NAB launches review of Yorkshire Bank

NATIONAL Australia Bank is set to restructure its UK operation after a rise in bad debt charges and sluggish growth.

NAB said it was starting a strategic review of its Yorkshire and Clydesdale brands, as it reported an eight per cent rise in first quarter cash profit, just shy of analyst expectations.

The UK banking operation was a key reason for the rise in NAB’s bad debts charge after several quarters of falls.

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“It’s very difficult to achieve book value in a divestment in the current environment, it would therefore seem unlikely that’s what the strategic review would seek near term,” Credit Suisse analyst James Ellis said, referring to a potential sale. “A business restructure seems more likely.”

NAB reported a cash profit of A$1.4 billion ($1.5 billion) for the three months ended December, up 7.7 per cent from A$1.3 billion a year ago, but just shy of a A$1.45 billion average forecast of five analysts polled by Reuters.

Cash profit, a measure that excludes one-offs and non-cash accounting items, is closely watched by investors.

NAB did not specify what it would focus on in the review except saying the aim was to lift returns. It can sell the business, valued by analysts at $4.5 billion at book value, or exit business lines or whittle down its portfolio. Another less likely option is to buy assets to make it bigger.

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Chief Executive Cameron Clyne said the review, due to be completed in May, would lead to changes.

“The review will assess many options and it’s still too early to determine the recommendation. We can say that retaining the existing business mix and structure will not be an outcome,” Mr Clyne told analysts in a conference call.

Late last year media reports speculated that NAB could sell its UK assets in a reverse takeover to British banking venture NBNK, which would in turn bid for the 630 Lloyds branches on sale.

Mark Joiner, NAB’s executive director of finance, said in late 2011 they would prefer to own the UK assets, raise returns and exit a few years later or look at IPO options.

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NAB’s UK assets have a 2-3 percent market share and are profitable, but are a drag on the group’s overall returns.

NAB, which has grown mortgages at nearly twice the industry rate, said higher deposit and funding costs were impacting its core Australian operations.

“Increased wholesale and deposit funding costs had a material effect on our financial performance this quarter, reducing our revenue by approximately A$80 million,” said Mr Clyne.

Yorkshire Bank was founded in 1859 in Halifax, West Yorkshire, and has 185 retail branches, while Glasgow-based Clydesdale, which was bought by NAB in 1987, has 152 outlets.

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The company employs 4,200 people in Scotland and Labour MP for Kilmarnock and Loudoun Cathy Jamieson urged the company to reassure workers.

She said: “Staff will be worried about what this means for jobs and careers and we need urgent clarification from the company on its intentions.

“The Clydesdale has a long and proud history in Scotland. I know the staff employed in the branch network and telephone operations in Scotland are highly valued by the company and they will want early reassurance.”

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