Were worth less

"The contribution to NAB group earnings and ROE is not expected to be material in the first year", the bank wrote in a media release yesterday announcing that it will take control of the private client stockbroking business of Goldman Sachs JB Were.

Or any year, the statement could have continued.

In agreeing to shell out $99 million for an 80.1 per cent stake in the private client stockbroking business of Goldman Sachs JB Were, NAB is fulfilling one leg of the strategy for growth in the arena of wider, and non-bank, financial services businesses that, so far, is the most prominent theme of the short tenure of its new chief executive, Cameron Clyne.

Were is a fabled name in the broking landscape in Australia but the merit of the price agreed between NAB and Goldman Sachs is difficult to evaluate.

Client growth in stock broking over the last decade or so has been among the broader, mass affluent segment who tend to favour do-it-yourself solutions, including the use of broking services from the likes of CommSec and ANZ's Etrade.

NAB's corresponding services in this niche have been much more restrained, with the bank a reseller of a bundle of services from IWL, research from JB Were and internal sources such as MLC.

NAB said in its media release there were 22,000 active client relationships at JB Were, assets under advice exceeding $38 billion and funds under management of around $10 billion (with a lot of this in a cash management trust).

Statutory reporting by GSJBW does not shed much light. The financial statements for one subsidiary company of the investment bank, Goldman Sachs JB Were Pty Ltd, show the "investment services division generated $305 million in revenue in the year to December 2008 and generated a pre-tax profit of $10.2 million.

What proportion of this revenue and profit NAB now has its foot on is not clear.

Around 200 advisers will make the transfer to NAB and work under the old name of JB Were.

So, with a value of the JB Were private client business of around $120 million, the present value of the profits generated per adviser is around $545,000, and the annual profits generated per adviser is a lot less than that.