NAB ‘right to resist firesale of problem-hit UK banks’

NATIONAL Australia Bank insisted it was right not to toss its Yorkshire Bank “problem asset” overboard in a “desperate firesale”.

The group has been under pressure to retreat from the UK by selling Yorkshire and Clydesdale banks, as they drag down the Australian lender’s performance.

But NAB said it was right to hold on to its UK arm, where a restructure is “well advanced”.

Hide Ad
Hide Ad

“The UK is clearly a problem asset,” said NAB chief executive Cameron Clyne to analysts.

“But there have been very, very limited options that we could have undertaken.”

NAB’s UK turnaround involves 1,400 job cuts and the closure of 29 business banking centres in the South as the banks’ retreat to their Northern and Scottish heartlands.

By the end of 2012 it had cut 1,079 full-time roles from its UK workforce, and plans recently emerged for another 130 job cuts from its wealth arm.

Hide Ad
Hide Ad

Yorkshire Bank is also merging its Leeds back office operations into one site at Merrion Way, closing its Brunswick Point office.

Yorkshire and Clydesdale’s £5.5bn commercial property book is also being run down by NAB.

“There’s no question that it would have made my life substantially easier to toss (the UK operations) overboard on January 1, 2009 – at great destruction of shareholder value,” said Mr Clyne, who became CEO in 2009.

He said a sale would have resulted in a “very substantial write-
down”. Instead NAB decided to take a long-term view of its UK operation, rather than rush to a “desperate firesale” which shareholders did not support.

Hide Ad
Hide Ad

“We will continue to manage the UK,” said Mr Clyne. “There may be a point that we cut, you know, and take some issue with the UK, but I don’t think it is practical.”

Earlier this year, Santander was said to be mulling a £2bn bid for NAB’s 337 Clydesdale and Yorkshire bank branches. Santander, which walked away from talks to buy branches from Royal Bank of Scotland, denied it was in talks with NAB.

“Obviously we are not as happy with all parts of the business as we could be. The UK continues to be a work in progress,” said Mr Clyne.

“What I’m particularly pleased about is that this management team did not take the short-cut option of trashing shareholder value and dumping the asset, but realised the long-term value is actually in trading that out to a position where we can actually get a better outcome for shareholders.”

Hide Ad
Hide Ad

NAB revealed its UK restructure in April last year, blaming it on Britain’s slow recovery.

At the time NAB said it had weighed up a number of options, including a big acquisition to bulk it up or an outright sale, but did not receive any concrete offers.

“We were not able to predict the second dip in the (UK) economy... nor were we able to predict a three-notch ratings downgrade and we took the best option available which is to restructure that business,” said Mr Clyne.

“The business is on a far more sustainable footing in a difficult operating environment.”

Hide Ad
Hide Ad

Yorkshire and Clydesdale’s ratings downgrade and weak profitability has forced NAB to repeatedly pump in capital, increasing their tier one capital position – a key measure of financial strength – to 11.5 per cent.

Asked when NAB will begin clawing back some of this capital, Mr Clyne said: “If you are in a business you’ve got to put capital to support it as much as you can... That’s just a fact of life.”

The UK operations are now about 90 per cent funded by retail deposits. Yorkshire and Clydesdale made a pre-tax loss of £183m for the year to the end of September 2012, but said this would have been a profit of £148m if the commercial property arm had been offloaded earlier.

The banks saw their bad debt charge more than double to £631m due to commercial property losses, which wiped out underlying profits of £448m.