Citi Slicker | National Australia Bank (ASX:NAB) Recommendation

Ord Minnett Research Recommendation:   National Australia Bank (ASX: NAB)  

The Australian Competition and Consumer Commission (ACCC) will not oppose National Australia Bank’s proposed acquisition of Citigroup’s (Citi) Australian consumer lending business, after a review found the transaction would not substantially lessen competition. NAB said it was on track to complete the deal in the first half of CY22 and full integration is expected in mid-2024.

The ACCC review was focused on two major aspects:

• The impact on the supply of credit cards; and
• The provision of ‘white label’ credit card services.

Regarding the first point, the ACCC pointed to customer feedback that Citi was not unique in its credit card offering, and there remain many different card providers for consumers. On the second point, despite becoming the dominant supplier of white label credit cards services to a number of commercial suppliers, it found NAB would have no incentive to offer less favourable terms to partners post acquisition.

In Ord Minnett’s view, this as a positive development given concerns it may have been blocked on competition grounds. Based on our estimates, the acquisition will almost double NAB’s existing Australian consumer non-housing loans. Factoring in the full benefits, we expect the deal to be 3–4% accretive to NAB’s EPS. This would be 1–2 percentage points higher than the alternative of buying back stock on market at current share price levels.

Based on Australian Prudential Regulation Authority statistics, Citi has grown its Australian housing loans by 2.6% since July, above Reserve Bank of Australia (RBA) system growth of 1.3%, while consumer loans have declined 4%, below an RBA system decline of 1%.

Investors have questioned increasing exposure to consumer lending at a time of significant threat from buy now, pay later operators. The acquisition should drive cost benefits, however, and allow NAB to re-platform its consumer unsecured business. NAB remains our preference among the major banks and we maintain our Accumulate recommendation with a $31.40 target price.