It's back to the drawing board for National Australia Bank chief executive Cameron Clyne, and maybe it's time to draft a plan that doesn't involve AXA Asia Pacific.
For starters, the market had already signalled only lukewarm support for NAB's $13.3 billion move on the wealth manager.
Since its AXA APH bid was announced, NAB has traded at a discount to its rivals as investors feared the bank could be overpaying and worried about the real potential of integration risk around the wealth-management platforms. And there was also a capital raising in the works to help fund the bid.
NAB has the option to challenge the ACCC's decision through the Federal Court, but this would be a drawn-out option that would stoke long-term uncertainty.
Any effort by Clyne to engineer a radical new proposal to win over the ACCC would most likely further dilute shareholder returns - in effect, transferring value from NAB shareholders to those of IOOF.
As brokerage EL & C Baillieu notes, the knockback is in itself good news for owners of NAB stock with the likelihood of a $1.5 billion-plus capital raising now out the window.
''NAB has enough on its plate with the integration of Aviva, a high-risk bet on commercial property and its troubled UK exposures to need to be contemplating further transformational transactions,'' Baillieu's Stewart Oldfield said.
Harder stance
In its rejection, the ACCC has hardened its stance towards issues surrounding the fledgling North platform.
NAB had been trying to overcome the ACCC's concerns that the bank would have too much clout in the wealth management sector - particularly in platforms used by financial planners to manage client funds - if the takeover went ahead.
To overcome this objection, the bank had pledged to sell Axa's newer North platform.
But in its latest decision, the ACCC specifically highlighted concerns over the products that sit on the North platform, given they were not included in the sale, as well as issues involving distribution.
Clearly the regulator isn't convinced IOOF has the so-called black box technology needed to sell its own version of capital-protected products. It also suggested IOOF's distribution network falls well short of being able to support further growth for North.
Specifically the ACCC said ''the proposed undertaking do not include the distribution network of financial planners or the North products that currently support the platform''.
The ACCC also noted by selling North to IOOF, the move would places a heavy reliance on third parties. This shift in effect would foster risks and uncertainty over the state of competition on the platform market.
What next?
The question NAB's Clyne now faces is where to look for the bank's next source of growth.
On paper, wealth management is attractive for banks because it is a capital-light business that does not rely on wholesale funding.
This is positive for both return on equity and dividends given there is less need for earnings to be retained in the wealth management business because of the lower capital requirements compared with banking.
Given the limited options of expanding without provoking the ACCC's ire, Clyne must be wishing NAB had followed through with its $21 a share bid for AMP in 1999. That would be one headache he wouldn't be facing now.
ejohnston@theage.com.au
BusinessDay
