from the SMH this morningNAB set to pick up Challenger...

from the SMH this morning

NAB set to pick up Challenger mortgagesDanny John
August 18, 2009
A FURTHER consolidation of the home loans market is likely with the expected sale of Challenger Financial Group's mortgage business to National Australia Bank for about $400 million.

Details of the deal could be announced as soon as today after Challenger called a halt to trading in its shares yesterday.

The transaction will take the total of NAB's recent spending spree on acquisitions to just more than $1.3 billion after its expansion into wealth management through the purchases of the life insurer Aviva Australia and the broking firm JBWere from Goldman Sachs.

But it is the tightening grip of the big four banks in the mortgage market which will be the focus of the deal with Challenger, following a spate of acquisitions in the sector during the past two years.

That has been marked by Westpac's purchase of RAMS and St George Bank with its large mortgage loan book and the Commonwealth Bank's acquisitions of BankWest and a 33 per cent stake in Aussie Home Loans, which itself recently snapped up Wizard from GE Money.

Challenger has been caught in the same problems as the smaller players in the sector, having seen the cost of wholesale funding - particularly in mortgage securitisation markets - blow out as a result of the global financial crisis.

With its share price battered, Challenger has been offloading assets and restructuring its business under its recently appointed chief executive, Dominic Stevens. That has helped boost its shares from its March lows of 80 cents to its suspension price of $2.91 yesterday.

Challenger has $18 billion of mortgages under its direct management and administers a further $73 billion worth from which it derives an annual income. The mortgage division contributes more than a third of Challenger's pre-tax earnings.

Challenger supplies ''white label'' home loans which are made available to other providers.

NAB has been keen to increase its presence in the market after losing out to Aussie Home Loans' Commonwealth Bank-backed acquisition of Wizard. Neither Challenger nor NAB were prepared to comment last night.

Challenger said in its statement to the ASX yesterday that it required the trading halt to enable it to ''continue confidential negotiations regarding a potential material transaction''.