Yorkshire Bank parent may move in for Lloyds branches

Lloyds was told on Monday by The Independent Commission on Banking it must sell more branches – with the City pointing to Yorkshire and sister company Clydesdale as a likely buyer.

Following speculation yesterday that National Australia Bank is keen to exit the UK once it has beefed up its operations, the group reiterated its commitment to the UK.

National Australia Bank’s chief executive Cameron Clyne said with regulators favouring “traditional banks”, it is looking closely at expansion in the UK.

“There is a lot of debate in the UK market at present about the future shape of the UK banking industry with a common theme being that the UK market would benefit from more traditional banks and more competition,” he said.

“This places our operations in a great position to capitalise on this sentiment.

“Our number one priority is and has always been to grow the business organically but in this climate it is also only natural that we would look at other options available to us.”

He went on to say that acquisitions will only be considered if they meet strict financial criteria, indicating that the bank is not willing to pay over the odds for the 600 to 1,000 branches that Lloyds has to sell.

Industry experts said NAB remains committed to expanding its UK business through acquisitions and organic growth.

“Saying it will exit the UK is a speculative step too far,” said one. “NAB is fully supportive of its UK business.”

NAB, Australia’s top lender, is in talks with a number of potential partners to jointly bid for the Lloyds branches.

These include NBNK Investments, a UK private equity financial investment fund, headed by Lord Levene, the chairman of Lloyds of London.

Industry experts said NAB is looking at all options, including buying the Lloyds branches on its own or going into partnership with another buyer.

If its bid for up to 1,000 Lloyds branches is successful, it could create a big player with roughly 13 per cent of the market, putting it on a par with Spanish bank Santander.

Only the Big Four – Lloyds, Royal Bank of Scotland, HSBC and Barclays – would be bigger.

Speculation emerged yesterday that NAB plans to spin off Yorkshire and Clydesdale Banks into a joint venture and wait for favourable market conditions before it gradually reduces its stake in the venture in three to four years’ time.

But industry experts said NAB is fully supportive of the UK business and believes it is well placed to capitalise on future growth in the UK once the economy picks up next year.

Australian investors have been pushing NAB to dispose of its UK operations, which are underperforming compared with its Australian banking interests, in order to boost the company’s share price.

While Yorkshire and Clydesdale have outperformed UK rivals thanks to their traditional banking model, the credit crunch has hit the UK economy far worse than the Australian economy. Lloyds, which is 41 per cent owned by UK taxpayers, was ordered to sell the 600 branches by European competition authorities following its controversial takeover of HBOS at the height of the banking crisis.

But this week The Independent Commission on Banking said it should sell more, with speculation that it could be forced to sell up to 1,000 branches.

Lloyds is lobbying hard against the need for more sales.

A decision will not be made until September.

There is a limited list of potential buyers for the 600 branches, partly due to a funding gap as loans outweigh deposits.

The sale of more branches could widen that gap.

Sources have said NAB’s chances of bidding alone are almost out of the question given the 600 branches up for sale could be worth nearly £3bn and the hefty funding gap could expose it to potential external shocks.

One source said that any delay to the process will give it time to line up a partner.

NAB’s current operations, which account for less than three per cent of the UK market, are considered too small to compete with Britain’s biggest banks.

Yorkshire and Clydesdale will announce annual results on May 5.

‘Mixed impact’ of proposals

Ratings agency Moody’s said the UK Independent Commission on Banking’s proposals will have a mixed credit impact on the UK banking system.

It said the proposals are one step in a process intended to create a safer banking system in the UK.

Moody’s vice president Elisabeth Rudman said: “While it is still too early to generalise, at this point we see both positive and negative implications for creditors of UK banks.”

Moody’s said the ability to resolve and unwind systematically important banks is an overarching theme and this issue continues to be a key driver in Moody’s assessment of risks.