Here’s what National Australia Bank Ltd’s Great Western Bancorp IPO means to investors

In an announcement to the ASX today National Australia Bank Ltd (ASX: NAB) said the IPO of its U.S. banking subsidiary, Great Western Bancorp Inc (NYSE: GWB), will be taking place on October 15 2014 (U.S. time) at a price of US$18 per share.

Although the IPO is fetching a price lower than what was previously expected (between US$21 and US$24 per share), NAB will raise around $US288 million from the sale of 16 million shares in the agribusiness bank. It represents around 27.6% of NAB’s ownership.

However the underwriters of the deal – Deutsche Bank and Bank of America Merrill Lynch – have been granted a 30-day option to purchase up to 2.4 million additional shares, in which case the total amount raised would be US$331 million, or 31.8%.

NAB CEO Andrew Thorburn said: “While the price is lower than expectations the IPO had strong demand despite the recent volatility in the US equities market. Pleasingly the deal attracted strong representation from a broad range of quality investors with the book well covered. We are now (moving).. towards executing our plan to sell 100% of GWB.”

As Australia’s largest bank by total assets, NAB has been struggling to keep pace with its domestically focused peers, such as Commonwealth Bank of Australia (ASX: CBA) and Westpac Banking Corp (ASX: WBC) over the past decade. As its foreign assets diverted management’s attention and weighed on group profits.

However the latest move by the bank’s fresh-faced CEO appears to be a step in the right direction. Indeed, Mr Thorburn said: “Today is an important step in the next stage of our strategy in focusing on building a stronger core Australian and New Zealand franchise.”

Buy, Hold, or Sell?

The IPO tomorrow is a good one for NAB and complements its recent decision to divest around $1 billion of bad UK commercial property loans, earlier in the year. However, with a number of risks in the UK ongoing, as well as a portfolio of bad debts still remaining, NAB is best left on your watchlist for now.

However our top analyst, Scott Phillips, recently identified one cheap but growing ASX stock with a 6.3% grossed-up dividend yield which I think is a STANDOUT buy today. If you're interested in knowing its name, just click on the link below, enter your email address and we'll send you the FREE report on his top dividend stock idea for 2014 - 2015! NEW!

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Motley Fool Contributor Owen Raszkiewicz does not have a financial interest in any of the mentioned companies. 

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