National Australia Bank (NAB) has entered into a Sale and Purchase Agreement to sell 100 per cent of MLC Wealth (MLC) to IOOF Holdings Ltd. (IOOF) for a purchase price of $1.44 billion.
The transaction includes MLC’s advice, platforms, superannuation and investments, and asset management businesses. However, NAB said it will retain legal ownership of MLC’s advice entities for the purpose of completing advice-related remediation programs (the bank has set aside approximately $1.5 billion for customer-related remediation provisions as of 31 March 2020).
The new IOOF will look after approximately 2.2 million Australians.
NAB will continue to offer targeted wealth management products and services through JBWere and nabtrade.
The major bank has also revealed that it will enter into a strategic partnership with IOOF that will cover a range of products and services, including a referral agreement through which NAB customers will have access to financial advice.
Move to help ‘simplify’ the bank
The major bank first announced it was looking to offload its wealth business in 2018, during the height of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry.
Speaking at the time, the former NAB CEO Andrew Thorburn claimed that NAB’s decision to sell MLC was not influenced by the revelations of misconduct in financial advice identified by the royal commission, but simply a desire to simplify its operations, stating that complexities were “killing” the bank.
“We need to simplify the bank. The complexity in the bank is just killing us. We need to simplify. And so what MLC divestment will do is enable us to have a simpler bank – and there’s huge opportunities in the bank,” the former CEO said at the time.
According to NAB Group CEO Ross McEwan, the agreement to sell the business to IOOF will help “create a stronger future for MLC” while fulfilling the bank’s wish to simplify.
“We have a clear plan and we are getting on with it,” Mr McEwan said while announcing the deal.
“The sale of MLC will enable NAB to prioritise investment and focus on executing our refreshed strategy of delivering simpler, more streamlined products and processes for our customers and colleagues,” he said, noting that the bank had taken a “disciplined approach over the past two years to transform the business and prepare it for exit”.
“Significant work has been done by MLC CEO Geoff Lloyd and his executive team to modernise and strengthen the MLC business and remediate customers,” the NAB Group CEO continued.
“We have explored a range of transaction options and are confident this sale provides the best outcome for NAB shareholders and for MLC stakeholders. We recognise the specialised nature of wealth management and the opportunity for the MLC business as part of IOOF.
“Consolidation has the potential to deliver significant benefits for clients and members, including scale and reducing costs, complexity and risks. The combined business is expected to be a highly competitive, advice-led retail wealth manager,” he said.
Renato Mota, CEO of IOOF, also commented on the deal, stating: “The opportunity to acquire a highly complementary business of the quality and size of MLC is compelling.
“MLC is a natural fit with IOOF and presents a unique opportunity to create value from synergies for the benefit of clients, members and shareholders. This is a once-in-a-generation opportunity to create the leading wealth manager of the future.”
Mr Mota continued: “We believe scale will be critical for success and ensuring that both clients and shareholders benefit from the industry transformation.
“Merging two of the longest standing businesses in wealth management brings together a combined culture and common purpose of community spirit and supporting people to achieve their financial goals.
“The combination of IOOF and MLC brings wide-ranging capabilities, technical expertise and a purpose-driven mindset to enable the new-era group to significantly enhance choice, accessibility and client experience.”
The purchase price comprises $1.24 billion in cash proceeds from IOOF and $200 million in the form of a five-year structured subordinated note in IOOF (as well as approximately $220 million of surplus cash from MLC in the form of a pre-completion dividend).
The deal is expected to complete “before the middle of calendar year 2021” should all regulatory approvals and transaction conditions be met.
Upon completion, MLC’s aligned advisers will be given the option to transfer to IOOF’s licences.
IOOF will be creating a new executive role, reporting to the CEO, dedicated to overseeing the transformation.
According to Moody’s Investors Service vice president Frank Mirenzi, NAB’s sale of its wealth management subsidiary MLC Wealth will improve its capitalisation and reduce complexity and operational risks.
“We expect the sale will improve NAB’s regulatory Common Equity Tier 1 ratio by 30 basis points, on a pro forma basis, to 11.9 per cent as of 30 June 2020.
“Capital adequacy is consequently very strong in light of APRA’s conservative regulatory capital calculation methodology, providing a significant buffer against unexpected losses and asset quality risk amid the coronavirus outbreak,” Mr Mirenzi said.
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Annie Kane is the editor of The Adviser and Mortgage Business.
As well as writing about the Australian broking industry, the mortgage market, financial regulation, fintechs and the wider lending landscape – Annie is also the host of the Elite Broker and In Focus podcasts and The Adviser Live webcasts.