The National Australia Bank Ltd (ASX: NAB) share price is on watch with the big four bank in the hunt for Citi’s Australian retail bank.
What’s going on with NAB and Citi?
Citi is going through the process of exiting Australian retail banking. That means the typical public-facing banking products that households might access.
But Citi doesn’t want to just close its retail bank in Australia, it wants to sell the division for a very sizeable chunk of money.
According to reporting by the Australian Financial Review, NAB is one of the interested parties that is in the running to buy Citi’s retail bank. The ASX bank has hired Bank of America to help it with the process.
NAB confirmed in an ASX announcement on Tuesday evening that it is in discussions with Citi about a potential deal. It also said it regularly assesses opportunities to acquire businesses that support its growth strategy in core banking markets. But there is no certainty these discussions will lead to a transaction.
What are the benefits of the deal?
NAB hasn’t officially stated the key reasons for the interest. But the AFR reported there are three reasons why the big four ASX bank wants this business.
The first reason is that NAB believes Citi’s consumer business can help grow its retail book.
Next, NAB likes the look of Citi’s expertise in unsecured lending.
The final reason was that it would fit with Ross McEwan’s simple and digital strategy. The AFR reported that more than 90% of customers go to Citi via digital channels.
The newspaper said that the deal could be worth around $2 billion. Citi has around $11.5 billion in total resident loans and finance leases, with $6.6 billion in housing loans and $3.6 billion in credit cards.
Summary thoughts on NAB and the share price
The NAB share price has performed strongly over the last year – up 45%. It would make sense to try to buy this Citi business with a capital raising as funding.
I certainly don’t think that NAB shares are cheap right now. But greater scale could be beneficial for NAB’s margins and net profit.
But, for income investors, I believe there may be other ASX dividend shares to consider at better value.
