Pension deficit is stumbling block in banks takeover bid

There was speculation over the weekend that the banks’ pension deficit – thought to be £200m or more – is proving the key stumbling block to plans by NBNK to launch a takeover bid for Yorkshire and Clydesdale.

Yorkshire Bank declined to comment on the reports, but said: “The UK management team is continuing to work through the strategic review to appropriately reposition our business mix and structure for the changed economic environment and to improve returns.

“We will inform the market on the outcomes of the review by the time of our interim result in May.”

It is understood that while Yorkshire Bank’s parent company National Australia Bank has held tentative talks with NBNK, nothing has come of them.

NBNK, keen to do a deal in the UK, could also launch a takeover attempt for the 600 branches that Lloyds has put up for sale if Lloyds’ takeover talks with buyer The Co-operative group fail to make headway.

National Australia Bank is under pressure from its Australian investors to sell Yorkshire and Clydesdale banks, even if it means swallowing a loss of up to £1.3bn.

Australian banks have performed considerably better than UK banks as Australia’s economy has strengthened over the past few years, in sharp contrast to Europe and the US.

Analysts have said Yorkshire and Clydesdale are too small, they have “no strategic value”, they drag down NAB’s earnings and face a wave of economic and regulatory pressure.

Last month National Australia Bank embarked on a strategic review of its UK arm.

Yorkshire, which trades as part of Clydesdale, reported deeper bad debts, driven by writedowns in its commercial property loanbook, worth around £6.2bn.

Bad debts at Yorkshire and Clydesdale were the main reason for a surge in impairment charges across National Australia Bank in its first quarter.

National Australia Bank chief executive Cameron Clyne has warned investors to expect a prolonged downturn in the UK.

NAB’s executive director for finance, Mark Joiner, recently said there is no need for a ‘fire sale’ of the banks.

“We would prefer to own the asset, raise the returns and exit a few years later, or IPO it. There are options,” he said.