NAB’s $2bn capital injection ‘another positive’

In a research note this week, Morningstar analyst David Ellis said the $2.4 billion sale to Japan’s Nippon Life Insurance Company on 3 October “is another positive for the bank” following the successful Clydesdale demerger in February this year.

“The bank had previously advised completion [of the Nippon deal] was on track for before the end of calendar 2016. NAB also announced a 20-year distribution agreement with Nippon Life to provide insurance products through the bank’s own and aligned distribution networks,” Mr Ellis said.

He noted that NAB will retain 20 per cent of the business and, importantly, retain full ownership of the rest of the wealth division, including superannuation, platforms, advice and asset management.

NAB will retain the MLC brand and will be licensed for use by MLC Life Insurance for 10 years and will continue to be used in the bank’s superannuation, investments and advice business, Mr Ellis said.

“While the sale only marginally boosts ROE, it significantly improves capital levels,” he said. “Net capital of approximately $2.2 billion from the sale of the life business was received on 3 October and will be retained within the group.”

Mr Ellis said the sale is expected to boost NAB’s Tier 1 capital ratio by 50 basis points. The major lender’s common equity Tier 1 ratio was 9.5 per cent at 30 June this year with a target ratio of 8.75 per cent to 9.25 per cent based on current regulatory requirements.

“We expect the common equity Tier 1 ratio will be approximately 9.4 per cent at 30 September 2016 when adjusted for the sale of 80 per cent of the life business (positive 50 basis points), the impact of the 1 July 2016 mortgage risk weight changes (negative 80 basis points) and wealth subsidiary debt maturity (negative eight basis points).”

[Related: NAB annnounces business restructure]