NAB weighs up MLC demerger

Private equity interest in NAB’s wealth management arm appears to be waning. Picture: AFP

NAB could soon be leaning more towards a demerger rather than a trade sale of its $3bn MLC wealth management arm if sources are right in suggesting that private equity interest is waning.

NAB has been running a sale process for the business through Morgan Stanley and Macquarie Capital, which has attracted interest from Kohlberg Kravis Roberts, Apollo Global Management, BGH Capital, JC Flowers, Blackstone and The Carlyle Group. Hellman and Friedman may have also been in the mix.

However, it is now understood that while Blackstone and Carlyle did not put in any bid, interest from JC Flowers, backed by former Westpac boss David Morgan and advised by JPMorgan, may be lukewarm at best.

Some also suspect interest from KKR, Apollo and BGH may have cooled.

Weighing in the favour of MLC is the strong leadership of chief executive Geoff Lloyd and chair Rob Coombe, both former Westpac executives.

But some believe the problem with the asset is that in the short term it is expected to have no cash flow, and some estimate that its capital spending bill stands at about $400m.

The difference with Colonial First State business, of which 55 per cent was sold to KKR for $1.7bn, was that the CBA-owned wealth manager took a hit on its products in the last couple of years, which meant much of the hard work on the asset was already done.

Blackstone was a close underbidder on that business, as revealed by DataRoom, and had been working on a transaction for some time, but was beaten by its New York-based rival.

Like KKR, the plan for Blackstone was to fund that transaction with equity.

The thinking with KKR is that it may be distracted with bedding down its CFS acquisition, while Blackstone is known to have recently been casting its eye over AMP.

Most believe Westpac’s wealth management operation Panorama, which is expected to soon hit the market, will be more sought after.

Buyout funds are said to have been circling the wealth manager for at least a year, with NAB making its intentions known to sell or demerge the business in 2018 as part of a trend across major banks to simplify their operations.

The sale comes after NAB sold 80 per cent of its life insurance business within MLC to Nippon Life in 2016 for $2.4bn.

Reports offshore suggest that NAB could be hit for another $60m capital injection into the business after already tipping in $138m in the past year.

On MLC, private equity firms are said to have been keen to sidestep the advice component, but NAB is not believed to be prepared to break up the operation that has $154bn of assets under management and generated $42m in cash earnings for the six months to March.

A sale was delayed following the Hayne royal commission into banking and the time taken to separate the wealth operation from the bank.

It was thought that a deal came close to being completed with a private equity fund earlier this year.

Buyout funds globally are interested in acquiring companies in the lending space amid a low-interest-rate environment.