High Lloyds branch price tag ‘puts off’ Yorkshire Bank owner NAB

NAB, Australia’s biggest lender by assets, was considered a front runner for the Lloyd’s branches, ordered to be sold by the European regulator after being rescued during the credit crisis.

NAB, looking to become a meaningful player in the United Kingdom, is still interested in the assets and will keep a close eye on the process to see if terms turn more favourable for a bid, Reuters said, citing unnamed sources.

One source said NAB would be an aggressive buyer if the price was to drop by at least a fifth, if not more, and Lloyd’s took over some large loans to cut the funding gap.

Besides the price, the main sticking point is the $25bn gap between loans and deposits, and the risk involved in deploying such high capital when strict global capital rules are set to kick in, the source said.

“They have weighed the pros and cons of chasing the deal. At the moment cons are higher,” another of the sources said.

The sources declined to be named as they were not authorised to speak to the media.

The Lloyd’s deal was seen as an avenue for NAB to bulk up in the UK where it manages just over 300 branches.

A NAB spokeswoman when contacted referred to chief executive Cameron Clyne’s past comments on the deal when he said the bank would look at UK acquisitions only if they met its strict financial criteria.

The Lloyd’s branches on their own would create Britain’s seventh biggest bank or building society, with a 4.6 per cent share of the current account market.

But Mr Clyne is loathe to play a high risk game given his strategy to turnaround years of share price under performance by focussing on mortgages appears to be working.

A large deal would force NAB to raise equity just when new global capital rules requiring a larger share of high quality capital are around the corner, threatening to stretch its balance sheet.

Mr Clyne’s plan is to wait and see if terms change if interest wanes in the deal in order to stage an entry on his terms, the sources said.

While potential interest has been high, so far only banking acquisition vehicle NBNK and Co-Op Bank are understood have made offers.

Virgin Money and Resolution, the takeover specialist group founded by insurance entrepreneur Clive Cowdery, have also been in talks with Lloyds but have not committed to a formal bid.

The sources said NAB was still looking at a joint bid approach for the deal, though it was yet to finalise a partner.

Under the joint venture plan, NAB would spin off its existing operations into the joint venture in the hope of exiting in a few years when valuations are attractive.