NAB eyes growth with Aviva buy

SYDNEY (Reuters) - National Australia Bank (NAB.AX) will pay $660 million (402 million pounds) for most of insurer Aviva's (AV.L) Australian businesses to become the country's dominant investment platform provider and insurance underwriter.

NAB, the country's biggest lender, pipped AMP Ltd (AMP.AX) and others to clinch the deal -- its first acquisition under new CEO Cameron Clyne.

NAB, which has identified wealth management, insurance and its advisory business as key growth areas, said on Monday the purchase would dent its Tier-1 capital by about 15 basis points, but forecast A$70 million in annual pretax savings.

NAB shares rose 1.76 percent to A$22.49, while the benchmark share index .AXJO was up 0.48 percent.

"The price they paid looks OK, but I don't think their synergy estimates are realistic," said Chris Halls, analyst with Argo Investments Ltd, which owns A$110 million worth of NAB stock.

Aviva, the world's fifth-biggest insurer, joins a growing list of global companies exiting Australia to focus on their domestic markets in the grip of a global financial crisis.

The company, which suffered sharp share price falls in March on concerns that dividend commitments and sliding asset values might force it to raise capital, [ID:nLR64522] said the sale would bolster its solvency reserves by 400 million pounds ($659.3 million).

Aviva's Asia Pacific chief executive Simon Machell said the company was on the lookout for potential acquisitions in Indonesia, Thailand and Vietnam, although demand for investment products looked set to remain subdued across the region.

"I expect that market conditions will remain reasonably tough this year and as we go into next year," he told reporters on a conference call.

The company has not at this stage earmarked the capital that will be freed up by the Australian disposal for any specific purpose, Machell added.

Aviva shares were 1 percent lower at 333.5 pence by 0815 GMT (9:15 a.m. British time), while the FTSE 100 share index was down 0.75 percent. The company had a capital surplus of 2.5 billion pounds at the end of March, it said in its most recent capital update on April 27.

NAB's move comes at a time when the Australian government is taking a hard look at the fee structure in financial advice industry.

"The fees are heading down and the whole profitability of platforms becomes more under pressure. What that means is that you need scale. That's the strategic rationale. This is a scale, cost savings play in the existing business line," Halls of Argo Investments added.

The deal would lift NAB's earnings from wealth management to about 10 percent of the group's total from about 7 percent now, Halls estimated, noting Commonwealth Bank of Australia Ltd (CBA) (CBA.AX) earns about 14 percent of its profit from wealth management.

Australian lenders have largely dodged the global financial crisis and are better placed to grow their businesses with their focus on domestic markets. In contrast, some big U.S. and European banks have left Australia to better focus elsewhere.

Australia and New Zealand Banking Group Ltd (ANZ.AX) is in talks to buy the Asian business of Royal Bank of Scotland (RBS.L). Last year British lender HBOS Plc HBOS.L sold its Australian unit to CBA.

Aviva's Australian operations were non-core and contributed just 2.6 percent to 2008 group profit.

NAB said the acquisition, which is subject to regulatory approvals and should complete in the fourth quarter, would add about A$12 billion to the bank's funds under management and complement its MLC wealth management business.

Aviva had appointed Morgan Stanley and JP Morgan to advise on the sale.

(Additional reporting by Myles Neligan in London; Editing by Hans Peters)