By Paulina Duran
SYDNEY (Reuters) – National Australia Bank will buy Citigroup’s local consumer unit for about $882.24 million, the companies said Monday, as the American bank exits the region while buy-now, pay-later rivals challenge the old credit card business model.
The deal consolidates 90% of the country’s credit cards industry into the hands of Australia’s Big Four banks, with NAB adding a million customers through the deal to become the nation’s second-largest credit card provider.
“The proposed acquisition … brings scale and deep expertise in unsecured lending, particularly credit cards, which continue to be an important way for customers to make payments,” said NAB Chief Executive Officer Ross McEwan.
“Access to a greater share of payments and transaction data will help drive product and service innovation across our personal banking business.”
Credit card payments in Australia have been shrinking as government pandemic payments have been used to pay down debts and younger generations turn to buy now pay later providers such as Afterpay to instead pay in ‘interest-free’ instalments.
The deal, which needs to be approved by the competition regulator, includes a A$4.3 billion unsecured lending portfolio, A$7.9 billion in residential mortgages, and 800 Citi employees.
NAB said the deal would require equity of about A$1.2 billion, as it would pay cash for the net assets of Citi’s book plus a A$250 million premium.
“The market is likely to initially question the strategic rationale of the transaction given a mostly unsecured lending business in a segment of the market that has been in recent decline even though NAB is highlighting the increased scale from payments data,” Credit Suisse analyst Jarrod Martin said.
NAB shares were 0.33% higher, while the broader market was largely unchanged.
The deal comes after U.S. lending giant Citi in April said it would exit its 13 overseas consumer operations under an overhaul by new boss Jane Fraser to boost profitability.
Citi’s institutional business and underlying technology or platforms are not part of the deal, which is expected to close by March 2022, subject to the regulatory approvals.
The Australian Competition and Consumer Commission (ACCC) said it would look “extremely closely” at “any further consolidation involving large players in the banking sector”.
“In reviewing NAB’s proposed acquisition… we will be carefully considering credit cards, including while label credit cards, among other areas of overlap,” ACCC chairman Rod Sims said in a statement.
NAB will spend A$165 million in building an unsecured lending platform that will replace “old” systems, and in which Citi’s unsecured loans will be integrated with its own, it said. Total acquisition and integration costs will add up to A$375 million.
The Melbourne-based bank, Australia’s third-largest, said it would enter talks with Citi’s white label clients, but cautioned that all of them may not transition. NAB is due to provide a third-quarter trading update on Thursday.
($1 = 1.3602 Australian dollars)
(Reporting by Paulina Duran in Sydney and Nikhil Kurian Nainan in Bengaluru; Editing by Rashmi Aich, Ramakrishnan M., Subhranshu Sahu and Louise Heavens)
