National Australia Bank’s institutional banking arm, nabCapital, will continue to do private equity work, despite the view within the bank that the higher level of activity in private equity was increasing its risk profile.
NAB chief executive John Stewart was quoted late last year saying that he feared the private equity boom would end in tears. NabCapital chief executive John Hooper said yesterday that he agreed with his CEO’s comments, as did many in the private equity market.
“They all think it will be someone else that gets into trouble,” said Hooper.
“But it is really an issue for the parties who are putting up the equity. The debt holders are, for the most part, senior debt holders. Long term the risk issue is for the equity participants.”
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Hooper said that out of 300 private equity transactions nabCapital had looked at, it had made 57 commitments to arrange leveraged finance.
The bank’s average final hold is less than $50 million per transaction. The balance of each deal is syndicated and, as Hooper pointed out, nabCapital is the leading syndication house in the Australian market.
NabCapital’s private equity exposure is less than 3% of its balance sheet, which stands at $110 billion.
Hooper said: “There is a lot of due diligence with PE – four or five times the focus of a normal deal. And there is ongoing monitoring.”
The bank’s big play in private equity was its role as joint lead arranger of a debt package of more than $1 billion for the private equity consortium that bought the Myer department store business from Coles.
“We are active in private equity, we intend to remain so and we manage it very carefully,” Hooper said.