YORKSHIRE and sister bank Clydesdale reported their first ever full-year loss yesterday, blaming the slump on a commercial property arm which stopped lending money last month.
The two UK banks are now hopeful of making a profit at the half-year stage as their troublesome real estate lending business has been passed on to the books of Australian parent company National Australia Bank (NAB).
Yorkshire and Clydesdale announced a pre-tax loss of £183m for the year to September 30, but said this would have been a profit of £148m if the commercial property arm had been offloaded earlier.
The two banks saw their bad debt charge more than double to £631m, which wiped out underlying profits of £448m to produce the £183m loss. The bad debt charge was due to losses in the commercial property division.
The banks’ chairman Cameron Clyne, who also has the top job at NAB, said the UK is now the group’s biggest challenge.
“While data last week suggests the UK ended the recession during the September quarter, we remain very cautious on the outlook,” he said.
Yorkshire and Clydesdale’s chief executive David Thorburn said a three-year restructure, which involves 1,400 job cuts and the closure of operations in the south of England, will put the banks back on track.
“The UK economy is going to take some time to fully recover. It will be challenging for some time,” he said.
“I’m convinced our plan is the right one – to focus on Yorkshire, the north and Scotland.”
Mr Thorburn said the two banks are ahead of schedule by a few months.
“By the end of March 2013, I anticipate 70 per cent of the roles to be reduced will have been done,” he said.
Of the 1,400 redundancies, 468 roles have gone already.
Following the exit from commercial property, Yorkshire and Clydesdale will be split equally between retail banking (personal accounts) and lending to small to mid-sized businesses (SMEs).
Over the year to September 30, average gross loans and acceptances increased by £600m to £33.6bn.
Mr Thorburn said strong support for mortgage customers was a key driver of this increase with mortgage growth rising by 9.8 per cent. Average retail customer deposits grew by £500m to £25.3bn in what Yorkshire Bank described as “a highly competitive” market.
“Retail lending has improved steadily all year,” said Mr Thorburn.
Business lending balances fell by 2.8 per cent, compared with a reduction of 5.1 per cent for the wider market.
“In SME lending it’s a difficult climate, but it’s as we expected,” said Mr Thorburn. “Some sectors are performing better than others. For example, exporters are performing much better than companies who deal solely in the UK.”
The UK banks’ operating expenses fell by £29m or four per cent, although lower income levels saw the cost to income ratio increase to 60.9 per cent, from 57.7 per cent.
Yorkshire and Clydesdale have already put aside £220m to compensate for mis-selling of payment protection insurance (PPI) where consumers were sold products to protect them against illness or redundancy.
Yesterday it announced it has set aside a further £48m to cover the mis-selling of interest rate swaps, which were designed to protect firms against fluctuating rates. The £48m will also cover any other areas of “customer redress” that come up through regulatory investigations.
Some commentators have said the mis-selling of interest rate swaps could be the new PPI scandal, but Mr Thorburn said it was too early to tell.
“No-one knows how significant interest rate swaps will be. It’s still early days,” he added.
Following the results Australian analysts said the UK business is dragging down NAB’s core Australian and New Zealand operations.
NAB’s profits fell 22 per cent to 4.1bn Australian dollars (£2.6bn) in the year to September 30.
Morningstar analyst David Ellis said: “Our patience is wearing thin as the UK operations continue to drag on group earnings.”
But Mr Thorburn insisted that the UK banks are on the right track.
“Our performance isn’t where it needs to be. These results demonstrate the need for the changes we announced in the spring,” he said. “They will leave the business on a much sounder footing.”
A retreat to the heartlands
The UK restructuring will see 1,400 job cuts and the closure of 29 business banking centres in the south as the banks retrench to their heartlands.
Around 100 of these job losses will be in Yorkshire before the end of the year.
Yorkshire Bank is also merging its Leeds back office operations into one site at Merrion Way, closing its Brunswick Point office.
Yorkshire and Clydesdale have ceased commercial property lending, with their Australian parent taking control of a £6.2bn book of problematic loans.
Yorkshire and Clydesdale have so far set aside £220m to compensate customers mis-sold PPI.