB recently completed a three-year restructuring designed to reduce costs and take it forward after a series of stumbles, including losses from unauthorised foreign currency trading.
Another analyst questioned the timing of the Great Western deal, and thought it looked expensive.
"From a strategic question it obviously makes sense, but you've got to question the timing given what's going on in US markets and the potential economic downturn to come," said an analyst at an investment bank who asked not to be identified.
He said the acquisition appeared to be on a multiple of about 20 times 2008 earnings, which he said was "way above" multiples paid for other regional banks of about 10 times earnings.
NAB hopes to close the deal, which is subject to regulatory approval, between March and June.
NAB, which owns Yorkshire Bank and Clydesdale Bank in Britain, posted a 20 percent increase in second-half profit.
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