Overhaul paying off at Yorkshire Bank

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YORKSHIRE Bank is on the mend, with owner National Australia Bank reporting improved earnings and lower bad debts in its UK operations.

David Thorburn, UK chief executive, said Yorkshire and Clydesdale banks have made “good progress” since April when NAB announced a deep restructuring of the UK business.

He said: “The restructuring continues to gather momentum and, while there is still much more to be done, our clear focus remains on further strengthening the business through a simplified business model built on our traditional strengths.”

NAB axed 500 jobs during the three months ending December, mainly at Yorkshire and Clydesdale, as part of the restructuring. It plans to cut 1,400 in total in the UK.

The UK business has also transferred a £5.6bn commercial property loan book to its Australian parent. NAB said the portfolio reduced by £300m during the first quarter, which has been attributed to loans reaching maturity or exits from customers transferring to other lenders.

NAB reported lower bad debts in the commercial property book with a slowing down of the number of loans showing signs of distress.

In a first quarter trading update yesterday, group chief executive Cameron Clyne said he is pleased with the progress in the UK. He has been under pressure from Australian investors who blame Yorkshire and Clydesdale banks for dragging down group profits.

Mr Clyne said: “Restructuring in the core UK banking business is proceeding well with lower costs, an improving funding mix and closure of all 38 targeted Financial Solutions Centres.”

NAB said cash earnings from the UK banks improved in the quarter, largely due to lower bad debts. Operating expenses were also lower.

NAB added that lending volumes were broadly stable with mortgage growth offsetting lower business lending. The group reported unaudited cash earnings of $1.45bn, up four per cent on the quarterly average in the six months to September 2012, while revenues increased by 3 per cent, driven by a strong performance in wholesale banking and expanded customer margins.

Mr Clyne said: “NAB delivered a stronger result for the period, reflecting the underlying strength of its core Australian business and improved earnings in the UK.

“This is a pleasing result, especially given operating conditions remain challenging both in Australia and the UK, notwithstanding recent improvements in financial markets.”

Yorkshire and Clydesdale slumped to a worse than expected statutory loss of £470m in the last financial year. Their improving fortunes is leading to renewed speculation about their future.

Mr Clyne told shareholders in December that the banks are “lower risk and better capitalised”, but said a “patient approach” is needed towards the assets.

Citigroup last month upgraded NAB stock to ‘buy’ from ‘neutral’. Analysts said: “An exit of NAB’s remaining UK retail banking business at closer to book value has become more viable recently.”

Another option would be to float the operations, which could allow shareholders to benefit in more ways than a straight sale.

A report from Credit Suisse said an initial public offering could add between $1.5bn and $4bn to NAB’s market capitalisation and create a UK plc with a stock market value of $3bn.