Legacy of the past continues to cast shadow at Yorkshire Bank

Yorkshire Bank returned to profit last year, helped by a deep restructuring programme and lower bad debts, but the legacy of past misdeeds continues to cast a shadow over its recovery.

The Leeds-based lender and sister brand Clydesdale increased the provision for payment protection insurance by £130m to £152m in the year to September 2013.

The bank took a £104m hit to cover mortgage payment irregularities and the mis-selling of interest rate hedging products and credit card protection among other matters.

David Thorburn, chief executive, said: “It’s clear we haven’t left the past behind entirely.”

The Yorkshire Post asked him if anyone at the bank has taken responsibility for the mis-selling of products to businesses and households and the attempt to cover up mistaken mortgage payment calculations.

Mr Thorburn said: “Last year when most of these issues were known, though to some extent are crystalising this year, we took the view across the board in the bank we wouldn’t pay bonuses.

“That in its broadest sense was us taking responsibility.”

He added that there may need to be “further accountability from myself down” if the review into the sale of interest rate hedging products raises further concerns.

Mr Thorburn said the review will reveal how the bank handled its customers and how it designed its products.

He is the former deputy to Lynne Peacock, who was chief executive of National Australia Bank’s UK operations from 2003-2011.

Asked what personal responsibility he felt for mis-selling, he said: “I feel really sorry that we have found ourselves in this situation.

“If you look at the mortgage errors... I went out of our way to apologise. The construct of the redress scheme for our customers went well beyond what the regulator required us to do, so I did my very best to put things right for our customers and apologised for any concerns or inconvenience caused to them.

“Anything of this nature is not good for our reputation as a bank, as an industry or for someone like myself who has spent their whole career in it.”

Asked if he has considered resigning, he said: “No. What I’m focusing on is trying to put this right.”

National Australia Bank said its UK subsidiary reported pre-tax cash earnings of £127m last year, reversing a loss of £183m the previous year. The charge for bad and doubtful debts fell £473m to £158m.

Mr Thorburn said the restructuring programme, which includes the axing of 1,400 jobs, was the main driver of the UK operation’s return to profitability.

“We also have the tailwind from an improving economic environment, which is very helpful,” he added.

“What we are seeing now in both geographies across our banking business and also our retail business is an improvement in asset quality, a reduction in bad debts and a pick-up in demand for lending.

“It’s more noticeable in some product lines more than others – you can see it in mortgages – but also in our business lending pipeline is starting to pick up.

“We can see it start to flow through our business right across the board.”

Cameron Clyne, the group chief executive in Australia, said “pleasingly” the run-off of UK commercial property loans continued during the year.

The quarantined loan book now stands at £4bn, a reduction of £1.6bn since the transfer to NAB’s balance sheet a year ago.

Mr Clyne noted “further progress against the UK restructuring agenda, combined with some improvement in the UK economic environment, has supported a better operating performance”.

The wider group’s full-year cash earnings rose 9.3 per cent to a record high, boosted by earnings growth in all its banking businesses and a lower charge for bad debts.

Australian investors have long-complained that NAB’s earnings potential has been constrained by its struggling UK businesses.

David Ellis, an analyst at Morning Star, said: “Unfortunately, NAB is no closer to exiting the UK.

“The underlying business is improving, with net margins up from 2.06 per cent at March 2013 to 2.19 per cent at September. Asset quality is improving. But so-called ‘conduct issues’ continue to plague the bank.”

He added: “Fortunately, these ‘conduct issues’ are very rare in Australia. The banks are relatively good corporate citizens.”

Commentators are speculating that compensation payouts for mis-selling by UK banks could top £20bn.

Turnaround mission almost complete

YORKSHIRE Bank has completed most of its turnaround a year ahead of schedule, said chief executive David Thorburn.

National Australia Bank has spent £175m in the restructuring of its UK operation.

It has invested heavily in new technology, including mobile banking, and marketing over the last year.

Mr Thorburn said: “A really important part of the plan over the last 18 months has been to put the business on a better footing and to grow it.

“We have got the change behind us, we are keen to grow our business and we are keen to play a part in the local community.”

He said an increase in lending is an important part of the UK operation’s cash plans.

“Yorkshire and Clydesdale are a balance of business and retail banking. That balance I see is a strength of the business and gives us diversification.”