Blackfriar: Yorkshire Bank takeover move may not be all bad news

While rival Halifax was swallowed up by Lloyds in a Labour Government brokered deal at the height of the financial crisis and Bradford & Bingley suffered an ignominious takeover by the taxpayer, Yorkshire Bank is the only institution to come out of the crisis unscathed.

A heritage of sensible, traditional lending has kept Yorkshire Bank and its sister bank Clydesdale in the black while bigger high street rivals have produced multi-billion pound losses.

Yorkshire Bank holds a special place in the minds and hearts of its customers.

During the miners’ strike of 1984-85 the bank went out of its way to help miners, allowing them to defer payments during the duration of the strike. It may be nearly 30 years ago but Yorkshire folk have long memories.

However this isn’t the first time Yorkshire Bank has been taken over by a rival banking institution. In 1911 the bank’s reserves dwindled to just £500,000 and the Bank of England was forced to organise a takeover by a consortium of banks including Lloyds and Barclays.

In 1990, National Australia Bank bought Yorkshire Bank from the consortium for £1bn and Yorkshire Bank became the cornerstone of NAB’s UK operations alongside Clydesdale Bank.

So where would a takeover by NBNK (an acronym for ‘new bank’) leave Yorkshire Bank, its customers and its employees?

The fact is they could actually be better off. NBNK’s main target is the 632 Lloyds branches that have to be sold to meet EU regulations.

The purchase of Yorkshire and Clydesdale banks would give NBNK a banking infrastructure plus 187 Yorkshire Bank branches and 152 Clydesdale Bank branches – a good springboard to absorb the 632 Lloyds branches.

It has widely been assumed that NBNK will keep its name if it did buy the Lloyds branches. But surely Lord Levene and NBNK would be bonkers not to cash in on the kudos that comes with the Yorkshire and Clydesdale names?

The 632 Lloyds branches could be converted to Yorkshire and Clydesdale branches. It has been proved that Clydesdale works best in Scotland and the South, while Yorkshire has a strong reputation in its heartlands and, although you may find it hard to believe, a strong and expanding following on the other side of the Pennines.

However this may be leaping too far ahead. Commentators have asked how NBNK, with a market capitalisation of just £45m, could pay for Yorkshire, Clydesdale and the Lloyds’ branches.

NBNK has an impressive list of investors, which include Invesco Asset Management, Aviva Investors Global Services, F&C Asset Management, BlackRock Investment Management (UK), JP Morgan Asset Management and UBS AG London.

According to those in the know, NBNK’s shareholders have made the necessary commitments to rustle up the £4bn needed to buy Clydesdale, Yorkshire and the Lloyds branches.

But one issue that has to be considered is what NAB decides to do.

Its group chief executive Cameron Clyne has stayed firmly on the fence, neither committing to the UK operations or committing to selling them.

NAB’s Australian investors have welcomed the news that NAB may sell its UK assets. NAB’s shares rose nearly four per cent on the announcement that NBNK had suspended trading on Tuesday as it is in talks with an unnamed bank.

Australian analyst Craig Williams at Citigroup summed up the feelings of Australian investors when he said that exiting the UK “would deliver a nice kicker for NAB”.

He added in a note to investors: “NAB management has classified its UK business as a ‘financial’ asset rather than a ‘strategic’ asset. It regards the UK banking market as clearly less attractive than its home markets.”

But a disposal wouldn’t be all plain sailing for NAB, the smallest of the big four Australian banks by market capitalisation.

Yorkshire and Clydesdale banks give NAB credibility as a global bank in funding markets.

While Australian investors may want an exit, funding markets might view NAB as somewhat parochial without its international reach.

One option is for NAB to keep a stake in the UK business and ride on the coat tails of the successes that NBNK and its coffers achieve.

Analysts at Oriel Securities said such a deal could be “attractive to NAB as it provides exposure to the UK via a listed entity which could be sold down over time”.

Bearing in mind all the options, this deal is far more complicated than it looks on the surface and it is far from being done.

Even if NBNK could raise the funds, NAB may still walk away.