SYDNEY - The National Australia BankAustralia Bank will buy Citigroup's new consumer unit for about $882.24 million, the companies said on 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 Australia's credit cards industry into the hands of Big Four banks with NAB adding a million customers to the country's second largest credit card provider through the deal.
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 innovation in the personal banking sector.
Credit card payments in Australia have been shrinking as government pandemic payments have been used to repay debts and younger generations turn to pay later providers like Afterpay to buy now in 'interest free' instalments.
The deal, which needs to be approved by the competition regulator, includes a $1.9 billion residential lending portfolio, A $4.3 billion in unsecured loans and 800 Citi employees.
The deal is said to need equity of about A $1.2 billion as it would pay cash for the net assets of Citigroup and a cash flow of 250 million premium.
The market is likely to initially question the strategic rationale of the transaction given a mainly unsecured lending business in a segment of the market that had seen relatively lower growth even though NAB is highlighted the increased scale from payments data, Credit Suisse analyst Jarrod Martin said.
NAB shares were 0.3% higher, while the broader market was largely unchanged.
The agreement comes after U.S. lending giant Citi said in April it would exit its 13 overseas consumer operations under an overhaul by new boss Jane Fraser to increase profitability.
Citi's regulatory business and underlying technology or platforms are not part of the deal, expected to close by 2022, subject to regulatory approvals.
The AustralianAustralian Competition and Consumer Commission said it would look closely into 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 labeling credit cards, among other areas of overlap, ACCC chairman Rod Sims said in a statement.
NAB will spend A $165 million to start an unsecured lending platform that will replace old systems, in which Citi's unsecured loans will be integrated with its own, it said. The Citi Bank, Australia's third largest bank, said it would talk with Melbourne-based clients, but cautioned that all of them may not transition. What is next quarter trading update for the NAB?