National Exits HomeSide for A$2.3 billion Sale to Washington Mutual - 28 August 2002
National Australia Bank Limited (the National) (ASX:NAB; NYSE:NAB) today announced the signing of an agreement for the sale of SR Investment Inc., the parent company of HomeSide Lending Inc., to Washington Mutual, Inc. (NYSE:WM) for approximately A$2.3 billion ($US1.3 billion).
The sale will see the National exit all mortgage servicing rights (MSR) and related financial hedges associated with a mortgage portfolio, projected to be approximately US$131 billion at closing.
The sale is expected to close in October 2002.
The purchase price will be based on net assets at closing. A loss on sale of approximately A$104 million (US$57 million) will be booked to cover transaction costs, closing provisions and balance sheet adjustments.
Lehman Brothers and its mortgage banking specialist subsidiary, Cohane Rafferty, provided a fairness opinion supporting the sale by the National.
The National will retain a portfolio of approximately US$300 million of government guaranteed mortgages. No mortgage servicing rights are associated with the retained mortgage portfolio.
The sale is expected to improve the Group's Tier 1 capital ratio by approximately 0.23% and release capital of approximately A$490 million. The National will extend its share buyback program by a further A$750 million.
"This represents a complete exit from our mortgage banking business in the US," said the National's Managing Director and Chief Executive Officer, Frank Cicutto.
"We have remained patient and disciplined in our approach to the disposal of this non-core business and this has enabled us to exit with no further impairment to the MSR.
"This confirms the wisdom of the two part sale process we adopted in December last year when we announced the sale of the HomeSide operating platform.
"Today's announcement is a good outcome for shareholders because the small loss on sale is more than outweighed by enhancing the stability of our earnings, lowering the risk on our balance sheet and the release of capital.
"Shareholders will benefit through the extension of our share buyback program by another A$750 million through to September 2003.
"The sale is consistent with the strategic realignment of our Group businesses. Following the sale of Michigan National in 2001 for a profit of $1.7 billion and the purchase of MLC in 2000 for $4.6 billion, we are now clearly focused on our core banking and wealth management businesses," added Mr Cicutto.
Kerry Killinger, Washington Mutual's Chairman, President and Chief Executive Officer said, "This transaction is consistent with our strategy of adding core mortgage relationships, while limiting the excess servicing component.
"We believe this strategy will help us produce greater efficiency, enhance cross-sales opportunities and improve profitability in the mortgage business of the future," he said.
National Australia Bank Limited was represented by Cohane Rafferty, Lehman Brothers, Black Rock Inc., Sullivan & Cromwell and Kirkpatrick & Lockhart LLP.
Please Note: Currency conversions are at an exchange rate of 55 US cents to 1 Australian dollar.
An analysts briefing concerning this announcement will be webcast at 11am AEST today. To view the webcast, visit here.