We had some big news from National Australia Bank Ltd. (ASX: NAB). As my Fool colleague covered earlier today, the ASX big four bank yesterday confirmed speculation that it is looking at acquiring the Australian arm of the banking giant Citigroup.
NAB said that it “confirms it is in discussions with Citigroup about the potential acquisition of its Australian Consumer business”. At the time of writing, the markets seem a little nonplussed. The NAB share price is currently down 0.15% to $26.20.
But NAB is clearly interested in Citigroup’s Australian assets. Why? Well, the bank stated that “NAB regularly assesses opportunities to acquire businesses that support its growth strategy in core banking markets.”
So who is Citigroup? And what would it bring to NAB’s table?
NAB nabs Citigroup?
Citigroup is a US bank, headquartered in New York City. It’s listed on the US markets under Citigroup Inc (NYSE: C). It currently has a market capitalisation of US$141.32 billion ($189.44 billion). In contrast, NAB’s market capitalisation is currently $86.33 billion. Citi currently offers all of the mainstream banking products you would expect in Australia, such as credit cards, loans, mortgages, foreign currency accounts, term deposits, and of course, bank accounts.
It’s these assets that NAB would presumably acquire if these “discussions” bear fruit.
So what would Citi’s Australian assets do for NAB?
Well, according to a report in the Australian Financial Review (AFR) today, the benefits would be threefold:
[NAB] reckons Citi’s consumer business can help grow its retail book, it likes the look of Citi’s expertise in unsecured lending and it would fit with CEO Ross McEwan’s simple and digital strategy.
The report also flags that NAB is set to pay roughly $2 billion to acquire Citi’s Australian assets. But what exactly are these assets? Well, the report reckons Citi has around $11.5 billion worth of “total residents loans and finance leases in Australia”. This includes around $6.6 billion in mortgages and property loans, and another $3.6 billion in credit card loans. All areas that NAB already has extensive experience in.
So it looks as if these assets will ‘bolt on’ to NAB’s existing asset books fairly easily.
Is the NAB share price a buy right now?
One broker who is liking what they are seeing with NAB right now is investment bank Goldman Sachs. Goldman currently has a ‘buy’ rating on NAB shares, with a 12-month share price target of $29.97 a share. That implies a potential upside of 14.5%, not including dividend returns.
Although this recommendation doesn’t yet take this latest piece of news into account, Goldman is still bullish on the ASX bank due to anticipated growth in mortgage credit over the rest of the year.