Standard & Poor's Affirms Ratings on National Australia Bank after Acquisition of MLC

Strategic Insights -

Standard & Poor's has confirmed its double-'A' long-term and 'A-1'-plus short-term credit ratings on National Australia Bank (NAB) following the announcement of its intention to acquire Lend Lease's MLC funds management and life insurance businesses. The acquisition is expected to further consolidate NAB's position in the Australian financial sector and is consistent with the bank's objective of seeking strategic acquisitions or undertaking a share buyback. The ratings affirmation recognizes the high quality and strategic attractiveness of the MLC business being acquired, which adds considerable critical mass to NAB's existing funds management and life insurance activities.

Key Takeaways:

  • Standard & Poor's affirmed its double-'A' long-term and 'A-1'-plus short-term credit ratings on National Australia Bank (NAB) following the announcement of its intention to acquire MLC.
  • The acquisition is expected to further consolidate NAB's position in the Australian financial sector and is consistent with the bank's objective of seeking strategic acquisitions or undertaking a share buyback.
  • The ratings affirmation recognizes the high quality and strategic attractiveness of the MLC business being acquired.
  • NAB will be Australia's second-largest provider of retail funds under management and superannuation funds following the acquisition.
  • The acquisition has a dampening impact on the bank's capital, with NAB's Tier 1 capital ratio reducing to 6.7% from 7.8% and capital, as measured by the adjusted common equity to tangible assets ratio reducing to 4.3% from 5.1%.
  • Standard & Poor's has a degree of tolerance towards goodwill generated by acquisitions of high-quality funds management businesses.
  • NAB's credit profile continues to be supported by a strong and established track record, diversified business franchises in global markets, and a very good earnings profile and asset quality.
  • Despite the acquisition, Lend Lease's business profile weakens due to the sale of its non-real estate investment management business and its MLC funds management and life insurance businesses in Australia, New Zealand, and Asia to NAB.
  • Lend Lease's credit rating may be lowered to the single-'A' category if the sale proceeds, or to the double-'A' category if the sale does not proceed.

Statistics:

  • A$4.56 billion - the purchase price for MLC.
  • A$1.5 billion - the proposed repayment to Lend Lease shareholders.
  • 6.7% - NAB's Tier 1 capital ratio following the acquisition.
  • 4.3% - NAB's adjusted common equity to tangible assets ratio following the acquisition.
  • A$4.3 billion - the goodwill element associated with the acquisition.
  • 7.8% - NAB's Tier 1 capital ratio prior to the acquisition.
  • 5.1% - NAB's adjusted common equity to tangible assets ratio prior to the acquisition.

Sources:

  • Business Wire: "Standard & Poor's Affirms Ratings on National Australia Bank Following Acquisition of MLC"
  • Standard & Poor's: "CreditWatch Report: National Australia Bank Ltd. and Lend Lease Corp. Ltd."
  • National Australia Bank: "Announcement of Intention to Acquire MLC Ltd."
  • Lend Lease Corp. Ltd.: "Announcement of Sale of MLC Funds Management and Life Insurance Businesses"