Retirement income specialist Challenger is reviewing the place of its recently acquired banking subsidiary within the group and has commenced a strategic review of the business. It is considering “all options”.
Challenger completed the A$35 million acquisition of ADI MyLifeMyFinance in July last year and a couple of months ago rebranded it Challenger Bank Ltd.
The company said in its 2021/22 financial report, released yesterday: “Since announcing the bank acquisition in December 2020, market conditions have changed and it is becoming apparent the bank is unlikely to realise the expected benefits in the timeframe anticipated.
“Challenger is considering all options in relation to the bank and has appointed Gresham Partners to assist.”
The bank is tiny, with $2.3 million of net interest income over the year to June 2022. The net interest margin over the year was 93 basis points.
Expenses of $13.4 million, which included regulatory and integration costs, resulted in a pre-tax loss of $12 million.
At June 30, the bank had $228 million of deposits and $391 million of lending and financing assets.
Challenger chief executive Nick Hamilton said he expected the bank to make a loss of around $10 million in the 2022/23 financial year. Challenger has written off $19 million of goodwill.
Hamilton said the rationale for the acquisition included assumptions about Challenger’s ability to leverage its platform for banking distribution. That has not worked out and the bank’s projected cost base has increased materially as a result.
He said the bank would also need significant capital investment for a technology upgrade. Competing demands for group capital were likely to take precedence.
Hamilton was appointed Challenger CEO last December and moved into the role in January. If his predecessor Richard Howes was still around, things might be different.
At the time of the MyLifeMyFinance transaction, Challenger said its interest in acquiring an ADI licence was in being able to compete in the term deposit market – a significant asset class for Australian retirees.
Term deposits would complement Challenger’s existing term annuity offerings, which are sold by its life company.
Challenger also has ambitions in commercial lending, and that project appears to be going ahead.
In February, it entered into a non-binding memorandum of understanding with US alternative asset manager Apollo Global Management, with the intention of establishing a joint venture to “build a leading non-bank lending business in Australia and New Zealand”.
Apollo has an 18 per cent shareholding in Challenger.
This initiative is also aimed at enhancing Challenger’s retirement services offering, which will involve funding the lending business through income-generating managed funds.
Yesterday, Challenger confirmed that two companies have taken the relationship a step further, entering a definitive agreement to establish a joint venture to build a lending platform. The plan is to offer structured and asset-backed lending solutions and “bespoke credit solutions”.
Products may include invoice and trade finance, equipment finance, auto finance and agricultural funding.