MLC impairment warranted

National Australia Bank's 12-year-old investment in MLC deserves impairment, though the bank is reluctant to take this step.

In an interview with Sydney Morning Herald, NAB's CEO, Cameron Clyne, acknowledged that the bank overpaid for MLC - now the core of the bank's wealth management arm - and that, taking into account the goodwill associated with MLC, it was a drag on return on equity.

''We are conscious of it," Clyne said.

"We can't really impair goodwill, but we could look at ways of restructuring the business that changes its structure. It's a fair point and the whole industry is suffering from that.''

NAB reported goodwill of A$4.02 billion for MLC and the wealth business in its annual report, in September 2011, out of a $5.5 billion in total.

This is the same level of goodwill that was recognised in the accounts in 2006 and reflected a transition to new accounting standards that year.

Since 2006, and especially in recent years, NAB has made a series of niche acquisitions in wealth management, mainly in boutique fund managers. Another investment was in the private client arm of JB Were.

Since the aggregate goodwill for the wealth business has been more or less static over six years, and NAB  did recognise goodwill on most of these acquisitions, this might suggest that NAB has, in effect, recognised some impairment to the goodwill of MLC on a standalone basis.