Speculation is building that National Australia Bank could divest its life insurance assets, or even sell off its problematic wealth management business, MLC Australia entirely.
The rumblings follow an admission by NAB group chief executive Andrew Thorburn that, despite a modest improvement in annual performance, returns in the wealth management division remain "below acceptable levels" leading the bank to "evaluate various options".
He made the comments as NAB reported a 1.1 per cent fall in statutory net profit for the financial year ended September 30. NAB Wealth showed a modest growth in cash earnings from investments, standing at $158 million as of September 14 compared with $157m one year earlier.
CLSA analyst Brian Johnson pointed out that the investor presentation highlighted NAB's commitment to wealth distribution, not ownership.
Speaking to Fairfax Media, Mr Thorburn indicated that while the bank is committed to keeping a foothold in the life insurance business, that may not necessarily mean outright ownership.
"In order for us to be the bank we want to be, we have to have insurance products," Mr Thorburn said.
"Having access to and being able to bring life insurance to our personal and business customer base is absolutely critical. But as we have said, we need to examine options on how to improve the return on the core capital."
In response to the suggestion that MLC could sell white-labelled insurance products, Mr Thorburn said this "could be an option".
As previously reported, investment bankers have already started seeking buyers for NAB's life insurance unit, as expectations grow that the unit will be sold. This is despite no formal sale mandate being awarded.
Mr Thorburn said that in exploring options for NAB's wealth operations the bank had to weigh up how to retain products that are important to its broader business while improving the unit's return on equity, which currently sits below the cost of capital.
"The goal is clear but the goal is difficult," he said. "We can't see a way of getting to the cost of capital for the whole business."
Mr Johnson lambasted the bank for not writing down the value of goodwill on the wealth management business despite its continued lacklustre performance.
"To carry $4.1 billion worth of goodwill on the NAB Wealth balance sheet is fanciful," he said.
NAB finance chief Craig Drummond rejected the criticism.
"We don't see an impairment at this point in time," Mr Drummond said. The CFO also commented that life insurance earnings were likely to be at a cyclical low.
Credit Suisse analysts noted that it appeared as though NAB was being careful to leave its options open on what to do with the life insurance business.
"NAB's stated commitment to insurance distribution suggests to us they could seek re-insuring out life insurance risk (rather than divestment). Briefing slides strongly emphasise improving ROE," Credit Suisse said.
