Challenger eyes deposits with $35m MyLifeMyFinance buy

Challenger is hoping its acquisition of savings and loans bank MyLifeMyMoney will help it make inroads in the nation’s $1 trillion term deposit market.

Challenger CEO Richard Howes said the digital banking acquisition would “further broaden” how the group provided financial security for retirement. Picture: Britta Campion

Challenger is hoping its acquisition of savings and loans bank MyLifeMyMoney will help it make inroads in the nation’s $1 trillion term deposit market.

The ASX-listed investments and annuities provider on Wednesday announced it had agreed to buy MyLifeMyFinance for $35m from Catholic Super. Pending required approvals, the deal would deliver Challenger a banking licence and allow it to accept deposits and broaden its customer base.

“Adding a digital domestic banking capability to sit alongside our existing life and funds management operations will further broaden the ways in which we provide financial security for retirement and will further diversify our distribution channels,” Challenger chief executive Richard Howes said.

“Term deposits represent a significant asset class for Australian retirees and entering the market provides an opportunity to play a greater role supporting the retirement incomes of our customers, while also attracting a new cohort of customers.”

Investors applauded the acquisition on Wednesday, with Challenger’s shares climbing 4.1 per cent to $6.05, which outpaced a 0.7 per cent rise in the S&P/ASX200.

Banks have been benefiting from a deluge of consumer deposits during COVID-19, as consumers take a cautious approach to spending. That is despite interest rates sitting at record lows after the Reserve Bank cut the official rate to 0.1 per cent.

Catholic Super, an industry fund, is said to have started gauging market interest in the division around mid-year as it weighed a divestment of its banking unit.

The acquisition is strategic and gives Challenger the opportunity to “significantly expand” its secure retirement income offering, it said.

The deal requires the green light from the Australian Prudential Regulation Authority and Treasurer Josh Frydenberg, and if obtained is expected to complete in late March.

The statement also said Challenger would initially focus on expanding MLMF’s term deposit offering by replicating the investment strategy used to support Challenger’s term annuity business. “Authorised deposit-taking institutions have had great success in attracting government guaranteed retail deposits. We see a significant opportunity to leverage our leading retirement income position and capability to manufacture guaranteed returns for our customers,” Mr Howes said.

“Challenger has spent considerable time over the past two years investigating the requirements of an ADI licence to complement our existing businesses. This acquisition will enable us to accelerate this strategic initiative and access Australia’s term deposit market.”

The acquisition price and capital requirements, including regulatory capital to support growth, will be funded by a $100m distribution from Challenger Life Company in the March quarter.

The acquisition is expected to reduce Challenger’s fiscal 2021 normalised net profit before tax by about $3m and the bank is expected to break even the following financial year.

The company continues to expect normalised net profit before tax for fiscal 2021 to print within its guidance of between $390m and $440m.

The deal will see one-off transaction and integration costs of between $5m and $8m pre-tax incurred this financial year, which will be reported as a significant item.

Earlier this month, Mr Howes told The Australian’s CEO survey that with more than 700 Australians turning 65 every day, there had never been a more important time to focus on retirement incomes. This was reflected in the Retirement Income Review on November 20, with the report highlighting the importance of retirees having the confidence to spend their savings during that period.

Superannuation has again been a topical issue in 2020 as upcoming slated increases in the mandated rate were debated by industry and policymakers as the economy endured the fallout of the pandemic. The superannuation guarantee had been set to rise to 12 per cent by 2025, with the current rate of 9.5 per cent due to rise to 10 per cent in July next year, unless the government defers the change.

At Challenger’s annual general meeting in October the company flagged it expected to resume dividend payments this financial year, as it deploys its cash balance into higher returning investments.

But amid a challenging investment and operating climate, Challenger handed down a $416m statutory loss for the year ended June 30, 2020.

Further details on the bank acquisition will be provided as part of Challenger’s first-half financial results in February.