By Paulina Duran
SYDNEY (Reuters) – National Australia Bank will buy Citigroup’s local consumer unit for around $ 882.24 million, the companies said on Monday, as the U.S. bank leaves the region while rivals Buy Now and Buy Now paying later challenges the old business model of credit cards.
The deal consolidates 90% of the country’s credit card industry in the hands of Australia’s Big Four banks, with NAB adding one million customers through the deal to become the country’s second-largest credit card provider.
“The proposed acquisition (…) brings breadth and deep expertise into unsecured loans, particularly credit cards, which continue to be an important means for clients to make payments,” said Ross McEwan, CEO of NAB.
“Access to more payment and transaction data will help drive product and service innovation across all of our personal banking businesses. “
Credit card payments in Australia have declined as government pandemic payments have been used to pay off debts and younger generations are turning to purchasing to pay subsequent vendors such as Afterpay to pay the up in “interest-free” installments.
The deal, which must be approved by the competition regulator, includes an unsecured loan portfolio of A $ 4.3 billion, A $ 7.9 billion of residential mortgages and 800 Citi employees.
NAB said the deal would require equity capital of around A $ 1.2 billion as it would pay Citi’s net book assets in cash plus a premium of A $ 250 million.
“The market is likely to question the strategic rationale for the transaction at first, given predominantly unsecured lending activity in a market segment that has experienced recent decline, although NAB highlights the increase in the scale of payment data, ”Credit Suisse analyst Jarrod Martin mentioned.
NAB shares were up 0.33%, while the broader market was largely unchanged.
The deal comes after U.S. credit giant Citi announced in April it would quit its 13 overseas consumer operations as part of a redesign by new boss Jane Fraser to boost profitability.
Citi’s institutional business and the underlying technology or platforms are not part of the deal, which is expected to close by March 2022, subject to regulatory approvals.
The Australian Competition and Consumer Commission (ACCC) has said it will look “very closely” at “any new consolidation involving large players in the banking industry.”
“In reviewing the proposed acquisition by NAB (…) we will be looking carefully at credit cards, including credit cards while labeling, among other areas of overlap,” said ACCC President Rod Sims , in a press release.
NAB will spend A $ 165 million to build an unsecured lending platform that will replace “old” systems and in which Citi’s unsecured loans will be integrated with its own, he said. The total acquisition and integration costs will amount to A $ 375 million.
The Melbourne-based bank, Australia’s third-largest, said it would start talks with Citi’s white-label clients, but warned not all may make the transition. NAB is due to provide an update on Q3 trading on Thursday.
($ 1 = AU $ 1.3602)
(Reporting by Paulina Duran in Sydney and Nikhil Kurian Nainan in Bangalore; Editing by Rashmi Aich, Ramakrishnan M., Subhranshu Sahu and Louise Heavens)