Challenger has signed a share sale agreement with New Zealand’s Heartland Group to offload its banking arm, Challenger Bank, for approximately $36 million.
In a statement to the ASX on Thursday, Challenger said that a strategic review announced by the firm in August had concluded that a sale was the best option for the bank.
“We have conducted extensive analysis and considered the future strategic value of the bank and its ability to contribute to Challenger’s purpose of providing our customers with financial security for a better retirement,” said Challenger CEO, Nick Hamilton.
“The sale will allow us to focus on our life and funds management businesses, and leverage the scale we can achieve through strategic partnerships.”
The $36 million purchase price is around $11 million in excess of the bank’s net assets of approximately $25 million. As of 30 June, Challenger Bank had $228 million of deposits, $89 million of retail lending and $17 million of corporate lending.
Subject to approval from APRA, excess capital of approximately $100 million is expected to be returned to Challenger prior to the completion of the sale.
Heartland has indicated that it plans to transfer its existing reverse mortgage and livestock businesses in Australia to sit in or under Challenger Bank.
“The opportunity to grow these existing businesses in Australia either as part of a bank or a broader banking group is significant,” the company said.
“Challenger Bank also affords further opportunities to expand Heartland’s best or only products into Australia.”
The NZ company’s strategic objective for expansion in Australia necessitates the establishment or acquisition of an authorised deposit-taking institution (ADI), which Challenger Bank is.
Heartland said that becoming a bank through an ADI in Australia would help deliver a number of benefits including access to a deep and efficient pool of funding to support ongoing growth.
“The aim is to create a digital bank which, once Heartland assets are transferred to it, will be profitable. This, together with Heartland’s best or only strategy, provides the opportunity for a differentiated proposition,” it said.
The sale remains subject to regulatory approvals in both Australia and New Zealand.
On Thursday, Challenger also reported a 2 per cent dip in group assets under management to $96 billion in the first quarter of the financial year, reflecting net outflows and distributions in its funds management business.
