National Australia Bank (NAB) through it’s wholly owned subsidiary Great Western Bank (GWB) has announced the acquisition of the failed TierOne Bank (TierOne) from the Federal Deposit Insurance Corporation (FDIC) for a cash payment of approximately US$76 million.
NAB’s acquisition includes all of TierOne’s approximately US$1.9 billion in deposits and US$1.9 billion in loans under an agreement where the FDIC absorbs 80% of credit losses arising on the loan portfolio and related assets.
The FDIC which NAB purchased the TierOne bank acts as an insurer of deposits in banks, and moves to step in when banks are unable to continue operation (most recently due to the sub prime crisis) in this case the FDIC has taken TierOne onto its books and sold the bank under ‘Purchase and Assumption’ powers, in which all deposits (liabilities) are assumed by an open bank (in this case NAB and GWS), which also purchases some or all of the failed bank’s loans (assets). The FDIC estimates that the cost to the Deposit Insurance Fund (DIF) will be $297.8 million.
Andrew Thorburn, NAB Group Executive Asia, New Zealand and the United States said: “This acquisition is aligned with our US strategy and is a financially attractive bolt on opportunity. It increases Great Western’s distribution and customer base in selected states that together have an agricultural output greater than Australia’s.”
The cash payment of US$76 million includes a deposit premium, an asset discount and net assets acquired. GWB has an option to acquire TierOne branches at fair market value (or assume the relevant leases) and to make employment offers to TierOne employees. The TierOne branch network is in the key agricultural states of Nebraska (59 branches), Iowa (9 branches) and Kansas (1 branch).
“Great Western Bank has a strong risk framework supported by the appropriate local and NAB Group resources to manage the acquired loan portfolio, which has been reviewed in detail. We announced our intention to acquire part of TierOne in 2009 and this is an excellent opportunity to continue to grow our business in the United States on the base of attractive core deposits,” Mr Thorburn said.
