RBS in Talks to Sell ABN Assets to National Australia

By Stuart Kelly

July 11 (Bloomberg) -- Royal Bank of Scotland Group Plc, seeking to restore capital depleted by writedowns, is in talks to sell assets in Australia and New Zealand to National Australia Bank Ltd.

National Australia said today it's in discussions to buy the investment and corporate banking units that RBS acquired in last year's 14.3 billion-euro ($23 billion) purchase of part of ABN Amro Holding NV. There is ``no certainty'' that a deal will happen, Australia's biggest bank said in a statement.

RBS led the ABN takeover, the biggest banking acquisition on record, just as credit markets froze up, and the transaction resulted in about 2 billion pounds ($4 billion) of writedowns at the Edinburgh-based bank this year. A sale to National Australia could fetch as much as A$450 million ($430 million), said Wilson HTM analyst Brett Le Mesurier.

``After the past year, RBS will want to get as many of their non-core assets out of the way as quickly as they can so they can rebuild their reserves,'' said Angus Gluskie, who helps oversee the equivalent of $500 million at White Funds Management in Sydney. ``At the time of the ABN acquisition, it was flagged that the Australian operations may be hived off.''

Melbourne-based National Australia would get a business ranked sixth in underwriting stock sales in Australia and New Zealand, adding about 750 employees. The bank's shares slipped 0.6 percent at 3:38 p.m. in Sydney, bringing declines this year to 27 percent.

ABN Picked Apart

RBS has posted $15.4 billion of asset writedowns and credit losses amid the global credit squeeze, ranking it seventh among the biggest losers in slumping financial markets. Last month it raised 12.3 billion pounds in Europe's biggest rights offering. Financial Services AG, Switzerland's biggest insurer, yesterday pulled out of bidding for RBS's insurance unit.

The talks with National Australia come as Zurich Financial Services AG yesterday pulled out of bidding for RBS's insurance unit, a deal valued at as much as 7.5 billion pounds.

RBS and Fortis, partners in the ABN acquisition, have been selling assets of the Amsterdam-based company in Europe and Asia. Deutsche Bank AG this month agreed to pay 709 million euros for the Dutch commercial-lending units Fortis got in the takeover.

Fortis is also auctioning its stake in a Chinese fund manager that accompanied the ABN purchase, seeking as much as $250 million, people familiar with the matter said last month.

Bad Idea?

ABN Amro Australia Holdings Pty spokeswoman Jill Valentine said the bank appointed Lazard Carnegie Wylie in March to advise on its businesses. She declined to comment on today's statement by National Australia.

ABN Amro advised on 11 Australian deals valued at $5.1 billion over the past year, Bloomberg data show. It has a 7.9 percent market share in Australia and New Zealand of equity underwritings worth $1.26 billion in 2008.

National Australia might struggle to digest the ABN businesses, said Wilson HTM's Le Mesurier.

``I'm not convinced that commercial banks should be buying investment banks,'' he said. ``They're very different types of businesses.''

More Provisions

In a separate statement, National Australia said it may have to increase provisions for $1.1 billion of investments in collateralized debt obligations as the global economy weakens.

The economic environment has deteriorated since March 31, when an A$181 million provision was made against the CDO investments, which include some U.S. subprime mortgage securities, said Brandon Phillips, a spokesman for the company.

``It tells us that National Australia is more exposed than it and the market previously thought,'' said Hans Kunnen, head of investment market research in Sydney at Colonial First State Global Management, which holds about $128 billion of assets.

To contact the reporter for this story: Stuart Kelly in Sydney skelly22@bloomberg.net