Heartland to acquire Challenger Bank

Heartland Group Holdings Limited (Heartland) has signed a conditional share purchase agreement for the purchase of digital bank Challenger Bank Limited (Challenger Bank) from investment management firm Challenger Limited.

The value of the deal, which is subject to regulatory approvals, is expected to be around $36 million (subject to adjustments for net assets delivered at completion). 

This includes its $89 million of retail lending, $17 million of corporate lending and $228 million of deposits, as well as its origination system (which Heartland flagged was capable of reverse mortgage origination).

Heartland — which specialises in reverse mortgages in Australia through Heartland Finance — has revealed that it would move to transfer its existing reverse mortgage and livestock businesses in Australia “to sit in or under Challenger Bank” once the deal completes.

The financial services group said the acquisition would help achieve Heartland’s “strategic objective for expansion in Australia”, which includes becoming a bank.

By becoming an authorised deposit-taking institution (ADI), it would be able to “access to a deep and efficient pool of funding to support ongoing growth” and potentially improve margin.

Jeff Greenslade, CEO of Heartland, commented: “Heartland’s purchase of Challenger Bank signals a major step forward in our Australian expansion strategy. A pathway to acquiring an ADI licence would create access to deep and efficient funding pools which allows for growth and the possibility of improved margins. This particular acquisition also presents the opportunity to build a high-quality and scalable banking platform in Australia, allowing reach to more customers.

“Our approach in the Australian market is guided by our best or only strategy, meaning we will target segments of the market where we can provide products where we can differentiate from the mainstream. Our reverse mortgage and livestock finance businesses are prime examples of this," he continued. 

Mr Greenslade added that once the acquisition completes, Heartland intends to "scale Challenger Bank’s digital banking platforms to broaden the reach of our current product offerings, reverse mortgages and livestock finance, and look to expand into new products".

He concluded: “We look forward to working with regulators on the licensing regime and required consents and will keep the market updated on our progress over the coming months.”

Challenger has been in the market for a buyer for its banking business after a strategic review concluded that it should be focusing on its life and funds management businesses.

Speaking of the deal, Challenger chief executive Nick Hamilton said: “We have conducted extensive analysis and considered the future strategic value of the bank and its ability to contribute to Challenger’s purpose of providing our customers with financial security for a better retirement. 

“The sale will allow us to focus on our life and funds management businesses and leverage the scale we can achieve through strategic partnerships.

“The bank will now be positioned for long term success under Heartland’s ownership and will benefit both the bank’s employees and its customers.”

Heartland gives up Avenue Bank deal

Given the Challenger deal, Heartland has now announced that it will no longer be looking to acquire neo-lender Avenue Bank.

It had been announced in August of this year that the group was looking to buy the digital lender (which currently holds a restricted ADI licence) — but the group has said that the board deemed Challenger to be a “stronger acquisition opportunity for Heartland’s execution of its strategic objective for growth in Australia as it offers a full ADI licence”.

[Related: Heartland signs MOU for restricted ADI in Australia]