There are a few streams of work that need to be well progressed, or completed, ahead of any firm decision led by NAB chairman and acting chief executive Phil Chronican. NAB is ringfencing the operations and wants to make more headway on MLC’s customer compensation.
A key aspect of NAB’s work is getting a good handle on the potential for further remediation, so the bank can limit or cap any indemnity pool that is provided to a buyer of the division or to existing shareholders if the business is spun off.
As revealed by this column, KKR is said to be one of several interested parties in MLC as it looks to snap up unwanted assets after the Hayne royal commission fallout. Sources suggested offshore-based firms TA Associates and CC Capital Partners were also keeping a watching brief on MLC.
The view among potential suitors is that the MLC brand is not as battered as that of AMP, and some of its issues can be worked through.
NAB is understood to have signalled to interested parties that it has more than three months of MLC work to do, including on its separation and remediation, before making a decision on whether to sell the unit or spin it off to existing shareholders. Investors will most likely get a read on the situation at the interim results.
NAB’s asset management arm houses $202bn, which due to its structure may have limited appeal to buyers as it does not manage the funds directly, but suitors are keeping close tabs on the $119bn sitting on the bank’s investment platform.
NAB’s troubled financial planning network is also part of MLC, which is run by Geoff Lloyd. But given recent deals in the planning sector — think Commonwealth Bank’s sale of Count Financial — the advice part of MLC may not be ascribed much, if any, value by prospective buyers.
NAB wouldn’t comment on potential MLC buyers.
The bank has flagged it will divest MLC in the 2020 calendar year through a demerger or a trade sale. Given the high-profile failure of a handful of ASX floats, NAB needs to seriously consider the trade sale option.
The last thing the bank’s strategy boffins would want is for the demerged MLC to trade poorly on the ASX just when new CEO Ross McEwan looks to start a new NAB era, and divorce the bank from the travails of the past two decades.
McEwan starts his appointment in early December, so he will steer the MLC divestment.
Morgan Stanley and Macquarie Capital are working with NAB on strategic options.
Local private equity firm BGH is said to have a file on MLC as well. Industry super funds — which are considered potential partners to private equity — may also seek to get involved, but that would more likely happen through a debt facility.
Interestingly, TA Associates knows the Australian market well. In 2016, the firm agreed to back a management buyout of Goldman Sachs Asset Management’s Australian unit led by Dion Hershan.
TA’s website says it invests within five core sectors, including business services, consumer, financial services, healthcare and technology. Revenue in NAB’s wealth division more than halved in the 12 months ended September 30, tumbling to $881m from $1.87bn a year earlier.
War on waste
Investors applauded NAB’s tight control of costs on Thursday and guidance for “broadly flat” expenses in 2020, which set their results apart from major rivals.
NAB has work to do, though, particularly as it had about 950 foot soldiers on staff whose roles were solely linked to remediating customers in its 2019 year.
More broadly on costs, finance boss Gary Lennon put it best when he told analysts the group had “no shortage of inefficiencies” to work through. That includes bringing functions back in-house and cutting the use of consultants.
“The ability to get that third-party spend down, that has been greater than we originally thought we could achieve,” he said.
“And as we continue to go through the transformation, whilst 2020 is going to be tough for the reasons I think that we and others are laying out, because we do see a further uplift in risk and compliance costs into 2020, there is still no shortage of opportunities we see around waste across the organisation.”
Lennon is of the view that if NAB improves and streamlines processes there are still “significant opportunities” to remove costs.
Some of that cost is, of course, headcount as NAB works toward a three-year target of cutting 4000 full-time positions on a net basis.
ANZ last week said underlying expenses would be about $150m to $200m higher in the first half of the 2020 financial year, compared to the six months ended September 30.
The bank did stick, though, to a medium-term target to slash its cost base to $8bn.
Westpac warned of a $245m rise in operational expenses in 2020, which included costs related to risk management, compliance and financial crime.
Westpac is expecting about $500m in productivity gains in 2020.
InvestSMART sale
The board of Paul Clitheroe-chaired InvestSMART has quietly started testing market interest for a sale of the company.
In a September ASX update, the investment, advice and publishing business said it was moving away from grandfathered commission payments and noted the need for scale in funds management. It was the “right time” to assess growth options including commercial partnerships, a joint venture or merger of the group.
This column understands first-round bids are due before the year’s end.
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National Australia Bank appears to be warming to the idea of an MLC trade sale, and opportunistic private equity giants including KKR are staying close.