Nab Keen To Buy Abn Amro Assets

Sydney Morning Herald

Saturday July 12, 2008

Colin Kruger

NATIONAL AUSTRALIA BANK publicly confirmed yesterday that it was interested in buying the local broking arm of ABN Amro. The bank also warned of possible further writedowns on its exposure to $US1.1 billion ($1.14 billion) worth of collateral debt obligations as the global credit crunch worsens.

The news sent NAB shares plunging as much as 4 per cent yesterday before recovering to close just 16c lower at $27.45.

NAB said it was required to make the two announcements as the bank is underwriting its dividend reinvestment plan, which legally compels it to release any information that could have a material effect on the share price.

The bank said it was participating in a sales process for ABN Amro's investment banking and wholesale banking divisions in Australia and New Zealand. "There can be no certainty that a transaction will result," the NAB statement said. "Any potential transaction would be subject to due diligence and, ultimately, receipt of all relevant regulatory approvals."

Commonwealth Bank and Nomura of Japan are also reportedly interested in the ABN Amro Australian assets. The sale is being conducted by the Royal Bank of Scotland, which was part of a consortium that acquired ABN Amro last year for about $US100 billion. Royal Bank of Scotland has since been looking at asset sales to repair its balance sheet after writing off billions in the wake of the credit crunch.

The ABN Amro assets are not the only acquisitions that have been on NAB's radar this year. At various times NAB has been named as the potential buyer of Citigroup's local broking arm Smith Barney, and of BankWest of Perth - which is owned by Halifax Bank of Scotland - as well as St George, which is now pursuing a merger with Westpac. Documents lodged with the Australian Securities and Investments Commission show ABN Amro's Australasian business reported a profit of more than $131 million for the 12 months to December 31 and paid a dividend of $158.9 million.

Reports said the price for the ABN Amro business could be between $800 million and $1 billion, but not everyone is sure it would be a good fit.

"I'm not convinced that commercial banks should be buying investment banks," said Brett Le Mesurier, an analyst at Wilson HTM. "They're very different types of businesses."

More worrying for NAB investors was the confirmation that a worsening global credit environment is expected to take a further toll on its $1.1 billion exposure to collateral debt obligations.

At its half-year result in May NAB announced a $181 million provision against its exposure, but it said yesterday that the deteriorating economic environment meant there was "a risk that further provisioning may be required".

At present the collateral debt obligations were meeting all principal and interest obligations, the bank said.