Challenger Group is facing a drawn out process to complete the sale of Challenger Bank to New Zealand’s Heartland Group, a transaction now expected to close by the end of the calendar year.
The asset manager and retirement services firm’s foray into the Australian banking scene was short-lived. Challenger informed a bemused market of its acquisition of a tiny former credit union (MyLifeFinance) at the very end of 2021.
APRA soon endowed the firm with its own (conditional) banking licence, amid posturing by Challenger around getting into banking as a long-term strategic play and even (briefly) setting out to diversify from home finance into business lending.
In August 2022, after only a few months of ownership, Challenger vindicated the industry and market cynics by announcing that “all options” were on the table for its banking arm.
By October last year, Heartland had stepped forward to provide an exit for Challenger. In February, at its half-year results, Challenger briefed the market that it hoped to complete the sale of its banking subsidiary by the middle of this year, and return around A$100 million of excess capital to shareholders.
It has missed both milestones, the annual report released yesterday reveals.
Challenger now says “the group is expected to receive approximately $33 million, subject to adjustments, for the sale of the bank. This is based on expected net assets of approximately $22 million.”
In April, Challenger released $50 million in excess bank capital to its life company.
The group acquired Challenger Bank for a consideration of $37 million. Goodwill of $19 million was recognised upon acquisition of the bank [but] this was “fully and promptly impaired” in the year ended June 2022.
Inevitably, Challenger Bank has been trading in the red throughout the two years Challenger was steward. The ‘normalised EBIT’ for the bank over the year to June 2023 was a loss of $8.8 million.
This compares with a loss of $11.1 million in 2022 (reflecting only a few months of ownership).
With the bank effectively in run off for the whole of the financial year, assets of Challenger Bank were down 40 per cent to $243 million over the year to June 2023. Liabilities (deposits) of $182 million were down 30 per cent, and it’s a wonder the bank clung on to any deposit balances at all.
The bank’s regulatory capital base at the end of June was $60.5 million.