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NAB (ASX:NAB) buys 86 400, are the bank’s shares worth buying?

National Australia Bank Ltd (ASX: NAB) has announced it’s going to buy neobank 86 400.

Neobanks are a new breed of bank that are trying to revolutionise the sector with strong customer service, good technology, low/no fees and no branches.

NAB’s acquisition

NAB has entered into an agreement to buy 100% of 86 400.

The major bank explained that 86 400 was a mobile-led digital bank and was granted an authorised deposit-taking institution (ADI) licence in July 2019. At 15 January 2021, 86 400 had more than 85,000 customers, $375 million of deposits, $270 million of approved residential mortgages and 2,500 accredited brokers.

NAB plans to accelerate UBank’s growth by combining the established customer base, brand and colleagues with 86 400’s experience and technology platform.

NAB Chief Operating Officer Les Matheson said: “Bringing together UBank and 86 400 is consistent with NAB’s long-term strategy and growth plans and will enable us to develop a leading digital bank that can attract and retain customers at scale and place.

The combined business will deliver accelerated innovation and an enhanced customer experience to create a stronger and more competitive banking alternative for Australian customers.”

Other details

NAB revealed that it commenced discussions with 86 400 in late 2020. NAB had already bought a minority stake in 86 400 and currently holds 18.3% of the neobank. NAB is going to buy the rest for $220 million (including upfront transaction costs).

86 400’s independent directors have unanimously recommended that shareholders vote in favour of the scheme.

Completing the acquisition is subject to certain approvals from the Treasurer, the Australian Prudential Regulation Authority (APRA) and the Australian Competition and Consumer Commission (ACCC).

The deal is expected to complete by the middle of the 2021 calendar year.

Summary thoughts

It’s a shame that 86 400 will seemingly no longer be a separate entity. More competition in the sector was a good thing.

I suppose if I were a shareholder of 86 400, getting an offer for more than $200 million would be probably be a deal too good to turn down, particularly if profit was still hard to come by.

I’m not sure how material this is for NAB. The acquisition price is a tiny percentage of NAB’s market cap, and UBank is only a small part of NAB’s business. A better customer experience from UBank would be attractive, but I’m not sure how much profit it would add.

There are some ASX dividend shares in the financial space I’d rather buy such as Magellan Financial Group Ltd (ASX: MFG).

Instead of NAB, I suggest getting a free Rask account and accessing our full stock reports. Click this link to join for free and access our analyst reports.

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At the time of publishing, the author of this article does not have a financial or commercial interest in any of the companies mentioned.

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