UPDATE: Any AXA Deal May Need Foreign Investment OK

Australian wealth manager AMP Ltd. (AMP.AU) and French insurer AXA SA's (AXA) A$12 billion takeover proposal for AXA Asia Pacific Holdings Ltd. (AXA.AU) faces another potential hurdle even if the pair can win over AXA Asia Pacific's board.

The deal may also need to satisfy Australia's Foreign Investment Review Board along with its competition regulator, Financial Services and Corporate Law Minister Chris Bowen said Friday.

"It would have to go before a range of government regulatory bodies, potentially the Foreign Investment Review Board and the Australian Competition and Consumer Commission," Bowen told Dow Jones Newswires in an interview, adding that he "couldn't preempt any government views" on the takeover proposal.

"We need to wait and see if there's a deal first and then there's a process to go through."

Australia's Foreign Investment Review Board, a unit of the Treasury that assesses foreign investment proposals, approves the majority of foreign investment proposals, acting on behalf of Australia's Treasurer Wayne Swan, although Swan has the final say on any sensitive proposals.

Paris-based AXA SA, which has a 54% stake in the target, and AMP said on Nov. 9 they were joining forces for an offer that valued AXA Asia Pacific at A$5.34 a share, based on the previous trading day's closing share price. AXA Asia Pacific's board of directors rejected the bid almost immediately, saying it was too low.

As part of the proposal, AMP would buy AXA Asia Pacific and sell the Asian operations of the target to AXA SA, which would relinquish its interest in Australia. Most market participants had expected that because AXA Asia Pacific would be bought by AMP, an Australian entity, the proposal wouldn't need to be approved by FIRB.

A spokeswoman for AMP said the company is aware the proposal will require foreign investment approval.

As part of the original foreign investment approval when AXA SA took a majority stake in what was then National Mutual in 1995, the French insurer agreed with regulators to use the Australian arm for its expansion into Asia.

AXA Asia Pacific is the only Australian financial services firm with the majority of its business in Asia and has exposure to eight regional markets, which account for two-thirds of its earnings.

Bowen said the move by AXA SA to exit its Australian holding isn't a sign that foreign names are in any way deterred by the prospect of future regulation of the Australian wealth management sector.

Rather, it is part of a global trend by financial firms to "focus more on their home markets" in the wake of the global financial crisis.

"I don't think there's any particular adverse trend, or anything to be concerned about at this stage," he said.

The comments come as Bowen embarks on a week-long tour to the world's financial capitals, New York and London, touting Australia to investors as a relative financial haven compared with still-distressed markets elsewhere.

Australia has four of the world's nine AA-rated banks -- National Australia Bank Ltd., Australia and New Zealand Banking Group Ltd., Commonwealth Bank of Australia and Westpac Banking Corp.

The country's banking system sidestepped the worst of the global financial crisis as the banks largely avoided structured investments that crippled global peers and authorities injected massive fiscal and monetary policy stimulus. Strong prudential and market regulation also helped.

Bowen Friday endorsed the role the Big Four banks play in underscoring the strength of the sector, despite concerns of declining competition.

"I think as the market returns to normal you'll find more competitive pressure in the banking industry, but that won't take away from the fundamental strength of our Big Four," he said.

Asked if there is any risk regulation can become overzealous, Bowen said there's always a "balance to be struck" and the government is flexible in its approach.

Turning to the decision by Standard & Poor's and Moody's Investors Service not to apply for licenses to rate retail investments in Australia--a new requirement confirmed by the government last week--Bowen said he wouldn't "preempt" any decision by the securities regulator.

"We'll wait and see what the regulators come up with," he said.

A spokesman for Bowen said later that the minister was referring to the government not intervening in decisions made by regulators generally, not the Australian Securities and Investments Commission's specific decision to impose licensing conditions in relation to credit ratings on retail products.

That regulation stands.

The ratings agencies' decision not to seek the license could have implications across the debt spectrum by limiting the attraction of hybrid bank bonds, an instrument that is especially attractive to non-institutional buyers.

-By Rachel Pannett, Dow Jones Newswires; 61-2-6208-0901; rachel.pannett@dowjones.com

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