CASH MANAGEMENT | Cesar Tordesillas, Australia

NAB's Moody's ratings unaffected by Axa bid

NAB's purchase agreement of AXA's wealth management business for US$4.2 billion has no impact on its ratings.

AXA's Australian and New Zealand wealth management business were the subjects of the purchase deal.

Moody’s gives National Australia Bank an Aa1 rating for deposits and senior debt and a B rating for bank financial strength. The outlook for NAB's ratings is negative, reflecting the challenging operating environment.

"The acquisition would significantly enhance NAB's offering in wealth management, superannuation and life insurance, taking it to a leadership position in most market segments," commented Patrick Winsbury, a Senior Vice President with Moody's Sydney office.

"Importantly, from a credit perspective, if NAB successfully completes its planned A$1.5 billion (US$1.33 billion) equity raising in 2Q10, the pro-forma impact of the acquisition on the bank's Tier 1 capital ratio will remain acceptable. Worst case, if the entire purchase is to be for cash, Tier 1 would fall to 8.2 percent from 8.9 percent. However, the Tier 1 impact will be minimal if a significant proportion of AXA shareholders accept NAB shares," he added.

The acquisition, said Winsbury, does bring meaningful operational challenges as NAB will have to integrate this sizeable business while still digesting its recent Aviva wealth management purchase.

"However, these challenges are more than adequately captured within the scope of the
negative outlook that currently exists on the bank's ratings," Winsbury explained.

NAB is to conduct due diligence before concluding the transaction in the new year, when a final decision on the size of the planned equity raising will be made. In order for NAB to maintain its current ratings, Moody's would expect the capital impact of the acquisition to be in line with the bank's current targets and no unforeseen liabilities to arise out of the due diligence process.

The last rating action on NAB was to affirm its ratings, with a negative outlook, on 23 June 2009 after the bank agreed to purchase Aviva Australia Holdings' wealth management business.

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