Sunday, June 6, 2010

NAB grabs US bank

George Lekakis

From:Herald Sun June 07, 2010 12:00AM

NATIONAL Australia Bank is pushing deeper into the US banking market after acquiring struggling Nebraska bank TierOne at the weekend.

Details of the acquisition - made through NAB's main US subsidiary Great Western Bank - are expected to be made to the ASX on Monday morning.

TierOne Bank, which has headquarters in Lincoln, Nebraska, will add 69 branches to NAB's US network and $2.2 billion in new deposits.

NAB is believed to have paid about $US76 million ($A92 million) for the business through a deal struck with the US banking regulator, the Federal Deposit Insurance Corporation and the Office of Thrift Supervision.

The US expansion comes amid heavy speculation in the London financial press that NAB has pulled out of the bidding for 318 branches owned by the Royal Bank of Scotland, leaving Spain's Santander banking group the frontrunner.

London-listed banks, such as RBS and Barclays, were pummelled more than 5 per cent on Friday night as British investors raised concerns about the effect of Europe's volatile property markets on their current-year earnings.Without citing sources, The Financial Times and The Guardianboth reported NAB had exited the sale talks on worries over the medium-term growth prospects of the British economy and its banks.

While instabililty among British banks appears to have stalled NAB's acquisition plans in Britain, the US banking crisis is spurring acquistions.

US regulators took control of TierOne last week after months of speculation that the bank had run down its capital reserves in the face of a severe bad debt blow out.

Under the sale deal signed with the FDIC, NAB has acquired up to $US2.8 billion of loans and other assets on TierOne's books, but the Australian bank's exposure to further loan defaults has been greatly cut by the US regulator.

It is believed the FDIC will effectively cover NAB for 80 per cent of losses incurred through defaulting borrowers.

US regulators estimate about 20 per cent, or $US550 million, of TierOne's loan book is in arrears, mainly because of lending to troubled property developers.

The risk for NAB is small because of the low price tag on the acquisition.

Every dollar repaid by TierOne borrowers over $US76 million will virtually be pure profit for NAB because the loan book requires no costly refinancing.

While TierOne's network is concentrated in Nebraska, it also operates branches in Iowa and Kansas.

NAB's Great Western subsidiary is active in each of these markets and will expand its branch network to 204 locations on the back of the deal.

Although some analysts frown upon NAB's US expansion in light of the sub-prime mortgage meltdown, the crisis has enabled NAB to acquire a string of banking businesses on advantageous terms.

Australian banking analysts believe NAB may be beefing up the US business in order to fetch a bigger price tag on a potential sale when the US economy recovers.

In an interview with BusinessDaily last month, chief executive Cameron Clyne raised the prospect of divesting Great Western which reported an 11 per cent increase in first-half profit to $US30 million ($A33.18 million).

"We're very comfortable with the performance of Great Western. It's well capitalised and generating good returns," he said.

"But, whether we're a long-term participant in the US time will tell. We'll have to make a call at some point."