Yorkshire Bank owner in £670m hit

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YORKSHIRE BANK’S parent company National Australia Bank has issued a profits warning following higher charges at its UK arm for mis-selling insurance products.

The UK arm, which includes Yorkshire and Clydesdale Banks, took a £420m hit in relation to the mis-selling of payment protection insurance (PPI). The provision covers the half year to September 30.

It also took a £250m hit on interest rate hedging products over the same period.

David Thorburn, chief executive of Clydesdale and Yorkshire Banks, said: “While it’s disappointing to have announced significant provisions for the legacy conduct issues we signalled in August, very real progress is being made in driving forward our clear commitment to fairness and investing in building a better bank for customers.”

The provisions were higher than analysts expected and they said they would delay the turnaround of the UK business.

NAB is expected to sell Yorkshire and Clydesdale once the operations are back in health.

Analyst David Ellis at Morningstar said: “The stronger economy in the UK will boost bank lending and increase property prices, which is definitely good news for NAB’s strategy to dispose of its British banks at a reasonable price.

“I’d like to say today’s writedowns are a one-off exercise by a new chief executive, but the conduct issues in the UK are complex so it is difficult to say for sure.”

National Australia Bank warned that its full-year cash earnings will fall as much as 14 per cent due to the higher charges from its UK business.

NAB, Australia’s fourth-largest bank by market value, said it would post annual cash earnings of around £2.8bn, down from a record cash profit of £3.2bn last year.

The hit to earnings surprised some analysts and signalled that NAB’s new chief executive officer Andrew Thorburn, who took the reins on August 1, is taking a tougher line on the UK operations.

“We’ve obviously got a new CEO, I would suggest that he’s taken the opportunity to take a far more conservative view on assessment of the required provisions,” said Mr Ellis.

In July NAB agreed to sell a £550m portfolio of mostly non-performing UK commercial property loans, and said it would continue to look at accelerating the sale of non-core assets.

“Taking these decisions gives us more clarity going into the future and allows us to focus on the core Australian and New Zealand franchises, which remain in good shape,” Andrew Thorburn said.

“Dealing with conduct matters continues to be a significant and ongoing issue for the UK banking sector generally and there remains a wide range of uncertain factors relevant to determining the total costs associated with conduct related matters, including any possible fines.”