Less is more for NAB after sale of wealth management arm to IOOF
National Australia Bank chief executive Ross McEwan says he wants to invest more in its core banking operations as a result of its historic retreat from wealth management, after it sold MLC Wealth to IOOF for $1.44 billion.
NAB on Monday took the final step in its attempt to offload its wealth management business after a string of poor returns and industry scandals, in a deal that will also make IOOF the biggest for-profit wealth manager in the country with over 1880 advisers.
Mr McEwan said the sale would further strengthen the bank’s balance sheet against the risks from the pandemic, but over time he also wanted to plough more money into its flagship business banking division, while also expanding in retail banking, including via its digital offshoot UBank.
“That’s where the money from this will go to over time,” Mr McEwan said. “My view is let’s focus on the core businesses that we’ve got, let’s focus on fewer things and do them better, and get a better return for both our customers and shareholders,” he said.
IOOF chief executive Renato Mota said wealth management was a specialist business best left to firms focused on investing, advice and super.
“While there are some common threads to banking, it is a very, very different business to banking.
“That’s been an issue all the banks have had with respect to wealth management.
“I know many of them believe in the importance of wealth management but the organisational design and management of the businesses inside a large bank is very difficult.”
IOOF will seek to make MLC a more efficient business by taking the knife to the company, targeting $150 million worth of synergies in the first three years of ownership.
The deal will swell IOOF’s funds under management to around $510 billion, with $173 billion in super, making it the country’s second largest super fund, overtaking rivals AMP and AustralianSuper in assets under management. The superannuation industry has been under pressure to consolidate, and Mr Mota said scale will help drive down costs for members and improve access to advice through investments in technology.
“Size matters, the bigger the fund, the cheaper it is to run on a per member basis,” he said.
IOOF’s acquisition of ANZ’s pensions and investments business was finalised in January after three years of delays by the Australian Prudential Regulation Authority (APRA). Mr Mota said engagement with the regulators has been “very different” this time around and he expects the deal to be finalised by March.
“The big difference here is we’ve engaged very early with the regulator, sought to involve them and give them a line of sight on our plans and thinking.”
For NAB shareholders, the sale comes after NAB has over the last decade also sold its poorly performing businesses in the United Kingdom, a United States bank, and most of its life insurance operations. NAB said the MLC sale raised return on equity modestly, but Mr McEwan said it would remain cautious in its dividend.
“We were cautious on the last six-month dividend, and we’ll be cautious going forward for the next 18 months until we see improvements in the economy because it does create more impairments for a bank.” “At that point we’ll re-assess the dividend position and hopefully get back to a more normal world of dividends.”
Charlotte is a reporter for The Age.
Clancy Yeates is a business reporter.
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