NAB to Sell Life-Insurance Unit

MELBOURNE, Australia—National Australia Bank Ltd. has agreed to a 2.4 billion Australian-dollar (US$1.74 billion) deal to sell control of its life-insurance business to Japan's Nippon Life Insurance Co., as it seeks to focus on core operations in Australia and New Zealand.

The lender said it would push ahead with an exit from its U.K. banking business, spinning most it off to shareholders and floating the rest early next year.

The moves are part of NAB's efforts to move on from businesses that have held it back in recent years, with returns that underperform Australia's other top banks. Still, the lender reported record profit in the just-ended financial year, helped by higher mortgage and business lending and a lower bad-debt charge.

NAB said Wednesday it will sell an 80% interest in its life-insurance business to Nippon Life, and has entered a 20-year partnership with the Japanese insurer. It will hold on to a 20% stake, as well as its investment operations, including superannuation pension platforms and asset management that form part of NAB's wealth division.

The sale is expected to result in a loss of about A$1.1 billion, including separation costs, although the bank will lift its key capital adequacy ratio by 0.5 percentage point at a time when regulators are looking closely at banks' capital buffers.

The sale comes amid consolidation among insurers in the Asia-Pacific region. Nippon Life last month agreed to buy smaller Mitsui Life Insurance Co. A month earlier, Sumitomo Life Insurance Co. agreed to purchase U.S. life insurer Symetra Financial Corp. for US$3.73 billion. And earlier this year, Dai-ichi Life Insurance Co. closed a deal to buy Protective Life Corp. in the U.S. for US$5.6 billion.

Further tightening its concentration on Australia and New Zealand, NAB said it was aiming to spin off about 75% of its Clydesdale division in the U.K. to shareholders and sell the rest to institutional investors through an initial public offering planned for February.

The CYBG PLC business will have a primary listing on the London Stock Exchange, although it will need approval from shareholders in a vote set for January.

Since taking over as chief executive in August, Andrew Thorburn has moved to tighten the bank's focus on more profitable core operations. That has included floating its regional U.S. bank Great Western Bancorp Inc., and raising A$5.5 billion in a rights issue earlier this year to bolster capital buffers and cover against potential losses related to legacy misconduct allegations for wrongly selling certain U.K. financial products.

"We have been focused on delivering against our plan, driving improved performance in our Australian and New Zealand business, investing for growth, delivering significant technology milestones for our customers, building a stronger balance sheet and exiting our legacy and lower returning assets," Mr. Thorburn said.

Separately, NAB reported an all-time high net profit of A$6.34 billion in the year to Sept. 30 against A$5.3 billion the year before.

Cash earnings—a figure followed by analysts that strips out certain income and costs—jumped 16% to A$5.84 billion, which NAB said reflected a 4% rise in revenue and a 1% fall in expenses. A year earlier, cash earnings were held back by A$1.5 billion in U.K. conduct-related provisions and write-downs for the carrying value of software assets.

NAB said its charges for bad and doubtful debt were A$823 million, down about 5% thanks to lower charges in Australian and U.K. banking. Still, net interest margin—a profit measure based on the difference between the rate at which a bank borrows and lends—narrowed by 4 basis points on year to 1.87%, due partly to competition in Australian business and housing lending.

"In 2016, our business will be stronger and more focused on delivering for our customers and our shareholders," he said.

The bank said it plans to pay a final dividend of A$0.99 a share, the same as last year, for a full-year payout of A$1.98.

Write to Robb M. Stewart at [e-mail]

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October 28, 2015 00:45 ET (04:45 GMT)

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