The National Australia Bank (NAB) is pushing ahead with its plans to get rid of the troubled Clydesdale and Yorkshire banking business in the UK by the end of this year.
The bank said the planned demerger and initial public offering of the business by the end of the year “remains a priority”.
The bank released a 546 page document yesterday which examines the financials of Clydesdale in considerable detail.
New Clydesdale chief executive David Duffy was due to present to overseas investors overnight, using yesterday’s presentation which was filed with the ASX.
Clydesdale, which has been a drag on NAB for years, but it reported a 53% increase in its first half pre-tax profit earlier this year.
However it is also facing higher costs from misselling financial products and needs a radical cost slashing overhaul, from what is in the presentation.
UK regulators have forced NAB to inject another 1.7 billion pounds ($A3.54 billion) into the business to shore up its balance sheet and protect it against potential losses linked to the misselling before it can go ahead with the demerger.
National Australia Bank finance boss Craig Drummond told the media yesterday that conditions on financial markets are supporting the bank’s move to sell assets, as it pushes ahead with plans to sell the two banks.
Mr Drummond said the high levels of liquidity on global markets (from quantitative easing by central banks and record low interest rates) were helping NAB sell the UK banks.
NAB announced in May a plan to spin off up to 80% of Clydesdale to shareholders and sell the remainder of the business in an initial public offering by the end of this year.
Analysts though say most NAB shareholders won’t want the shares in the UK banks and will sell, which will depress the price NAB can expect to get from the float.
But after years of not wanting to know banks, UK investors, especially the big institutions, are developing an appetite for financial shares.
There has been the successful float of TSB, an offshoot of Lloyds Banking Group, 13 months ago (which has since been taken over by Spain’s Banco de Sabadelle). And there have been floats of several smaller new banks as well.
The NAB’s presentation said “material” work on the Clydesdale sale was continuing, but also acknowledged that there was still “a great deal of uncertainty” over the full liabilities relating to misconduct in the selling of financial products (which have cost UK banks tens of billions of dollars in fines and compensation).
NAB has overhauled Clydesdale’s management and slashed costs, restructured its dud assets and moved deeper into retail lending, such as mortgages. Profits have improved, returns on equity are rising slowly, but costs remain too high – the cost to income ratio is around 71% against the 45% level for Australian banks, including its parent.
NAB shares yesterday rose 2.2% to $34.21, not because of the Clydesdale update, but simply because Greece hadn’t imploded. Our market staged an enormous relief rally gaining over 100 points on the ASX 200.
